All posts tagged energy


Net Zero? Not Yet. Africa Must Fight Energy Poverty with Oil and Gas Development

By NJ Ayuk, President, African Energy Chamber

On May 18, 2021, the International Energy Agency (IEA) released “Net Zero by 2050: A Roadmap for the Global Energy Sector,” which outlines plans for the global energy sector to reach “net zero” greenhouse gas emissions by 2050.

Achieving net zero emissions means the amount of greenhouse gases being emitted into the atmosphere would equal the amount being removed. Achieving this balance, the IEA maintains, would require more than aggressive carbon-capture measures: It would call for a swift and immediate shift from petroleum energy sources to energy provided through naturally replenished sources like wind, water, and solar power. 

From an environmental standpoint, this is a great concept. 

But we live in reality. And today, in real-world Africa, this goal is not feasible. Nor is it advisable. While I agree with their data on many topics, the IEA’s conclusion is flat-out wrong on this issue. Africa needs oil and gas.

Unreasonable Objectives

Some of the critical steps in IEA’s roadmap include:• No new investment in new fossil fuel supply (including oil and gas) after 2021• No new sales of fossil fuel boilers after 2025• No new internal combustion engine (ICE) car sales after 2035 globally• 60% of car sales are electric by 2030, and 50% of heavy truck sales are electric from 2035.

These steps assume a lot about the state of the world — assumptions that are faulty, especially for Africa. For one, it will require universal energy access by 2030, meaning that everyone has access to electricity and clean cooking. And with approximately 592 Million Africans currently without this access, we’re going to be hard-pressed to flip that switch in less than 10 years.

The IEA’s roadmap to net zero also relies on unprecedented investments in renewables — a substantial boost in clean energy investments from the $1Trillion made over the last five years all the way up to $5Trillion annually by 2030 — and cooperation from policymakers who are unified in their efforts. In this idyllic partnership, our Western counterparts talk a good game. But the fact is, to date, these same Western countries have invested little to no funding into Africa’s renewables space. To our dismay even the International Oil Companies that have tried to accept the IEA’s publicity stunt have little or no renewable projects in Africa.

“For many developing countries, the pathway to net zero without international assistance is not clear,” OPEC wrote in response to IEA’s roadmap release, issuing a “critical assessment” on the very same day. “Technical and financial support is needed to ensure deployment of key technologies and infrastructure. Without greater international co‐operation, global CO2 emissions will not fall to net zero by 2050.”

As I have stated in the past, demonizing energy companies is not a constructive way forward, and ignoring the role that carbon-based fuels have played in driving human progress distorts the public debate. We cannot expect African nations, which together emitted seven times less CO2 than China last year and four times less than the US, according to the Global Carbon Atlas, to undermine their best opportunities for economic development by simply aligning with the Western view of how to tackle carbon emissions.

Creating New Problems

China, meanwhile, appears willing to continue investing in fossil fuel projects in Africa. This means that to keep their nations energized, African governments will have little choice but to partner with China — whose performance is notoriously poor when it comes to environmental protection, despite having signed the Paris climate accord. In this scenario, China will become the most influential entity in the African oil and gas industry. And giving China (or any foreign entity) such a monopoly is a dangerous play.

For the IEA plan to work, no new oil and natural gas fields would be developed. The potential energy security risk here is twofold: Concentrated production means that demand will exceed the supply of traditional fuels, while new energy security issues emerge related to the new technologies such as cybersecurity and a dwindling supply of rare earth and critical minerals. And energy insecurity brings economic insecurity and geopolitical instability.

At the same time, a ban on fossil fuel production would bring about the collapse of many carbon-dependent governments. The oil industry is the primary source of income for many African nations. Without the continuation of petroleum production — or time and opportunities to cultivate new revenue sources — their economies will suffer — along with their citizens.

Interestingly, the very announcement of this roadmap features an admission by IEA Executive Director Fatih Birol that net zero will unhinge socioeconomic structures. 

“This gap between rhetoric and action needs to close if we are to have a fighting chance of reaching net zero by 2050 and limiting the rise in global temperatures to 1.5 °C. Doing so requires nothing short of a total transformation of the energy systems that underpin our economies,” Birol wrote.

And many of the world’s economies cannot bear this.

Excellent Points from Australia

Energy officials from Australia, for example — incidentally, one of the IEA member countries —  had plenty to say in response.

“There are many ways to get to net zero, and the IEA just looked at one narrow formula,” said Australian Petroleum Production and Exploration Association chief Andrew McConville. “The IEA report doesn’t take into account future negative emission technologies and offsets from outside the energy sector — two things that are likely to happen and will allow vital and necessary future development of oil and gas fields.”

In urging policymakers to maintain a degree of skepticism about the wisdom of the IEA roadmap, McConville isn’t alone.

“We are bringing emissions down,” stated Angus Taylor, Australia’s Minister for Energy and Emissions Reduction, “but we’re going to do it in a way that ensures we’ve got that affordable power that Australians need.” 

Rather than being dictated to by entities abroad, Taylor argued that Australia must proceed at a pace that makes sense locally. And part of these local considerations includes ensuring that people have energy and jobs. The IEA’s call to cease investment in fossil fuels will impede both of these metrics.

“Global gas demand is forecast to grow by 1.5% on average per year out to 2025, providing incentive to ensure our large gas fields … are developed as soon as possible,” said Keith Pitt, Minister for Resources. “Large upcoming offshore developments … will create thousands of new high-wage jobs.”

Africa’s Realities

The same holds true for African countries.

While environmental causes are a major focus in the West, lawmakers in Africa’s developing countries are more concerned with living wages and supplying basic necessities to the continent’s growing population.

The IEA plan amounts to austerity measures that would see Africans leaving petroleum resources in the ground. It would essentially brand poor African criminals — or at the very least enemies of the environment — for using fossil fuels.

This is folly. Let’s keep in mind the critical role that natural gas is playing in the global transition to clean energy: It’s an affordable and reliable bridge to renewables. And natural gas is particularly important to Africa. As I’ve written in the past, the African Energy Chamber’s 2021 Africa Energy Outlook report projects that African gas production and consumption are going to rise in the 2020s. As a result, Africa’s natural gas sector will soon be responsible for large-scale job creation, increased opportunities for monetization and economic diversification, and critical gas-to-power initiatives that will bring reliable electricity to more Africans. These significant benefits should not be dismissed in the name of achieving net zero emissions on deadline. To tell African countries with gas potential like Mozambique, Tanzania, Equatorial Guinea, Nigeria, Senegal, Libya, Algeria, South Africa, Angola and many others that they can’t monetize their gas and rather wait for foreign aid and handouts from their western counterparts makes no sense.

What’s more, we can’t overlook the fact that renewable energy solutions are still young technologies —they are less reliable -and achieving net zero by 2050 would require widespread adoption of technologies that are not even available yet.

Don’t get me wrong: I understand the importance of working toward renewables. I believe they are the future of the energy industry. But the global energy transition must be inclusive, equitable, and just. Unfortunately, the roadmap laid out by the IEA is none of these.

The IEA is a respected institution whose opinions help shape the rhetoric of the global energy market. So instead of mandating these strict guidelines from abroad, the IEA should try working with African countries to find solutions that we can actually abide. At the very least, I encourage the IEA to consider partnerships with African Private sector and financial institutions, whose collaboration with indigenous and international energy stakeholders provides invaluable insight from all sides across the energy industry. The IEA should use its voice to push for what I have always believe Africa needs the most at this time,  free markets, personal responsibility, less regulation, low taxes, limited government, individual liberties, and economic empowerment will boost African energy markets and economies.

Africa deserves the chance to capitalize on its own oil and gas to strengthen itself, rather than being bullied onto a path determined by Western institutions that don’t face the same obstacles. We must be able to improve our energy sector by exploring our continent’s full potential in a way that benefits our people.


Why the Big Oil Class of 2021 Flunked Energy Transition 101

By Gerard Kreeft

 

 

 

 

 

 

With the  end of the school year  students are eager to hear the results of how they fared. Unfortunately, I have only bad and worse news for my Big Oil Energy Transition Class 101.No one passed. Everyone failed. And in some cases failed  miserably. How did this happen?

Energy Transition Class 101 has a very straight forward goal.  It is focused on the two energy scenarios developed by the International Energy Agency (IEA): • Stated Policies Scenario(SPS) is geared for the short to medium term; and • Sustainable Development Scenario(SDS) for medium to long term.  

The SDS scenario,  the “Well Below 2 °C “is the benchmark that determines whether course participants pass or fail. 

Unfortunately no one passed. Some will get a positive mention to encourage their green activities, others will be reprimanded in private, but given the disastrous results, a public rebuke is necessary.

In The Energy Transition Class 101 SDS scenario,  the “Well Below 2 °C”   benchmark was key for energy company participants to help understand the steps required to ensure an orderly, low-carbon,energy transition.

The Energy Transition Class 101 went a step further and took on board the Wood Mackenzie’s Accelerated Energy Transition scenario (AET-2),which assumes the world is on course for near 3 °C warming because of renewed energy demands and the challenge of reducing CO2 emissions.

According to Wood Mackenzie: “The AET-2 scenario is based on the Intergovernmental Panel on Climate Change carbon budget allocation for the next eight decades, to 2100. It sets out our view of how the world can limit the average rise in global temperatures to 2 °C, compared with pre-industrial times, examining potential policy drivers, cost reductions and technological innovations. Electrification and low-carbon fuels are central to meeting the 2 °C limit. We estimate that electricity meets 47% of total final energy consumption globally in 2050, compared with 20% today. Three key assumptions underlie our AET-2 scenario:

• rapid electrification in all sectors; • the decarbonisation of the power sector through the penetration of  renewables and storage and coal-to-gas switching ;

• the large-scale development of carbon capture and storage (CCS) and carbon capture, utilisation and storage (CCUS) – 5Billion tonnes (Bt) by 2050 – and low-carbon hydrogen – 380Million tonnes (Mt) by 2050 – in hard-to-decarbonise sectors.”

AET-2 has massive implications for oil and gas demand in 2050: 70% lower than today. From 2023 onward oil demand drops with year-on-year fall of around 2Million barrels per day (2MMBOPD). Total oil demand by 2050 is down to 35MMBOPD. 

Natural gas demands, in contrast, remains resilient to about 2050. Large scale CCS in the industrial and power sectors will support gas while the deployment of blue hydrogen (135Mt by 2050) is a growth sector. Growth will come primarily from Asia, especially China and India.

Under AET-2, the assumption is that as many as 80% of new vehicles sold are electric, either battery-driven or hybrid. Heavy transport- ships and trains- are electric or hydrogen driven. Non-combustion liquid petrochemical demand for plastics is damped by higher rates of recycling. 

Wood Mackenzie’s AET-2’s scenario draws the following conclusions:• World needs no new supply of oil…”core function is to maintain current commercial production by going into full harvest mode”…• Market power slips  from OPEC to giant gas producers such as USA, Russia and Qatar.• Downstream suffers death by a thousand cuts. By 2050 the refining sector will have withered to 1/3 of its current capacity with less than 150 of the current sites in operation.• Era of carbon-neutral gas is born. AET-2 would require $300Billion to support Liquified Natural Gas growth globally and $700Billion to support dry gas development in North America. Blue hydrogen and ammonia emerge as new market products.• Currently no International Oil Company nor National Oil Company is prepared for the scale of decline envisaged in this scenario.

To protect the guilty and more vulnerable my analysis of The Energy Transition Class 101 will be limited to two candidates- Shell and TOTAL-  who have at least shown some potential  green promise.

Shell

According to The Australasian Centre for Corporate Responsibility(ACCR),  Shell states in general terms that it is aligned to meet CO2 neutrality by 2050, but has no defined number for the medium term in 2030. This is a 30% increase (pre-abatement) or a decrease of 30%. A difference in absolute terms compared tothe equivalent of Germany’s carbon footprint.

Shell has committed, by 2030, to decrease the intensity of its emissions by 20% (energy business only) and reposition its business away from oil, towards gas and chemicals,  renewables and marketing.

Gas production will be expanded by 20% by 2025 as well as increases in renewable electricity and Electrical Vehicles(EV) infrastructure, biofuels and hydrogen(blue and green).

ACCR states that Shell plans to use 120 Mt nature based solutions per year by 2030 and 25 Mt CCS per year by 2035. This amount of nature based solution is greater than the size of voluntary offset traded in 2019 (104 Mt) and equals to a non-conifer forest the size of Washington state(needed to be mature by 2030).

Shell’s CCS ambitions are similarly difficult. Today there is 40 Mt of operational CCS globally and only 15% geologically, mostly attributed to Shell’s Gorgon JV, which is currently not working.

If Shell had implemented its CCS and nature based solutions in 2019 it could have provided 50% reduction of Shell’s required CO2 emissions. According to ACCR “Shell will not reach the carbon intensity under Transitions Pathways Initiative 2°C for oil and gas missing the 2030 target by 32%”.

TOTAL

TOTAL is now pledging to reduce the average carbon intensity of energy products – Scope 1, Scope2 and Scope3 – used by its customers worldwide, by 20% in2030, an increase from 15%. This indicator would have to fall by 75% to be consistent with a 2°C target, and by 90% for a target of less than 2°C.

Scope 1 – All Direct Emissions from the activities of an organisation or under their control. Including fuel combustion on site such as gas boilers, fleet vehicles and air-conditioning leaks.

Scope 2 – Indirect Emissions from electricity purchased and used by the organisation. Emissions are created during the production of the energy and eventually used by the organisation.

Scope 3 – All Other Indirect Emissions from activities of the organisation, occuring from sources that they do not own or control. These are usually the greatest share of the carbon footprint, covering emissions associated with business travel, procurement, waste and water.

TOTAL will by 2030 only cut in Scope 3 Emissions in Europe to 30% and by 2050 to zero. The fly in the ointment is that TOTAL is simply exporting its remaining Scope 3 Emissions to  the rest of the world, including Africa, thus creating a two-tiered emissions system.

TOTAL states that it plans to increase its energy production from 3 to 4MMBOEPD by 2030, with half of that growth coming from gas, and oil likely to remain close to its current level. That means that gas production could increase by 30% by 2030. 

These plans are  at odds with Carbon Tracker’s Index (CTI) finding that Total must achieve a minimum 35% reduction in fossil fuel production by 2040 compared to 2019 levels, in order to stay within the IEA’s “Beyond 2 Degrees Scenario” (B2DS). 

Yet in spite of the predicted increase in oil and gas production, another important change was taking place. In the summer of 2020, TOTAL wrote off a $7Billion impairment charge for two Canadian oil sands projects. This might have seemed like an innocuous move, merely an acknowledgement that the projects hadn’t worked out as planned.

It opened a Pandora’s box that is changing the way the industry thinks about its core business model—and point the way towards a new path to financial success in the energy sector.

While it wrote off some weak assets, it did something else: Total began to sketch a blueprint for how to transition an oil company into an energy company. For the first time a major oil company translated its renewable energy portfolio into barrels of oil equivalent. Patrick Pouyanné, Total’s chairman and chief executive, now says that by 2030 the company “will grow by one-third, roughly from 3MMBOEPD (Barrels of Oil Equivalent per Day) to 4MMBOEPD, half from LNG, half from electricity, mainly from renewables.” 

At the same time that the company has slashed “proved” oil and gas from its books, it has added renewable power as a new form of reserves. Proved reserves long stood as the Holy-of-Holies for the oil industry’s finances—the key indicator of whether a company was prepared for the future. For decades, investors equated proved reserves with wealth and a harbinger of long-term profits. 

Because reserves were so important, the Reserve Replacement Ratio, or RRR—the share of a company’s production that it replaced each year with new reserves—became a bellwether for oil company performance. The RRR metric was adopted by both the Society of Petroleum Engineers and the USSecurities and Exchange Commission. An annual RRR of 100% became the norm. Adding reserves doesn’t necessarily mean adding value.

But TOTAL’s write-off showed that even “proved” reserves are no sure thing, and that adding reserves doesn’t necessarily mean adding value. The implications are devastating, upending the oil industry’s entire reserve classification system, as well as decades of financial analysis.

How did TOTAL reach the conclusion that “proved” reserves had no economic value? Simply put, reserves are only reserves if they’re profitable. The prices paid by customers must exceed the cost of production. Given current forecasts that prices would remain lower for longer, TOTAL’s financial team decided those resources could never be developed at a profit.

A similar scenario could play out with TOTAL’s remaining oil and gas projects. If driven by shareholder activism, more projects could become earmarked as stranded assets. Which could act as a catalyst to accelerate Total’s renewables portfolio. The planned expansion to 35 GW by 2025, and 100 GW by 2030 could become the start of a robust campaign to embrace renewables at an even quicker pace.

This has huge ramifications for Africa which has long been a rich source of cash flow for the company. In 2019 the continent generated around $10Billion of TOTAL’s $26Billion cash flow from operations, and 30% of its oil and gas production (900,000 barrels of oil equivalent per day).

If TOTAL, through increased shareholder activism, takes on more renewable energy, this could have a profound effect on Africa’s  renewable energy journey.

Conclusions

Perhaps in 2050 the Energy Transition Class 101will look back with nostalgia and smile about the challenges that the Class of 2021 faced. Will the more  than 2°C challenge have been met?  Perhaps the basis of fairy tales  told to youngsters as bedtime stories by their grandfathers. Perhaps Grampa was a Member of the Class of 2021 that flunked. 

Note: My thanks to Carbon Tracker, The Australasian Centre for Corporate Responsibility(ACCR),  Institute for Energy Economics and Financial Analysis (IEEFA),Reclaim Finance, and Wood Mackenzie.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report.

 


Chinese Company to Manufacture 1,000MW Capacity Solar Plant in South Africa

By Sully Manope, in Windhoek

Shangai based LONGi Solar, is partnering with ARTsolar, a South African manufacturer based in Durban, to launch a new, state-of-the-art, 500 MW per year, solar PV panel assembly facility.

The plant is expected to commence assembly and stockpiling of panels in August 2021, for delivery starting in the first quarter of 2022.

A second 500 MW capacity assembly line is planned to follow shortly after the first commences operation, bringing ARTsolar’s new capacity to 1,000MW (1 GW) per year.

ARTsolar, an 11-year-old, 100% South African-owned company, currently runs a PV panel production line designed for a capacity of 300 MW a year. But the plant has struggled in the last five years, operating significantly below this level, largely due to the halt of the country’s renewable energy bid programme between 2015 and 2019.

The partnership between LONGi Solar and ArtSolar is, however, enabled by the return of the South African government to the renewable energy space. On March 19 2021, Gwede Mantashe, Minister of Energy, announced preferred bidders for the Risk Mitigation IPP Procurement (RMIPPP) programme, which alone will require some 2,2Million solar PV panels with a total capacity of about 1300 MW for delivery of power into the grid by the end of August 2022. To achieve this ambitious target, the projects must reach financial closure by the end of July 2021.

Two more procurement rounds of green energy from solar PV projects, each with a capacity of 1000 MW, are expected to commence in 2021, facilitated by the IPP Office of the Department of Mineral Resources and Energy for South Africa’s Renewable Energy IPP Procurement (REIPPP) programme in terms of the national Integrated Resource Plan for electricity, IRP 2019.

LONGi, a Tier 1 solar PV manufacturer listed on the Shanghai stock exchange, supplies more than 30 GW of high-efficiency solar wafers and PV panels worldwide annually, which comprises about a quarter of global market demand.

LONGi and ARTsolar have ambitions to be the major supplier of locally made solar PV panels for the RMIPPP and REIPPP programmes, and for subsequent procurements of solar power in South Africa and the region, for mainly utility-scale PV power plants.

 


Egypt’s 200MW Solar Plant Gets $114Million Financing Package

A consortium of financiers have signed a $ 114Million financing package with a Saudi energy developer for the construction of the largest private solar plant in Egypt.

The European Bank for Reconstruction and Development (EBRD), the OPEC Fund), the African Development Bank (AfDB), the Green Climate Fund (GCF) and Arab Bank on April 22, 2021 signed the funding package with ACWA Power, owned by Saudi businessmen and focused on solar projects in North Africa and the Middle East.

EBRD will provide the largest chunk of the financing, with up to $36Million in contribution. $ 23.8Million is expected from the GCF; the OPEC Fund contributes $18Million; $18Million from Arab Bank and the AfDB $ 17.8Million. Equity bridge loans of up to $14Million are coming from fEBRD with $ 33.5Million of similar facility from Arab Petroleum Investments Corporation.

The development of the Kom Ombo solar plant will add 200 MW of energy capacity, increasing the share of renewable energy in Egypt’s energy mix and further promoting private-sector participation in the Egyptian power sector.

The new Kom Ombo plant will be located less than 20 km from Africa’s biggest solar park, the 1.8 GW Benban complex. Once operational, the new utility-scale plant will serve 130,000 households.

ACWA Power submitted the lowest tariff in what was the first solar photovoltaic (PV) tender in Egypt. The provision of solar energy through a public tendering process aims to achieve a competitive tariff and promote the growth of solar energy as an affordable alternative to conventional energy sources.

Private-sector participation in the Kom Ombo project is the result of successful policy dialogue with the Ministry of Electricity and Renewable Energy and the Egyptian Electricity Transmission Company (EETC), as well as a $3.6Million technical assistance programme, co-funded by the EBRD and the GCF, to support the EETC in administering competitive renewable energy tenders. In addition, the project has also benefitted from broader energy-sector reforms supported by the AfDB in recent years to scale up the involvement of the private sector.

The Kom Ombo plant will contribute to the Egyptian government’s target to generate 42 per cent of the country’s electricity from renewable energy sources by 2035 while delivering one of the lowest generation tariffs on the continent.

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The Gathering Storm: When the Going gets Tough, the Tough get Going!

By Gerard Kreeft

 

 

 

 

 

 

 

 

Three contrasting visions are discussed:

  • Citibank’s review of falling oil reserves for the oil majors
  • Europe’s emerging hydrogen economy and
  • Wood Mackenzie’s AET-2 energy scenario for the end of the 21st century.

Citibank’s  recent report “Falling IOC Reserves A Looming Challenge” states that the International Oil Companies (IOCs) have seen their average reserves of oil decrease by 25% since 2015.

Citi said there were two clear groups forming across the oil sector, with six IOCs tightly grouped around reserve life of around 10.5 years. They are: TOTAL, BP, Chevron, ENI, ConocoPhillips and ExxonMobil. There are three IOCs in another group (Repsol, Equinor and Shell) which have reserves of around eight years.

While this may make good headlines it  is also an indication how little the underlying energy transition is understood. Firstly, it is rather surprising that Citibank should publish such naive utterances and this from a bank that  professes to have a semblance of understanding the basic tenents of the energy transition.

Secondly, what is also surprising is that the financial press have picked up on this story and repeat in chorus what Citibank has told us:  oil company reserves are down. Woe be me!

A small history lesson to better understand the shortcomings of the Citibank report.

Given the extreme importance to understand the profound implications for the oil and gas sector, a portion of the USA-based Institute for Energy Economics and Financial Analysis (IEEFA) ’s explanation and analysis  is discussed.

In short, how the Society of Petroleum Engineer’s Classification System has come to lie in ruins:

 ”In the summer of 2020, French oil and gas giant TOTAL SE announced a $7Billion impairment charge for two Canadian oil sands projects. This might have seemed like an innocuous move, merely an acknowledgement that the projects hadn’t worked out as planned.( https://ieefa.org/ieefa-is-oil-giant-total-an-emerging-leader-of-the-energy-transition-shows-how-to-pivot-from-an-oil-company-to-an-energy-company)

“Yet it opened a Pandora’s box that could change the way the industry thinks about its core business model—and point the way towards a new path to financial success in the energy sector.”

“While it wrote off some weak assets, it did something else: TOTAL began to sketch a blueprint for how to transition an oil company into an energy company.  A major has translated its renewable energy portfolio into barrels of oil equivalent”. Patrick Pouyanné, TOTAL’s chairman and chief executive, now says that by 2030 the company “will grow by one-third, roughly from 3Million BOE/D (Barrels of Oil Equivalent per Day) to 4Million BOE/D, half from LNG, half from electricity, mainly from renewables.”

“This is the first time that any major energy company has translated its renewable energy portolio into barrels of oil equivalent. So, at the same time that the company has slashed “proved” oil and gas from its books, it has added renewable power as a new form of reserves.”

 Writing off reserves

“Each of the oil and gas majors spilled red ink last year, and most took significant write-downs. But TOTAL’s tar sands impairments were different. The company wrote off “proved reserves,” or oil and gas that the company had previously deemed all-but-certain to be produced.”

“Proved reserves long stood as the Holy-of-Holies for the oil industry’s finances—the key indicator of whether a company was prepared for the future. For decades, investors equated proved reserves with wealth and a harbinger of long-term profits.”

“Because reserves were so important, the Reserve Replacement Ratio, or RRR—the share of a company’s production that it replaced each year with new reserves—became a bellwether for oil company performance. The RRR metric was adopted by both the Society of Petroleum Engineers and the U.S. Securities and Exchange Commission. An annual RRR of 100% became the norm.”

“But TOTAL’s write-off showed that even “proved” reserves are no sure thing, and that adding reserves doesn’t necessarily mean adding value. The implications are devastating, upending the oil industry’s entire reserve classification system, as well as decades of financial analysis.”

“How did TOTAL reach the conclusion that “proved” reserves had no economic value? Simply put, reserves are only reserves if they’re profitable. The prices paid by customers must exceed the cost of production. Given current forecasts that prices would remain lower for longer, TOTAL’s financial team decided those resources could never be developed at a profit.“

“TOTAL’s renewable investments will add ballast, keeping it afloat.

The company hasn’t abandoned oil and gas, and its hydrocarbon investments may prove problematic over the long term. But its renewable investments will add ballast to the company’s balance sheets, keeping it afloat as it carefully chooses investments, including oil and gas projects, with a high economic return.”

“Meanwhile, its competitors that stick to the old oil industry business model will have no choice but to continue to develop hydrocarbons—even if their “proved” reserves ultimately prove to be financial duds.”

Europe’s Hydrogen Backbone

A new business model is already in the make. By 2040 Europe could devote 40,000 km (24,800 miles) of natural gas pipelines to hydrogen  once production and imports become fully implemented.

Daniel Muthmann, head of corporate development, strategy, policy and communication at Open Grid Europe(OGE), stated at a recent webcast “that it is technically possible and economically feasible to use the existing gas infrastructure to create this hydrogen backbone”. The European Hydrogen Backbone study is supported   by 23 gas infrastructure companies from 21 European countries.

 On the road to decarbonisation, European policymakers aim for the region to produce, transport and market green hydrogen from renewable energy via electrolysis to replace “grey” hydrogen from gas, and to substitute oil products across manufacturing industries and in heating and transport.

Costing could be more than $50Billion. Approximately 70% of the proposed hydrogen network would consist of upgraded natural gas pipelines; the remaining 30% would be needed to connect future hydrogen consumers in countries with currently few gas grids, but foreseeable high hydrogen demand and production.

 The Copernican revolution

Wood Mackenzie has just released an  accelerated energy transition scenario (AET-2) to 2050:  “ the energy market would be progressively electrified and the most polluting hydrocarbons squeezed out. Prices would come under pressure as demand falls and, in a ‘Copernican revolution’, the traditional relationship between oil and gas prices would be turned upside down.”

According to Wood Mackenzie the AET-2 scenario the world is on course for near 3 °C warming because of renewed energy demands and the challenge of reducing CO2 emissions.

“The AET-2 scenario is based on the Intergovernmental Panel on Climate Change carbon budget allocation for the next eight decades, to 2100. It sets out our view of how the world can limit the average rise in global temperatures to 2 °C compared with pre-industrial times, examining potential policy drivers, cost reductions and technological innovations. Electrification and low-carbon fuels are central to meeting the 2 °C limit. .. we estimate that electricity meets 47% of total final energy consumption globally in 2050 compared with 20% today. Three key assumptions underlie our AET-2 scenario:

  • rapid electrification in all sectors;
  • the decarbonisation of the power sector through the penetration of renewables and storage and coal-to-gas switching ;
  • the large-scale development of carbon capture and storage (CCS) and carbon capture, utilisation and storage (CCUS) – 5 billion tonnes (Bt) by 2050 – and low-carbon hydrogen – 380 million tonnes (Mt) by 2050 – in hard-to-decarbonise sectors.

AET-2 has massive implications for oil and gas demand in 2050: 70% lower than today. From 2023 onward oil demand drops with year-on-year fall of around 2 million barrels per day (bpd). Total oil demand by 2050 is down to 35 million bpd.

Natural gas demands, in contrast, remains resilient to about 2050. Large scale CCS in the industrial and power sectors will support gas while the deployment of blue hydrogen (135Mt by 2050) is a growth sector. Growth will come primarily from Asia, especially China and India.

Under AET-2 the assumption is that as many as 80% of new vehicles sold are electric, either battery-driven or hybrid. Heavy transport- ships and trains- are electric or hydrogen driven. Non-combustion liquid petro-chemical demand for plastics is damped by higher rates of recycling.

Wood Mackenzie’s AET-2’s scenario draws the following conclusions:

  • World needs no new supply of oil…”core function is to maintain current commercial production by going into full harvest mode”…
  • Market power slips from OPEC to giant gas producers such as USA, Russia and Qatar.
  • Downstream suffers death by a thousand cuts. By 2050 the refining sector will have withered to 1/3 of its current capacity with less than 150 of the current sites in operation.
  •  Era of carbon-neutral gas is born. AET-2 would require $300Billion to support Liquified Natural Gas growth globally and $700Billion to support dry gas development in North America. Blue hydrogen and ammonia emerge as new market products.
  • Currently no International Oil Company nor National Oil Company is prepared for the scale of decline envisaged in this scenario.

The contrasts between the visions of Citibank, Europe’s Hydrogen Vision, and Wood Mackenzie’s AET-2’s are startling to say the least and provide Africa sufficient food for thought. Africa is part of the global energy network and regardless of what it does or does not do, the energy transition will have massive implications for Africa in the coming years.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report.


Nigeria Unlikely to Meet Mid Term International Targets for Universal Electrification

By Bunmi Aduloju, NAREP Fellow

Nigeria has fallen far behind the main internationally set target for energy access, to which it had itself been an active participant, a review has shown.

The country’s current quantum of electricity delivery and its near-term prospect of Universal Electrification, do not come anywhere close to the 2030 targets of the Sustainable Development Goals (SDGs), set up by the United Nations, our review indicates.

17 Sustainable Development Goals (SDGs) were formulated bythe United Nations (UN) in 2015 to address the environmental, economic, political and social challenges facing the world. 

Sustainable Development Goal 7 (SDG 7) is a “blueprint to achieve a better and more sustainable future for all.”Specifically, Sustainable Development Goal 7.1 calls for “universal access to affordable, reliable and modern energy service.”

In the Sustainable Energy for All (SE4ALL) Action Agenda, Nigeria’s implementation tool for the Sustainable Development Goal 7 (SDG 7), the country has a goal to reduce share of the population living without electricity to about 10% and increase electricity generation to at least 32,000MW by 2030. 

Let us consider the current figures.

Electricity Access 

Eighty Five Million people lack access to grid connection electricity in Nigeria, leaving 43% of the population without electricity access. The country, in effect, has the largest energy access deficit in the world. Nigeria’s 206Million people share an installed capacity of 12,555MW, but only about 4,000MW is distributed to Nigerians on most days by the seven generation companies (GenCos). On the other hand, South Africa and Egypt, whose economies are second and third largest to Nigeria’s, in Africa’s GDP ranking and with population of 59Million and 85Million respectively, have installed capacity of 58,095 MW. This is way higher than Nigeria’s installed capacity despite Nigeria’s larger population.  

According to the Nigerian Electricity Regulatory Commission (NERC) in its 2020 second quarter report, Nigeria recorded 5, 316MW as the peak daily generation on the 20th of April, 2020. If on the 20th of April 2020, 5,316 MW was distributed to energy consumers, and 85million people do not have access to electricity, the remaining 121 million Nigerians got an average 44watts of electricity supply.

This explains the constant power outages in the nation. Whole communities frequently bear the brunt of the nation’s power supply incapacities.  In 2015, 444 communities spanning 18 local government areas reportedly lacked electricity in Edo State. Similarly, it was reported that residents of a particular Local Government Area in Ekiti State experienced total blackout for three years. 

Because Nigerians are not always entitled to 24-hour power supply, many businesses, homes and offices have had to fall back on petrol and diesel back-up generators. 

Nigeria ranks as one of the six top countries generating energy with back-up generators fuelled by high quantities of fossil fuel, according to the International Finance Corporation, World Bank Group in a report titled, The Dirty Footprint of the Broken Grid. Apart from the environmental degradation that ensues from the use of back-up generators, it poses outrageous health hazards to anyone who inhales its fumes, as its emission contains carbon monoxide. A handful of Nigerians have lost their lives to fossil-fuels powered generator fumes which could be averted if there is continual 24-hour power supply in the nation. 

Early in the year, two undergraduates reportedly lost their lives after inhaling generator fumes.

Renewable Energy, the Future of Improved Energy Access 

Renewable energy is top on the United Nation’s radar to provide widespread energy access to unreached communities, and it has proven to be a long-lasting solution to the electricity access problem in Nigeria and Sub-Saharan Africa at large, as only 47.7% have access to electricity in Sub-Saharan Africa. 

The Nigerian government insists that it is making efforts to provide electricity to provide direct support for rural electrification. As part of its Post-Covid National Economic Sustainability Plan, it proposed a Solar Home System (SHS) in 5Million homes which will serve about 25Million Nigerians in rural areas without access to the National Grid. This is a commendable approach to rural electrification. 

Segun Adaju, President, Renewable Energy Association of Nigeria (REAN) and CEO, Consistent Energy Limited, speaks glowingly of the government’s efforts to deploy renewable energy in the nation’s power delivery said, 

“Government has been part of the growth we have seen in renewable energy in the last three to five years through the rural electrification agency. There is now a 10 megawatts wind farm in the Kastina State. Also, Bayero University runs on solar now. Also, several hospitals are on solar, powered by the government.”

Renewable Energy to the Rescue

The generation capacity of renewable energy for power generation in Nigeria is relatively low, compared, again with South Africa and Egypt, the two economies with comparable GDP size to Nigeria.

These two countries each generates over 3,000MW of grid connected solar and wind power, whereas Nigeria generates less than 50MW from solar and wind technologies.

According to the US Energy Information Administration (EIA), “Nigeria’s generation capacity was 12,664 megawatts (MW) in 2017, of which 10,522 MW (83%) was from fossil fuels; 2,110 MW (17%) was from hydroelectricity; and 32 MW (1%) was from solar, wind, and biomass and waste.”

Since renewable energy will not dry up one day like fossil fuels, Nigeria should increase focus on developing the renewable energy sector for improved power generation. The increased contribution of renewable energy to the energy mix will allow for greater power generation. 

China is a perfect illustration of a country that has harnessed its renewable energy potentials for electricity generation. China has the world’s largest hydropower capacity with 356GW in 2019. With this advantage, it tops as the world renewable energy generation producer. 

Hydropower

Nigeria has water resources in the form of water falls and large rivers. With these natural potentials, hydropower serves as the most efficient renewable energy resource for power grid generation in the nation.

Nigeria’s 2015 National Renewable Energy and Energy Efficiency Policy (NREEEP)aims to harness hydropower production to ensure sustainability. It aims to generate 12,801MV of power from hydropower in 2030 and generate 30% in the energy mix.  

Similarly, in the Renewable Energy Master Plan (REMP), there is a plan to increase renewable electricity supply to 36% by 2030.

If these targets are met, Nigeria would speed up its energy access by 2030. If not, Nigerians will continue to suffer from electricity deficiencies. 

Solar

Another potential viable in the nation is solar. Solar energy has proven its ability to reach every nook and cranny of the country. It is safe to say that solar is the answer to the electricity access problem in the nation. Nigeria is blessed with abundant sunlight with about 2600hours of sunshine per year. Although Nigeria is increasing its prowess in this sector, the potentials are not fully harnessed. 

Mr Segun Adaju urged the government to utilise the solar resources in Nigeria to solve the electricity access problem for rural communities.

“Solar power can be harnessed because of the country’s location. Instead of building massive power plants or grids, Nigeria should redeploy straight to distributed renewable energy like we have in the movement from telephones to mobile phones,” he admonished.

This story was produced under the NAREP Media Oil and Gas 2021 Fellowship of the Premium Times Centre for Investigative Journalism.


Africa Under Siege?

By Gerard Kreeft

Africa has abundant natural resources and the associated revenues could be an important motor for development. However, changing global energy dynamics mean that resource-holders cannot assume that their oil resources will translate into reliable future revenues. “

Source: World Energy Outlook Special Report, Africa, IEA, 2019 

The COP26 (UN Climate Change Conference) will be hosted by the UK Government  in Glasgow in November 2021. TheSummit is to accelerate action towards the goals of the 2015 Paris Climate Agreement.

As part of its Green Energy Roadmap the UK Government and the oil and gas industry reached a historic accord: companies will be allowed to continue oil and gas exploration in the North Sea, but the industry must cut its carbon emissions by 50%. Companies must pass a  ‘climate compatibility’ test if they want to continue working in the North Sea. The government  and industry have pledged up to £16Billion to help support 40,000 North Sea jobs. 

The compromise falls short of the total oil and gas exploration ban that was rumoured some weeks ago. Yet it is a stark reminder that in the UK portion of the North Sea, the oil and gas industry has become a sunset industry. These measures arepart of the UK Government’s commitment to be CO2 neutral by 2050. How long will it be before North Sea exploration and development is banned totally? Will the industry’s fossil fuel assets help buttress the energy transition to ensure that renewables are a mainstream fuel?

How well is Africa prepared to be CO2 free by 2050? What contribution can be anticipated from Africa’s oil and gas sector?

Should Africa be given dispensation and consequently more time to rid itself of CO2 emissions  beyond 2050? After all,emission levels in Sub-Sahara’s two major petro-economies- Nigeria and Angola- are negligible when compared to Chinaand the USA. Nigeria emits only 0.73%, Angola 0.25% vs China’s 28% and the USA 15%.  

Set this argument aside. Instead make the case for  national oil and gas companies  using their fossil fuel assets to buttress up their energy transition. Again turn to Sub-Sahara Africa’s two major national oil companies: Nigerian National Petroleum Corporation(NNPC) and Sonangol in Angola.

The case of Nigeria

At the recent AOGS (Africa Oil and Gas Summit)Energy Webinar Series  Energy Transition and the implications for Nigeria,  the main theme was: “Is Nigeria’s 40Billion barrels proved reserves(or parts of), at risk of being written off someday to be replaced by green energy assets in the portfolio mix of the major oil companies?”.

A key response was that Nigeria should align itself with the Paris Climate Accord and adapt steps for a Green Roadmap: key would be leveraging the oil and gas assets to finance the green economy.

Certainly the discussion that has raged around the Petroleum Industry Bill(PIB), which promises to be a framework for the hydrocarbon industry, is not encouraging. Toyin Akinosho, Publisher, Africa Oil + Gas Report, has delivered a resounding critique. The PIB  promises to be an award toNNPC for its  continuing incompetence. He cites the following examples:• NNPC is a joint venture that produces 45% of the country’s crude; and concessionaire in the Production Sharing Contract(PSC) arrangements, which delivers 39% of the crude.• NPDC the operating subsidiary of NNPC …”is a massive imcompetent wrecking ball, which has been gifted joint-venture participation in 10 mining leases(OMLs) all of them producing”. • NPDC is seen as a bright star within the NNPC’s portfolio. Why? Because the degree of its performance is in direct proportion with the help it gets from its partnership with private entities.• Tinkering with the legislative structure of NNPC will change little given that its shares  will continue to be monopoly control by the Government.

If NNPC is perceived of not having its own house in order how can it expected to be a leader in the Energy Transition? Does it make any sense to give the same driver, who drove the initial bus off the cliff, keys to drive the new bus?

The case of Angola

Since Joao Lourenco replaced Jose Eduardo Dos Santos as Angola’s head of state in 2017, Sonangol, the state oil company, has had a rocky ride. In the past Sonangol had two roles: that of concessionaire, a highly judicious key role which gave it the power and legitimacy it had achieved and being a state oil company with its responsibilities for exploration and development of the resources. The decision to strip Sonangolof its concessionaire role was then taken and given to the newly created ANPG (National Agency of Petroleum, Gas and Biofuels).

In the Angola of today power has become diffused: Sonangolhas been stripped of its concessionaire role and is loaded with a mountain of debt; and the International Oil Companies (IOC’s) have the freedom to explore and market their natural gas. Developing green energy is certainly beyond the competence of Sonangol.

In November 2019 a new National Gas Consortium (NGC) was established, led by ENI as operator in partnership with BP, Chevron, TOTAL and Sonangol for the exploration and production of natural gas. This was previously the exclusivedomain of Sonangol.

Currently a gas processing plant is being constructed toprovide natural gas to Angola LNG, the country’s sole LNG facility. Any excess natural gas would be used by the SoyoPower Plant, which is being expanded and could supply gas to Three Million households in the future. 

Angola is not a gas rich country: having only 27 TCF of natural gas reserves which pales in comparison to that of Mozambique  which has a gas reserve base of 100 TCF, third largest reserve base in Africa, after Algeria and Nigeria.

Developing a national gas strategy for the country’s industrial development is seen as a top priority. What role does Angola LNG’s future gas supply play in any national gas strategy?  Does it make any economic sense to be exporting natural gas when so little is known about Angola’s own future requirements?  What is the long-term planning for gas development and monetization? And how does this fit into the national development strategy?  If natural gas is viewed as the fuel of choice to help develop an  industrial corridor a strategy must be developed.

Green Shoots on the Horizon

In its African Energy Outlook, 2019, the International Energy Agency (IEA) paints a vivid picture of Africa’s current situation and how it could possible develop in the future. The Agency predicts, in its Africa Scenario that one-in-two people added to the global population between now and 2040 will be African. 

Nearly half of Africa’s 600Million people did not have access to electricity in 2018, while around 80% of sub-Sahara African companies suffered frequent disruptions leading to economic losses. 

The Africa Scenario is a plea for full access to modern electricity by 2030, tripling the average number of people gaining access per year from around 200Million to over 600Million. Grid expansion and densification is the least cost option for nearly 45% of the currently deprived, mini-grids for 30%, and stand alone systems for 25%.

LPG is used by more than half of those gaining access to clean cooking in urban areas in sub-Sahara Africa; in rural areas, home to the majority without access, improved cookstoves are by far the preferred solution. 

Although the African economy will grow four-fold by 2040, energy efficiency can limit primary energy to just 50%.

Current  electricity demand in Africa is 700 terawatt-hours(TWh) with only North Africa and South Africa accounting for over 70% of the total. In the African Scenario growth could reach 2300TWh. Much of the additional demand coming from middle and higher income households.

Solar is only 5GW, less than 1% of global installed capacity. In African Scenario solar overtakes hydropower and natural gas to become the largest electrical source in Africa in terms of installed capacity.

Tripling of the electricity demand requires building a more reliable power system and a greater focus on transmission and distribution to reduce power outages. Significant scale-up of investment in grids and generation is required given that Africa has 17% of the world’s population and just 4% of the global power supply.

Natural gas meets half of North Africa’s fuel requirements, but in sub-Sahara Africa only 5%. Gas will rise to 24% by 2040, mainly to power industry.

Green Shoots in  Nigeria

According to the African Scenario the Nigerian economy will triple and would require less energy demand if the energy mix were more diversified. Natural gas must meet a growing share of energy demand, supported by implementation of the Government Gas Master Plan.

Today 80% of power generation comes from gas, most of the remainder comes from oil with Nigeria the largest user of oil-fired back-up generators on the continent. Natural gas remains the main source of power, although there is a shift to solar energy as the country starts to pivot towards its large solar potential.

Provided that reliability and supply improve, the grid could become the optimal solution to provide almost 60% of people with access to electricity. Nigeria achieves universal access by stepping up efforts to provide off-grid solutions to those that live off-grid.

Nigeria is a major industrial producer and a large chemical exporter and will triple chemical products by 2040 with new methanol and ammonia plants.

The country has the 2nd largest vehicle stock in sub-Sahara Africa: the number of vehicles could grow from 14 to 37 Million by 2040 with only two-times more oil consumption if more stringent fuel standards were adopted.

Universal access is achieved through greater household access to gas networks and LPG in the main cities, and improve cookstoves in rural areas.

Green Shoots in Angola

The Government is pledged to having 60% of Angolan households access to electricity by 2025. According to Angola’s Ministry of Energy and Water the country will by then have an electrical capacity of 7.2 GW, four times the current capacity.

In December 2020 the Lauca Hydroelectric Power Station was completed and can now provide 2.7GW of electrical power to the national grid.  A second project, the Baynes Dam, is jointly being constructed by the Governments of Angola and Namibia and will provide 600 MW to both countries.

The Angolan government has partnered with Power Africa, a U.S. Government-led partnership coordinated by the U.S. Agency for International Development (USAID), and the African Development Bank (AfDB) to start a major transmission project, which aims to connect the central and southern power grids of Angola. 

The programme will create an interconnected national grid supplying north, central and south Angola to create a 60% electricity access rate by 2025. 

Power Africa will also be assisting the AfDB in connecting pre-paid meters. In December 2019, the government was granted a $500Million loan package from the AfDB to finance the program. The beneficiaries of the project include households, industries, businesses and small to medium sized enterprises in Angola, with the aim of increasing access to cheaper, more reliable and sustainable electricity.

Conclusions• The history of both NNPC and Sonangol is a checkered and toxic history. Can they provide the leadership in the energy transition in which oil and gas is promised to be a key element?• A national oil company-be that NNPC or Sonangol- have different agendas than the IOCs. Politics and national lobby groups is the mechanism that steers national oil companies, not shareholder value nor investment returnsthat are the main driving forces of the IOCs.• The IOCs are constantly juggling their portfolios in order to maintain profitability and low carbon emissions. They have no hesitation in abandoning assets which do not meet investor grade, leaving their national oil company partners scrambling. • Doesn’t it make more sense to start from a clean slate? In which renewable energy is marketed and produced without any attachments?• The IEA in its African Energy Outlook recommends that the developed countries should take the lead in providing financial assistance to countries less endowed and more vulnerable. For some time this has been an issue which many developed countries resisted, perhaps frightened of sounding paternalistic and seeming heavy-handed. • Yet given that Africa’s total emissions on a global basis are so negligible and its oil and gas assets will probably be discounted, the economics for accepting payment from the industrialized countries fits into this new market place of the energy transition.• Why not for for example let China write off a portion of Angola’s debt to China which totals some $25Billiongiven that China has more than one quarter of global emissions? This would allow Angola some breathing space and possibly set a precedent for other bilateral emission deals between China and  other African countries.

The author, Gerard Kreeft, holds a BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. Kreeft hasDutch and Canadian citizenship and resides in the Netherlands. He writes on a regular basis for Africa Oil + Gas Report.


Nigeria Puts the Brakes on Ambitious Biofuels Refinery Plan

By Bunmi Aduloju, NAREP Fellow

It’s been 14 years since Nigeria gazetted its Biofuel Policy and Incentives, but the country can boast of next to nothing in domestic biofuel production. 

Nigeria, being heavily dependent on fossil-based fuels, took this bold step in June 2007 to reduce the rate of environmental pollution in the country, as recognised by the United Nations (UN) as a universal problem causing climate change. 

In essence, the world wants to cut off fuels that are bad for the environment and biofuels are in tandem with the demand for clean energy, producing less emissions than petroleum-based fuels. 

The world’s top five biofuel producers include those countries with comparable populations with Nigeria’s200Million people:  the United States (pop:330Million), produced 13 Billion gallons of biofuels in 2019. Brazil(pop: 212Million), produced 8.1Billion gallons of biofuels; Indonesia (pop: 273Million) output 2.3Billion gallons of biofuels and some of Europe’s, largest economies: Germany and France produced 1.2Billion and 0.9Billion gallons of biofuels respectively in 2019. 

As the national debate rages in Nigeria about removal on subsidy on crude-derived gasoline, and cleaner and cheaper alternatives are considered, infrequent mention is made of biofuels, not for cost, but for cleaner air.

Nigeria could also be a top producer of biofuels and even an exporter, since the nation is blessed with vast resources in energy crops and biodegradable waste used in their production. Regardless of the many advantages of biofuels, the  narrative is entirely different in the nation today. 

In 2019, Ibe Kachikwu, Former Minister of State for Petroleum, while speaking at a biofuel sensitisation workshop emphasised the economic value of biofuels. 

“I believe biofuel will soon become our foreign exchange earner, if we can put our minds and might into it. We can produce crude and fire gas but, ultimately, the only way to sustainably reach every nook and cranny and every citizen of our country with some level of energy supply, is to look towards natural resources such as solar, wind, water resources and biofuel,” he said. 

Biofuel Policy

In the National Biofuel Policy and Incentives published in 2007, a direct reference was made to the government’s mandate to the Nigerian National Petroleum Corporation (NNPC) to create an Automotive Biomass Programme in 2005 which would establish an environment for the take-off of a domestic fuel ethanol industry. 

With the Automotive Biomass Programme in place, the National Biofuel Policy and Incentives was gazetted in 2007 to further propel the domestic production of biofuels. It aimed to “achieve 100% domestic production of biofuels consumed in the country by 2020.” While the policy directed several bodies to contribute to this national outlook, the downstream petroleum sector and the agricultural sector have integral roles to play in the accomplishment of the programme. 

Unfortunately, there is a gap between the policy demand and actualisation as a result of several underlying issues. Nigeria still relies on importation of fuel ethanol, an additive for gasoline whilst still grappling with non-implementation of its biofuel policy.   

The World of Biofuels

Biofuels refer to “fuel ethanol and biodiesel and other fuels made from biomass and primarily used for automotive, thermal and power generation.” It’s main claim to preference over fossil-based fuels is its renewable and environment friendly chemistry. 

Fuel ethanol is blended with gasoline for more environmentally-friendly emissions and this blend has proven to improve the quality of fossil-based fuels by oxygenating the fuel thereby resulting in less carbon emissions and higher octane levels. 

For this reason, some countries are imposing a mixture of transport fuels with biofuels in order to reduce greenhouse gas emission. In the United States, more than 98% of their gasoline is mixed with ethanol forming a 90% gasoline and 10% ethanol mix. 

In Nigeria, the biofuel policy projects a 90% gasoline – 10% fuel ethanol mix while a 20% blending ratio is to be deployed for biodiesel with the Nigerian National Petroleum Corporation (NNPC) enforcing the blending requirements. With the daily national consumption of gasoline estimated by the department of Petroleum Resources, DPR to be 38.2Million litres of gasoline per day, Nigeria would require 3.82 million of fuel ethanol per day to meet the fuel ethanol-gasoline blend goal. This is a huge responsibility for biofuel production in the country considering its present state. 

Fuel Ethanol Import, Bad for Domestic Production

In 2018, Nigeria spent $33Million on the importation of ethanol from the U.S and it was the second most imported agricultural product from the U.S into Nigeria, constituting about 48% of total ethanol import into the country, according to the United States Department of Agriculture (USDA), Foreign Agricultural Service (FAS). 

This speaks volume about the country’s capacity for the achievement of the 100% domestic production goal. Apart from Nigeria’s failure to achieve its stated goal, importation puts undue pressure on the nation’s economy and weakens local production initiativesWith over-reliance on foreign imported fossil-based fuels and its economic impact on the nation, it is wise to avoid trailing the same path with biofuels.

 

 

 

 

 

Despite Local Abundance, Crop Feedstock Derivatives Imported

Since crop feedstock used for the production of biofuels have to be cultivated in large scale, there’s been growing concerns about its competition with food production in the country, as all the biofuel feedstock cited in the policy are food crops except jatropha. Apart from that, Nigeria is capable of cultivating the designated biofuel feedstock, including oil palm, jatropha, cassava and sugarcane. 

 

 

 

 

 

Nigeria is the largest producer of cassava, producing about one-fifth of the world’s total production, according to the Food and Agriculture Organisation (FAO). “It is incongruous that the world’s largest producer of cassava spends $600Million annually to import cassava derivatives”, the Governor of the Central Bank of Nigeria (CBN), lamented at a meeting in 2019.

FOURTEEN YEARS AFTER, UNFINISHED PROJECTS. 

In 2012, Global Biofuels Ltd signed a ₤2Billion deal with the Nigerian Government for a biofuel production complex at Ilemeso, Ekiti state, Nigeria. TV

Similarly, Kogi State Government, under the leadership of Yahaya Bello signed a MoU with the Nigerian National Petroleum Corporation (NNPC) for the establishment of biofuel projects in the state.

Foreign investments and private sector investment have also been made since the policy was published in 2007.

The NNPC signed MoUs with State Governments for the building of fuel ethanol plants and cultivation of biofuel feedstock, some of which include Kogi, Kebbi, Gombe, Benue, Anambra, Cross Rivers and Ondo

Despite these initiatives, the NNPC has still not kicked off large scale commercial production of biofuels as directed by the policy. 

In press release after press releases and statements after optimistic statements , Maikanti Baru, former Group Managing Director (GMD) Nigerian National Petroleum Corporation (NNPC), -2016-2019- disclosed that the first large scale commercial biofuel venture as an alternative to fossil fuel was going to commence.

On the 28th of February 2018, he also revealed at the 39th Kaduna Trade Fair that NNPC was driving investment in renewable energy to develop biofuel production through the Renewable Energy Division in a press release.

Both reports were bound by the same promise to kick start large scale biofuel production with a bleak timeline for accomplishment.   

In 2021, the Gombe State Government reportedly expressed willingness to partner with the NNPC to actualise the sugarcane fuel ethanol project in the state in 2021.  In the same report, the Group General Manager, Renewable Energy Division (RED) of the Nigerian National Petroleum Corporation (NNPC), David Bala Ture, revealed that despite efforts to actualise the biofuel project in Gombe State, it had not come to fruition for the past 15 years. 

This is the backstory of many biofuel projects in the country. Some projects are abandoned, others are suffering from lack of cooperation from the various parties involved in the deal and some others, lack of technological advancement.  

An effective policy, however, will solve a number of these problems.

Although Nigeria has a biofuel policy in place, it has not fully implemented its policies since 2007. In fact, in 2010, the policy was reviewed by the Petroleum Products Pricing Regulatory Agency (PPPRA) and a number of committee members, to address the loopholes in the official gazette.  However, there has been no concrete agreement between the key players and the governmental bodies involved to utilise the policy’s directive and this has caused setbacks in the implementation of the policy.

The private sector has been making efforts to produce fuel ethanol and biodiesel but lack of proper infrastructure is deterring large scale production by private companies. 

Part of the challenge, argues Ejikeme Nwosu, Director, Lumos Laboratories Nigerian Limited, who has worked on conversion of waste to energy sources in the last 14 years, is the lack of infrastructure and grants to private initiatives for the production of biofuels. “The private sector is filled with masterminds ready to work with the sector once the policy is fully implemented and when the government pays more attention to them,” Nwosu explained.


This story was produced under the NAREP Media Oil and Gas 2021 Fellowship of the Premium Times Centre for Investigative Journalism.


Zimbabwe to Exempt Solar Energy Producers from Taxes for Five Years

The Zimbabwean government is looking to exempt Solar Energy investors from paying taxes for a period of five years.

“Whatever they produce in those five years, they will not have to pay taxes to the government”, Zhemu Soda, the Zimbabwean Minister of Energy, said at a recent hearing of the country’s parliament. “This is done to motivate those who want to invest in solar energy production so that the solar networks can be connected to the national grid.”

The measure, Mr. Soda said, will be in addition to the exemption of import duties on solar power equipment into the country, a policy that is already on course.

Zimbabwe imposes a 15% Value Added Tax on all purchases and this will not be removed, even for solar power equipment.

The entire electricity generation capacity attributable to renewable energy in Zimbabwe is 130MW, all of which is generated by Independent Power Producers (IPPs). The proposed incentives should benefit off-grid solar providers more. This is 7% of the country’s total installed capacity of 1 940 MW.

Zimbabwe’s Rural Electrification Agency (REA) wants more off-grid solar and wind generated electricity for the electrification of rural areas. The agency has already installed 372 PV mini-grids of 0.9 kWp each, totalling 334.5 kWp, in schools and clinics throughout the country. Other installations have been commissioned or commissioned by non-governmental organisations (NGOs) and some private developers.

 


The 10 Commandments of the Energy Transition

By Gerard Kreeft

 

 

 

 

 

 

 

 

  • Commandment 1: Petroleum Classification in Ruins

 In the summer of 2020 TOTAL wrote off $7Billion of its oil sands in Canada which was listed as “Probable Reserves”. The under-lying message was if probable reserves can be written off, how safe were the estimates of oil reserves that had depended on this SPE Classification? Which were also approved by the US Securities and Exchange Commission?

Reserves were classified as RRR, Reserve Replacement Ratio, the norm being 100% on an annual basis (see below.)

 

 

 

 

 

 

 

  • Commandment 2: The New Norm

TOTAL was the first major to classify other fuels, wind and solar, as part of its RRR count.

How was this done?

Simply put: Which fuels provided a better rate of return for the company and its shareholders. Being green has a better return on investment!

  • Commandment 3: Renewables are the new norm

 

 

 

 

 

 

 

Note: ETF  is an exchange traded fund which is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock.

  • Commandment 4: Maintaining Huge Dividends(?)

 Shell’s share price on February 23, 2021 was Euro 17; five years earlier on 9 June 2016 it was Euro 23.

Orsted’s share price February 23, 2021 was Euro 127; five years earlier on 10 June 2016 it was Euro 34.

Shell’s dividend yield is higher 3.53% in 2021; Orsted 1.4% dividend yield (2020).

The return on investment is not based on dividend but increased price of share: in the case of Orsted, a four-fold increase.

  

  • Commandment 5: Shareholders are waiting

The contradiction is shareholders wanting high dividends but also demanding green solutions.

Oil companies-BP, ExxonMobil, Shell have paid huge dividends +5% historically…but this cannot continue.

Yet green companies are paying comparable dividends:

Iberdrola return on investment 5%, 2021;

Enel return on investment 5.15%, 2020;

Engie return on investment 4.77%, 2019.

  • Commandment 6: Can the Oil Majors compete with the Green Competition?

 BP &Equinor partnering in the USA: Offshore Empire and Beacon Wind.

NortH2 Vision in which Shell and Gasunie have combined forces to create a mega-hydrogen facility, fed by offshore wind farms, which by 2030 could produce 3-4 GW energy and possibly 10GW by 2040, Netherlands.

BP & Orsted developing green hydrogen at BP’s Lingen refinery, Germany.

BP will spend US$ 5Billion per year to green itself;  by 2030 will have 50GW of net regenerating capacity, and planned pipeline of 20GW of green generating capacity.

Equinor’s  Dogger Bank, North Sea, will produce some 3.6 GW of energy, enough to light up 6Million households, is the company’s showcase project.

TOTAL  will have  35 gigawatt (GW) capacity by 2025, and hopes to add 10GW per year after 2025. That could mean an additional 250GW by 2050.

Enel in next 10years will be spending euro 190 billion on renewables and by 2030 have 145 GW installed capacity.

Orsted has an installed capacity of 10GW and build out to 15 GW.

RWE by 2022 will have 28.7 GW of installed capacity.

Engie spent Euro 7.4Billion on renewables and 33GW of installed capacity.

Iberdrola u to 2030 will spend Euro 150Billion on renewables and target of 93GW installed capacity.

  • Commandment 7: More Specialization

Upstream Shell has announced reducing exploration to 9 key hubs

BP reducing production to 40% of current  total;

Downstream: BP sale of petrochemical division to Ineos;

Expect more sales to ensure scales of economy and shoring up balance sheets;

Crossovers between Oil majors and New Energy players.

  • Commandment 8: Are major service providers capable of providing services to Green Sector?

Up to 2023 there is a major decrease forecast in the various components including seismic, subsea, well services, EPCI,drilling, and maintenance and operations.

Share prices of the major service providers- Baker Hughes, Halliburton and Schlumberger- have tanked:

in December 2016 Baker Hughes’s share price was $65, December 2020 $21;

Schlumberger in December 2016 $85, December 2020 $21;

Halliburton December 2016 $55, December 2020 $19.

Halliburton talks about further digalization of its services on its website. It also talks of lower capital intensity and being committed to technologies that reduce emissions/environmental footprint.

Olivier Le Peuch, CEO Schlumberger, recently announced a major strategic restructuring creating four new divisions- Digital & Integration, Production Systems, Well Construction, Reservoir Performance.

Within the confines of the E+P bubble, both major service companies continue on with what they anticipate what the IOCs are dictating: belt tightening, a reduced head count, with the hope for a better tomorrow. Simply re-shuffling the deck chairs on the Titanic.

The one exception is Baker Hughes, who have recently unveiled a forward looking strategy focused on CCS(Carbon Capture Storage), Hydrogen, and Energy Storage.

 

 

 

 

 

 

 

 

 

 

 

 

Key themes for the Energy Transition.

  1. Marine Contractors:

Heerema: becoming focused on offshore wind projects

Technip Energies- entailing LNG, sustainable chemistry and decarbonization- has been spun off creating new innovative options.

  1. New Energy Service Providers

Siemens Energy has operations in 90 countries offering a full project cycle of servicesL generation, transmission and storage from conventional to renewable energy.

Cummins operates in 51 countries in Africa and market leader in fuel cel land hydrogen production technologies. Cummins began developing its fuel cell capabilities more than 20 years ago.

  • Commandment 9: National oil companies must justify their investments

If national oil companies follow their current course, they will invest more than $400Billion in costly oil and gas projects that will only break even if humanity exceeds its emissions targets and allows the global temperature to rise more than two degrees centigrade 2 oC.

Either the world does what’s necessary to limit global warming, or national oil companies can profit from these investments. Both are not possible.

State oil companies’ investments could pay off, or they could pave the way for economic crises across the emerging and developing world, and necessitate future bailouts that cost the public. Some oil-dependent governments in Africa, Latin America and Eurasia are making particularly risky bets with public money.

Many national oil companies have incentives to continue spending big on new oil and gas projects. As a result, company officials might not, on their own, change course to account for the energy transition away from fossil fuels toward green energy, nor make investment decisions that serve the interests of citizens.

See “Risky Bet National Oil Companies in the Energy Transition”, David Manley and Patrick R.P. Heller,  Natural Resource Governance Institute

  • Commandment 10: Putting together an Energy Roadmap

The challenge to meet!

The author, Gerard Kreeft, holds a BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada). He is an Energy Transition Adviser and  was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report.

 

 

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