With lingering energy crisis, a worse era beckons
Even though the Russia-Ukraine war only exacerbated the energy crisis in Nigeria and other African countries, KINGSLEY JEREMIAH writes that worst days are imminent except ingenious steps are urgently taken.
Before the Russo-Ukrainian War, which started in 2014 escalated on February 24, 2022, most African countries had been battling energy crises.
In West Africa, for instance, Nigeria is saddled with obsolete refineries, a development that sends the economy of neighbouring countries into a near coma any time that there is a scarcity.
In East Africa, Kenya imports refined products from the United Arab Emirates, while South Africa faces regular fuel shortages, with consequences felt in far and near neighbouring countries like Namibia, Botswana, Lesotho, Swaziland, and Mozambique.
From poor storage facilities, inadequate seaports, dilapidated refineries, lack of reliable pipeline networks, and bad road/rail networks, to subsidy challenges and pricing issues, the ongoing energy crisis may get messier across the continent against the backdrop of uncontrollable population explosion.
Presently, the world is grappling with the weight of subsidy payments for fossil fuels, but countries like Nigeria are expected to spend nothing less than $9.8b (N4t) to subsidise Premium Motor Spirit this year.
In 2021, Kenya imported 6.149 million litres of heavily subsidised refined petroleum products worth $3.48b, while South Africa is also extending its subsidy regime.
The National Treasury, and the Department of Mineral Resources and Energy, had earlier extended the R1.50 per litre respite from June 1 to July 6, 2022, and a further reduction of 75c per litre for the second month, from July 7 to August 2, 2022. The cost of the temporary fuel cut is creating a loss of R4.5b ($288m).
Back in the country, after spending about five hours in the queue at Oando Fuel Station, in the Ketampe area of Abuja, Abuja, this reporter, and other motorists were asked to contribute N1,000 each to enable the station to purchase diesel and continue operations, otherwise, the sale would be discontinued.
The price of diesel (which the station uses to power its pumps in the absence of electricity) has gone up, consequently shutting in the margin for marketers.
Radio stations, airlines, banks, and sundry business concerns are either cutting down operational hours, or shutting down some branches outright, and tanker drivers are also refusing to lift PMS since the government-controlled pricing template dictates a freight rate that doesn’t align with market realities.
While the prices of petroleum products continue to rise, the rot that has become visible in the power sector became all too glaring as reflected in the dismal state of the electricity sub-sector.
In the last few months, installed electricity generation capacity has dropped across the continent, and in countries like Nigeria, actual generation is now at the worst state.
While South Africa has over 50,000Megawatts (MW) of generation capacity, Nigeria has only 12,522MW; Ghana has about 4,399MW; Kenya with 2,819MW, and Botswana about 920MW. Over 600 million people are without access to energy in the region alone.
Since February this year, Nigeria has been facing a fuel crisis. When this happens, Cameroun, Benin Republic, Niger, and other neighbouring countries are the worst hit.
Motorists across major cities in Africa usually spend hours or even days at fuel stations jostling for fuel; factories run out of diesel and airlines shift flights due to scarcity of aviation fuel. The same scenario goes for Liquefied Petroleum Gas (LPG). The soaring price of LPG is already forcing many to return to their old ways.
Africa’s population currently stands at 1.4 billion and is projected to hit 2.5 billion by 2050. In 2000, the population was approximately 810 million.
With a lingering energy crisis, most of the continent’s 54 economies, including that of Nigeria are on crutches with little to cheer. All of these happening in a continent where the Gross Domestic Product (GDP) was projected by the International Monetary Fund (IMF) in 2021 to be around US$2.7t in nominal terms, which is $296b more than in 2020.
Pathetically, leading oil-producing countries like Nigeria are focusing more on exporting crude oil and gas, than refining them locally. Programmes like the Direct Sale – Direct Purchase (DSDP) initiative, where crude oil floods refineries abroad, and get refined and finished products are transported back to the country remain unhealthy for the economy.
Statistics from the Nigerian National Petroleum Company Limited showed that at least, N861b has been spent by the country, in the 26 months as freight costs for the importation of petroleum products, especially PMS totalling about 41 billion litres, as the nation’s four refineries remain comatose.
But beyond obsolete refineries on the continent, weak regulations have made room for the importation of toxic fuels into the continent. Indeed, most European countries that export petroleum products to Africa drive their vehicles on less than 10 particulate matter (PM), but the sulphur content in petroleum products sold on the continent stands at over 500 PM. The consequences are dire as reflected in the growing health burden, environmental issues, and damage to vehicles’ engines.
In February this year, Nigeria battled with dirty fuel despite several promises by importers. It would also be recalled that in May 2021, the NNPC picked 16 firms (under the DSDP contract) to receive crude, refine it and bring in refined petroleum products into the country to meet her demand for Premium Motor Spirit (PMS), jet fuel and diesel.
To comply with local content standards, international partners were merged with Nigerian companies under the DSDP arrangement. But in February, the deal backfired with the importation of methanol blended PMS by about five different consortia under the deal. Methanol (alcohol) although used by some countries in blending low-level fuel, was never part of the approved PMS specification for Nigeria.
In September 2016, a report launched by the Public Eye, a Swiss organisation, that through its exclusive investigations and in-depth researches, focuses on ways that companies impact disadvantaged populations, revealed the double standard, that refiners in Europe employ in their refining processes.
Even though these refiners comply with their extant regulations on dirty fuel, they collaborate with oil marketers in Nigeria and other African countries to ship dirty fuel into the continent, which has about 43 refineries, and the total nameplate capacity of those refineries put at about three million barrels per day (BPD).
In Egypt, there are nine refineries (774,900 bpd); Algeria has five (303,700 bpd); Libya has five (380,000 bpd); South Africa has four (545,000); Nigeria has 3 refineries (445,000 bpd), while the Niger Republic recently constructed a small refinery.
Although these refineries operate at different levels, none of them is operating to the nameplate. In Nigeria, for instance, the three refineries are operating at zero capacity, and have since been shut down by the Nigerian National Petroleum Corporation (NNPC).
These refineries, according to the African Refiners and Distributors Association (ARDA) are also not up-to-date in terms of the quality of products that they turn out. For that to change, the facilities would require $15.7b for upgrades to produce clearer, cleaner fuels.
With the population of persons and vehicles growing tremendously, the importation of outlawed vehicles and products; the inability to locally meet demand, or refine low sulphur content products, and an exponential increase in air pollution is expected on the continent.
THE Sustainable Development Goals (SGDs), a set of 17 interlinked goals are aimed at facilitating a better and more sustainable future for all. The many effects of energy in Africa directly negate some of these goals, especially in the areas of health and the environment. While attaining the goals has remained elusive in Africa, dirty fuel could specifically hamper SDG Three, which focuses on good health and wellbeing. It also negates Goal Seven, which is affordable and clean energy.
The development could also hinder Goal Nine, which is on the industry, innovation and infrastructure, as well as Goal 11, which seeks sustainable cities and communities. In terms of Goal 13, which is on climate action, high sulphur in fuels has been reported as a major trigger for climate change.
IN its mission to serve as the continent’s leader in the drive to transit to cleaner fuels, there is an ongoing collaboration between ARDA, and the African Union (AU) on the adoption of harmonised AFRI Clean Fuel Specifications across Africa. These cleaner fuel specs recommend the adoption of AFRI 5 (50 ppm sulphur for gasoline and diesel) by 2025, and the adoption of AFRI 6 specs (10 ppm for the same products) by 2030. The objective is to stop the importation of fuels that do not meet these AFRI specs into Africa by 2021 and give existing refineries until 2025 to upgrade their facilities to produce cleaner specs.
The ECOWAS Council of Ministers of Hydrocarbons had, in February 2020 recommended product imports to meet AFRI 5 specs by 2021, and for ECOWAS refineries to meet AFRI 5 specs by 2025.
For compliance in the aspect of gasoline, Algeria is upgrading its Adrar refinery to include Naphtha hydrotreating (NHT), CGDS, and Benzene extraction. Alger, Arzew, and Skikda refineries would also require the same upgrades.
Refineries like Amreya in Egypt would need Benzene extraction, while others like Assiut, EI Mex, EI Nasr, and Mostorod have either been upgraded or are in the process of being upgraded.
In Libya, Azzawiya would need Benzene extraction, El Brega would need NHT, and Benzene extraction, while Sarir would need to be upgraded with NHT, and Benzene extraction.
Tunisia’s STIR refinery needs to be upgraded with NHT, and Benzene extraction, while in southern and East Africa, South Africa’s Astron, Natref and Sapref refineries all require NHT, CGDS, and Benzene extraction.
Refineries in South Sudan and Sudan also need upgrades for NHT, CGDS, and Benzene extraction. In West and Central Africa, Angola, Sonaref refinery needs NHT, and Benzene extraction, just the same way that Chad’s SRN needs CGDS and Benzene extraction while Congo’s CORAF needs NHT, Benzene extraction, and H2 and Côte d’Ivoire’s SIR need Benzene extraction and H2.
In Gabon, Sogara refinery needs Benzene extraction, Ghana’s TOR needs NHT, CGDS, and Benzene extraction and Niger’s SORAZ needs Benzene extraction and CGDS.
In Nigeria, Warri, Kaduna, and Port Harcourt refineries need NHT, CGDS, and Benzene extraction, while Senegal’s SAR must be upgraded with Benzene extraction to meet AFRI specifications.
Investment flow into the oil and gas sector has been difficult. The Organisation of Oil Exporting Countries (OPEC) said about $1.5t worth of investment would be required in the downstream segment of the petroleum industry between now and 2045.
The Secretary-General of OPEC, Mohammed Sanusi Barkindo, disclosed that over $400b of this investment would go into new refinery projects, and expansions of existing units, adding that most of the projects would be located in developing countries, including Africa.
Barkindo is, however, scared that the investment may remain elusive given the push away from fossil fuel. While about 35 African countries have committed to net-zero emission against the backdrop of the 2021 United Nations conference in Glasgow, the global plan is projected to cost the continent $6.7t in fossil fuel resources.
Raising about $2.8t energy transition fund that is needed to transit Africa to cleaner fuels en route to attaining the goal may also remain a mirage, a new report by PriceWaterhouseCoopers said.
To achieve the 1.5°C global warming target under the Paris Agreement, studies suggest that a third of current oil reserves, half the current natural gas reserves, and nearly 90 per cent of current coal reserves must remain in the ground.
The Minister of State for Petroleum Resources, Timipre Sylva, recently decried the rapid drop in foreign investment flow into the country’s oil and gas sector.
“One of the biggest problems that we have in the sector has been investments. In the last 10 years, over $70b worth of investments came to Africa. But sadly less than $4b came to Nigeria, which is the biggest country in Africa. If we cannot attract investments to Nigeria, you know where we are heading,” Sylva told a delegation of the European Union (EU), who paid a visit to his office, in Abuja
He equally decried the speed at which Europe has been pushing back against investment in fossil fuel, stressing that the Russia and Ukraine war has taught the world a big lesson, especially in the energy sector.
The Executive Secretary of ARDA, Anibor Kragha revealed that North Africa with 17 refineries would require a capital expenditure of $5.955b for an upgrade, and West and Central Africa with 12 refineries would need $6.285 billion, while East and southern Africa with seven refineries would need $3.415b.
Even though African countries have made a lot of money from fossil fuels, they have mismanaged the resources, and are now in a fix without resources to build new or maintain existing refineries. They are also struggling to provide electricity from fossil fuels, not to mention renewable investments.
Kragha said there was a need for the continent to invest in pan-African oil and product pipelines, stressing that Africa has only six countries with crude oil pipelines, eight with product pipelines, and six with both crude oil and product pipelines.
“Deepwater ports in Africa will reduce congestion and shipping costs,” he said, noting that imitations in port infrastructure increase congestion; fuel costs as a minimum port draught of 14 metres could save $15 per metric tonne of imported products.
Oil and gas experts are already worried over the impacts of Environmental, Social, and Governance (ESG) issues on financing for oil and gas projects. They insist that unless borrowers like Nigeria and other African oil producers quickly adapt, securing necessary funding for the sector may remain very difficult.
The Executive Director, CITAC, Elitsa Georgieva, noted the inability of Africa to meet half of its demand for Liquified Petroleum Gas, gasoline, jet A1 fuel, kerosene, gas oil, fuel oil, and others locally amidst growing population remains worrisome.
She noted that while technologies like electricity, biofuels like ethanol, compressed biomass pellets, and bio-gas digesters are yet to be developed and proven at scale for cooking, LPG remains an existing viable solution in the transition to fully renewable and emissions-free energy solutions.
According to her, renewable bio LPG when combined with innovative, and efficient technologies such as Micro CHP, fuel cells, hybrid heat pumps, or when used to support hybrid renewable energy systems will result in near-zero-emissions.
Georgieva said that the storage and distribution players on the continent must find access to investments and financing that target cleaner transport and cooking fuels, and associated distribution infrastructure.
Apart from this, there is also a growing rate of threat to existing infrastructure. Both power and oil and gas infrastructure are constantly vandalised in the country.
The Executive Chairman of Energy & Natural Resource Security Incorporated (ENRS), Derek Campbell, said that Nigeria and other countries have more to worry about the security of energy infrastructure.
While speaking on the topic “Energy Security: The Protection of Critical Energy Infrastructure and Natural Resource Assets,” Campbell decried the persistent vandalism of infrastructure in the Niger Delta.
Stating that cases of security attacks, including drone attacks on oil facilities in Saudi Arabia, METCALF Power Station sniper attack, and ransomware attack on Sonangol in 2019 cost the sector huge losses, Campbell said there was a lack of domain awareness in the industry.
According to him, energy companies must now prioritise physical and cyber risk mitigation solutions for critical energy infrastructure and natural resource assets.
Campbell sees Energy Security Risk & Resiliency Assessments (ESRRAs) as a practice that countries must now prioritise to avert growing dangers to critical energy infrastructure.
The demand for LPG has been growing in Africa, but the soaring price now presents a new challenge. It would be recalled that countries like Nigeria with 208 trillion standard cubic feet of gas reserves cannot meet half of the current demand.
The Executive Director, Rainoil Limited, Emmanuel Omuojine, said that optimisation of gas flaring in the country remains a viable option for Liquefied Petroleum Gas (LPG) penetration, adding that the nation’s GDP might witness $1b growth yearly through optimisation of flared gas.
Sub-optimal infrastructure, poor roads for transportation, significant gas processing infrastructure deficit, obsolete pipelines, and limited berthing facilities among others, however, remain critical barriers to LPG growth in Nigeria and other African countries.
Omuojine believes that the lack of investment incentives, import bottlenecks, multiple agency interfaces for projects, and importation, as well as challenges with the implementation of the Petroleum Industry Act (PIA), could limit the potential of LPG.
While reiterating that the total African market size for LPG would exceed $210b by 2028, Omuojine said that the use of LPG would continue to grow faster than other fuels, as LPG would be available, but prices will retain linked to crude oil.
He also noted that the accelerated demand growth in Nigeria, Kenya, South Africa and others is expected to eat into Sub-Saharan African LPG exports, eventually flipping to net imports.
According to him, Nigeria requires about $750m investment in LPG transport and retailing infrastructure across the country, to achieve the target of five Million metric tonnes of annual consumption.
Omuojine said by investing in gas adoption and utilisation, an estimate of over $27m per year would be generated by switching 50 per cent of kerosene and firewood users to LPG.
The direct implications of these energy crises mean that the continent would continue to suffer unemployment, poor standard of living, dismal industrial development, low economic growth, and weak currencies among others.
Amidst these challenges in the global energy landscape, beyond the Russia/Ukraine war, Africa must be ready to deploy its private wealth into financing energy security, while the continent must also begin to design policies at both regional and country-level to avert crises of greater dimension.