Powering up a continent | Fin24
 
Loading...

Powering up a continent

Nov 27 2019 09:20
Jana Jacobs

South Africans have become unsettlingly familiar with being plunged into darkness at a moment’s notice, but dependable electricity supply isn’t a problem unique to SA. 

In March 2019, the World Bank released its Electricity Access in sub-Saharan Africa report, according to which more than 600m people on the continent live without electricity, including more than 80% living in rural areas. 

In 2016, only 42.8% of Africa’s population had access to electricity, far less than any other developing region (see Graph 1). 

Only two countries in the region, Mauritius and Seychelles, have near universal electricity coverage. 

SA is one of only six countries in Africa that has more than 75% of households connected to power (see Figure 1).

According to the General Household Survey released by Stats SA in May 2019, the percentage of SA households connected to the country’s electricity grid stood at 84.7% in 2018.

These stats by no means lessen the crisis facing SA, with power supply remaining unreliable at best. 

There is also the question of how clean and affordable that energy is. 

What it does show, is just how big the deficit of access to energy on our continent is. 

Based on the aforementioned World Bank figures, nearly half of the entire population on the continent is living without electricity. 

Graph 1

Developing Africa's power

This issue of access to energy in Africa formed the backdrop to the 2019 Africa Oil & Power (AOP) Conference, which was hosted in Cape Town in October. 

As Africa lags the rest of the world with energy supply, despite being an immensely oil and gas-rich continent, the key theme of the conference was how to make energy work for the continent. 

Africa certainly doesn’t lack gas and oil resources, but exploration and utilisation of those resources is not keeping apace. 

During his opening address, AOP CEO and co-founder, Guillaume Doane, said that in 1982 “oil and gas exploration in Africa was at its absolute height. There were 209 rigs in operation, even more than the rig count of the entire Middle East.” 

The rig count matters, according to him, because it is a very dependable measure of gas and oil exploration activity. 

And, exploration “is the precursor to production”. Tellingly, oil production in Africa has fallen by 20% since 2012 and is expected to continue declining until 2025. 

Not least of the hurdles to progress are some of the “toughest investment terms in the world, especially in the oil and gas industry”, according to Doane. 

The AOP conference aimed to showcase countries in Africa that boast potential for exploration to encourage investment, highlighting those who had developed successful industries and those that are on the frontier of future success.

Of course, campaigning for increased oil and gas exploration while a climate crisis rages, and activists like the inimitable Greta Thunberg crusade for a world that will be home to net zero carbon emissions, will undoubtedly raise questions and concerns as to how this will play into a future of adopting cleaner energy.

This is a question which Equatorial Guinea’s minister of mines and hydrocarbons, Gabriel M. Obiang Lima, has certainly been asked before, but he is unapologetic about the way in which his country has moved forward by utilising its oil and gas resources: “What we’ve achieved with infrastructure in our country in the last 15 years, we didn’t do with the World Bank or IMF. 

We did it with money from oil and gas.”According to the African Development Bank (AfDB), Equatorial Guinea’s economy has been one of the fastest-growing in Africa over the last decade. 

After the discovery of large oil reserves in the 1990s, it became the third-largest producer of oil in sub-Saharan Africa, after Nigeria and Angola. 

More recently, substantial gas reserves have also been discovered. 

In November, US oil company Kosmos Energy made an oil discovery at its S-5 well offshore of Equatorial Guinea, according to Reuters. 

Lima argues against Africa converting to a green economy before developing infrastructure with oil and gas, reasoning that “an electric car won’t last two days here because the infrastructure is missing”. 

Although perhaps not an uncontroversial stance, when 600m Africans don’t have access to electricity, it is understandable that net zero carbon emission goals seem a little tone deaf. 

That isn’t to say clean energy creation should be scrapped from the agenda entirely, but the agenda should be realistically tailored to a continent that isn’t on the same energy playing field as the developed world, argues Lima. 

He believes that the “future resource for Africa is gas” and he points to discoveries in Mozambique and Senegal as exciting prospects for the future. 

A future in which, globally, “the natural gas market will continue to see growth and will likely overtake coal by 2030 to become the world’s second leading fuel”, according to PwC’s 2019 Africa Oil & Gas Review.

Senegal's potential

Looking to the future of energy generation in Africa, the AOP spotlight was sharply focused on Senegal. 

This West African nation has hosted eight major oil and gas discoveries since 2014 and “is moving closer to becoming a large-scale oil and gas producer”, according to AOP’s Doane. 

As indicated in PwC’s review, oil company BP’s Teranga asset in Senegal was one of 2018’s top ten oil and gas discoveries in the world. 

Its estimated resources stand at 539m barrels – 98% of which is gas. 

Prior to Senegal’s oil and gas discoveries, President Macky Sall launched the Plan for an Emerging Senegal (PES) in 2012, which is a comprehensive development plan aimed at making Senegal an emerging market by 2035. 

With the vast oil and gas discoveries and exploration yet to be done in the MSGBC Basin (off the coast of Senegal and Mauritania), energy is currently viewed as one of the primary drivers of growth and realising the PES vision, according to Mouhamadou Makhtar Cissé, Senegal’s minister of petroleum and energy.

Senegal remains one of the top ten fastest-growing countries in Africa, with an annual growth above 5% since 2014. 

Graph 2

“Senegal has been one of the most stable countries in recent years, and with the advancement of an accelerated reform agenda to modernise public administration and a welcoming attitude towards foreign investors, Senegal is likely to meet the performance requirements of the PES. These projects under PES should help improve the local business climate by reducing transport and power costs, thus supporting sentiment,” says Dr Martyn Davies, managing director of emerging markets and Africa at Deloitte.

Davies does, however, caution that if the Senegalese government becomes unable to sustain such high levels of public spending, falls behind in paying back debt, and fails to stimulate greater private sector participation, it could prevent them from reaching middle-income status by 2035. 

According to the AfDB, Senegal’s total external debt-to-GDP ratio was 62.9% in 2018.Although the PES didn’t initially include Senegal’s sizeable oil and gas discoveries, much hope for economic growth is being pinned on developing this industry. 

Relying so heavily on a sector, particularly a commodity, to stimulate economic growth doesn’t come without risks, as in the case of Nigeria (see "Nigeria's relationship with oil below").

However, Davies believes that Senegal has made provision to diversify its economy. 

“High levels of oil dependence are risky, mainly due to the fluctuation of oil prices. However, in the case of Senegal, oil dependence may be of low risk due to the country’s level of stability, investment attraction and its commitment to implementing structural reforms.”

Further, he says that the Senegalese presidency has made progress in diversifying its plans to reshape the economy from being traditionally reliant and shifting towards a more industrial economy. 

He also credits the country’s accelerated reform agenda to develop Senegal’s public administration for making the country an attractive destination for investments.

It is this commitment to implementing structural and sector reforms, particularly in energy and oil, that placed Senegal front and centre at the AOP conference. 

Speaking to the tough investment environment that AOP’s Doane cited as one of the barriers to progress in Africa’s oil and gas exploration, Senegal has made the overall investment environment attractive for foreign direct investment. 

“There’s no legal discrimination against businesses owned by foreign investors and there are no barriers to full ownership of businesses by foreign investors in most sectors, therefore foreigners can have a 100% stake in a company,” says Davies. 

From a regional perspective, Cissé’s Equatorial Guinean contemporary, minister Lima, emphasises that in the drive for progress, leaders in African countries need to “engage your neighbours, your African brothers”. 

This is something which Senegal has been doing, as evidenced by its agreement with Mauritania to develop Tortue gas field, where production is expected to begin in the first half of 2022. Given Senegal’s geographical location, it also has the potential to unlock growth in other countries, primarily because of access to ports. 

Senegal has already developed roads and bridges connecting it to its neighbouring countries (The Gambia, Guinea, Guinea-Bissau, Mali, and Mauritania), thus boosting regional integration and granting port access to those states, says Davies. 

Of course, there is still room for improvement and “further transport infrastructure should be developed to increase trade and regional integration, particularly the Dakar-Bamako railway”. 

Although Senegal boasts one of the highest rates of access to power in Africa, with over 61% in 2017, according to Cissé, he says that much work is still needed. 

In his call to investors, he said that among the four key objectives of the PES was universal access to electricity: “A goal we hope to achieve by 2025, while the initial goal was 2030.” 

oil


This article originally appeared in the 21 November edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

electricity  |  gas resources  |  oil
NEXT ON FIN24X

 
 
 
 
12 December issue
Subscribe to finweek
Loading...