Nigeria is lagging behind on all fronts | Here’s what the 2018 Africa Energy Review has to say

by Mondiu Jaiyesimi and Jibril Ojolowo

Background

This report is a snapshot of Africa’s current energy industry using data from the recently published BP Statistical Review of World Energy as well as the data banks of the United States Energy Information Administration (EIA) and Organisation of Petroleum Exporting Countries (OPEC)) aimed at highlighting trends, challenges and possible long-term solutions.

The energy industry remains a key driver of the global economy, especially in Africa where it accounts for a significant proportion of the Gross Domestic Product (GDP) driving fiscal revenue and foreign exchange receipts.  More importantly, energy prices, as well as production volumes, have continued to play a key role in shaping the macroeconomic dimensions of the continent in relation to economic growth and terms of trade. Indeed, the national endowment of energy sources and the degree at which they are exploitable are diverse across the continent. Hence, this report explores the current outlook in Africa’s energy industry vis-à-vis development, distribution and production of key energy resources.

Africa’s Rising Oil Reserves and Production

In the past 20 years, crude oil reserves in Africa have grown by 68%, higher than the rates of growth in Middle East, Asia Pacific, Europe and The Commonwealth of Independent States (Russia and former Soviet Republics). Globally, proved crude oil reserves stand at 1696.9 billion barrels (bbl. hereafter) with Africa accounting for 7.5% of that with 126.5 bbl. Africa’s crude oil reserves have also been on the increase at least since 1989 culminating in more than double the original estimates in an 18-year period.

Libya (48.4 bbl.), Nigeria (37.5 bbl.), Algeria (12.2 bbl.), Angola (9.5 bbl.) and South Sudan (3.5 bbl.) occupy the top five positions as the continent’s largest crude oil reserves holders. Incidentally, the high rate of commercial oil exploration in Angola between 1995 and 2015 resulted in the Southern African country having the highest reserves growth rate in the top five from 3.1 bbl. to 9.5 bbl. In particular, the marked surge in Angola’s reserve was occasioned primarily by deep-water production investment in the oil rich continental shelf of the Angolan coast by international oil companies.

Africa currently produces approximately 9% of the daily global crude oil output and Nigeria has consistently ranked as the continent’s largest producer since 1979 in every 12-month period. Angola has also witnessed the most remarkable rise in crude oil production rankings from 13 thousand barrels of oil in 1965 behind Libya, Nigeria, Algeria, Egypt and Gabon to the second biggest producer in Africa only behind Nigeria in 2017. As a consequence, there has been a massive growth in Angola’s economy and it now ranks among the top five largest economies in Africa only behind Nigeria, Egypt, South Africa and Algeria according to the World Bank.

Algeria ranks third on the list of top crude oil producers in Africa with a production volume of 1540 thousand barrels per day followed by Libya (865 thousand barrels per day) and Egypt (660 thousand barrels per day). It is worth noting that one of the most significant production drops occurred in Libya as a result of the political instability which afflicted the North African country. It went from being the third highest producer of crude oil in Africa in 2007 (after Nigeria and Algeria) at 1820 thousand barrels daily to 426,000 thousand barrels in 2016, a threefold decrease, figuring a well over 300% drop. Coincidentally, this resulted in a cumulative decrease in oil trade movement in North Africa from 3.2 MBD in 2005 to 1.7 MBD in 2016 as well as an effect on global crude oil prices.

Besides the fall in global crude oil production in 1976 and 1982, Africa enjoyed a steady increase in production (from 9.7% in 1965 to 12.3% in 2008) until the aftershock of the Libyan revolution kicked in post-2010 which led to a growth rate of -13.5% between 2006 and 2016. Other countries which also witnessed negative growth rates during the 10-year period include Nigeria, Algeria, Chad and Republic of Congo.

For countries with significant crude-oil production, this serves as a major component of their GDP and foreign exchange earnings. This reliance can be detrimental to the revenue and infrastructural development of these countries if these resources are not properly managed.

Even with the global approach to less dependency on fossil fuels and the massive solar energy generation potential, crude-oil exploration in several African countries continue, aimed at improving local consumption (as sustainable energy practices are less advanced) and petro dollars needed for infrastructural development. Thus far, it is safe to say in many African countries blessed with this resource, the potential has not been fully exploited.

Increase in Crude Oil Consumption and Refinery Capacities

Crude oil consumption in Africa rose by 644% between 1965 and 2017 and Africa’s share of global crude oil consumption also rose from 1.8% to 4.1% during the 52-year period.

Egypt, the second largest economy in Africa with a population of 95 million, is ranked as the biggest consumer of crude oil on the continent with 816,000 bpd (almost a quarter of Africa’s total crude oil consumption). It is followed by South Africa (580,000 bpd) with a population of roughly 55 Million, Algeria (411,000 bpd) with a population of 41 million and Morocco (282,000 bpd) with a population of 35.28 million. The high rate of energy consumption per capita in these countries despite their low population relative to countries like Nigeria and Ethiopia (both over 100 million) is explained partly by their economic structures. It appears there is a direct relationship between the degree of industrialisation and urbanisation and energy consumption in these countries. This is also particularly true in the case of South Africa ranking as the highest consumer of primary energy in Africa with 120.6 million tonnes of oil equivalents (mtoe hereafter) in 2017.

The top three highest consumers in Africa also have the highest refinery capacities on the continent with Egypt coming first with 810,000 barrels of oil daily followed by Algeria (651,000) and South Africa (520,000). Their aggregate capacity is more than the rest of the African continent combined (1.5million barrels daily).

It is imperative that crude oil giants like Nigeria improve their lower aggregate capacity and also ramp up industrialisation and economic growth by increasing investment and diversification in this sector. A high dependence on imported refined products does not appear sustainable in the long run and fiscal expenditure can be better used to develop refineries. Ramping up refinery capacity can drive intercontinental supply of petroleum products which can help increase foreign exchange earnings, given the current heavy importation of these products from other continents to meet continental consumption.

Natural Gas- Reserves, Production and Consumption

The top four biggest natural gas reserves holders in Africa are Nigeria (5.2 trillion cubic meters, tcm hereafter), Algeria (4.3 tcm), Egypt (1.8 tcm) and Libya (1.4 tcm). Nigeria is also the ninth largest natural gas reserves holder in the world and it ranked as the fourth largest exporter of Liquefied Natural Gas (LNG) in 2015. Egypt is again the largest consumer of natural gas in Africa at 56 billion cubic meters (bcm hereafter) followed by Algeria (38.9 bcm) and South Africa (4.5 bcm). Natural gas production has followed an upward trend in Africa since 1965. Algeria (91.2 bcm) is the biggest producer of natural gas in Africa followed by Egypt (49.0 bcm), Nigeria (47.2 bcm) and Libya (11.5 bcm).

Natural gas is generally employed in generating power, a resource of scarcity in some African countries. Increase in local demand and price deregulation could effectively boost foreign and domestic investment and ramp up production. Gas flaring is still a common practice in Africa despite the discovery of the better use of associated gas (such as Angola LNG) and the cost keeps rising. The Nigerian Senate recently announced that flaring cost the country $2.5 billion annually and 200 people lose their lives monthly due to its toxic effect on the environment. It goes without saying that natural gas abundant African countries can do more with respect to concerted efforts to drive up effective use of natural gas in local regions. This is an area with economic potential where increased production can be matched with intercontinental trade to meet an ever-increasing demand, as evidenced in the recently signed gas pipeline deal between Nigeria (production) and Morocco (consumption).

Coal- Reserves, Production and Consumption

Although the share of coal in Africa’s energy portfolio is minuscule (1.3% of global total), the continent holds an appreciable amount of coal reserves. South Africa is the largest reserve holder of coal in Africa with 9,893 million tonnes of proved coal reserves. It holds 75% of all Africa’s coal reserves and holds more coal than all the countries in Africa, Middle East and South America. Zimbabwe comes second on the continent with 502 million tonnes of coal in reserves. Both South Africa and Zimbabwe are also the largest producers of coal on the continent. South Africa consumes the most coal (85.0 mtoe) followed by Egypt (0.4 mtoe) and Algeria (0.1 mtoe).

According to the International Energy Agency (IEA), Coal supplies make up 40% of global electricity generation and is the world’s most abundant and widely distributed fossil fuel. The IEA also forecasts that coal will continue to play a crucial role in global energy mix despite its negative emission attributes. This makes the future of coal in Africa interesting as the abundance of the fossil fuel has not been efficiently utilised by the continent. Although it is the third most consumed primary energy source on the continent, the common issues plaguing the oil and gas industry such as price volatility and security of supply will continue to make coal an attractive prospect in the medium to long term. This, however, needs to be approached with a strong consideration for cleaner coal solutions such as the Carbon Capture and Storage (CCS) technology. Coal being an available resource can be useful in a rapidly developing continent with a high demand for power in both industrial and residential sectors.

Renewable Energy and Nuclear – Biomass, wind, solar, hydro and geothermal

The consumption of renewable energy in Africa is dominated by South Africa with 2.0 mtoe- higher than Hungary (0.7 mtoe), Norway (0.7 mtoe) and Switzerland (0.8 mtoe). South Africa is also the sole generator and consumer of nuclear energy on record in Africa with 15.8 terawatt-hours generated and 3.6 mtoe consumed in 2017.

Solar energy infrastructure is also on the up in Africa as Morocco currently has the world’s largest concentrated solar power (CSP) capacity followed by South Africa who is also the first country in Africa to achieve 1 gigawatt (GW) of solar PV energy. It currently consumes the most solar energy on the continent with 3.7 terawatt-hours, about 63% of the total solar energy consumed on the continent. Solar energy consumption in Africa achieved a growth rate of 19.4% in 2017, higher than Europe’s 9.9%.

Kenya, home to the largest geothermal plant in the world (Olkaria Geothermal power plant 280MW) has the largest annual investment in geothermal capacity in Africa and fourth in the world behind Turkey, United States and Mexico. It is currently the ninth largest producer of geothermal energy in the world with a 15% annual growth rate between 2006 and 2016.

Ethiopia is a leading producer of wind energy in Africa with one of the largest wind farms on the continent. Egypt is the dominating figure in the generation and consumption of hydroelectricity in Africa but The Democratic Republic of Congo is set to build the biggest hydropower plant in the world with the capacity to generate about 40% of Africa’s electricity capacity. The 80 million USD Grand Inga Dam project will have a generating capacity of 40,000 MW, more than twice the size of the second largest hydropower plant in the world. The country also ranks as the world’s largest producer of cobalt (65% of global total).

Biomass still remains the most widely used fuel in Sub-Saharan Africa (SSA). In a bid to invest in low-carbon technologies, Kenya announced in 2015 that it will be building the largest biomass plant in Africa to be located in the Naivasha area of Kenya. According to the IEA and the World Bank, 80% of the population in SSA rely on traditional biomass (fuelwood and charcoal) for cooking. World Energy Outlook states that about 741 million people in SSA currently rely on wood-based biomass for their energy needs while only 4 million people rely on it in North Africa. By 2030, the use of wood-based biomass is expected to reduce in India, China and Latin America based on 2015 levels. It is however expected to rise to about 1 billion users in SSA from 741 million in 2015.

African nations are industry pacesetters in sustainable energy, making giant strides with ample available resources in the areas of solar, biomass and wind energy. Sustained policies and investments could see huge energy demands met and a diversification of the existing energy mix on the continent. However, only a handful of countries are contributing to this impact, as many countries are yet to come to the fold with harnessing the immense potential. Historically, hydro-electricity has been heavily employed in the region and still remains a dependent energy source.

Conclusion

Africa remains a region with immense energy potential but this study highlights the significant gaps in its domestic energy demand and supply chain for a developing and highly populated region. It also shows the investment opportunities available to both local and international players given sound government policies to make the platform viable.

With the well documented environmental effects of global warming and the drive towards environmental sustainability, the continent need not be left behind and thus significant investment needs to be made in greener energy solutions to meet the global trends and adopted policies.

Lessons can be learnt from Morocco, South Africa and Kenya’s leadership in their investment in large-scale renewable energy industries. Governments must promote continued investment (through budgetary allocations, local and international partnerships) and policies to harness the abundant resources in this region to meet domestic and intercontinental demands to boost commerce and industrialisation, areas where there is a significant need for an upgrade.

Leading crude oil giants like Nigeria and Angola must also make use of rich natural gas reserves and diversify their energy portfolio in order to aid industrialisation and further strengthen their growing economic prowess.

Coastal line countries need to take advantage of the wind power potential. Landlocked countries need to use solar power to their advantage. Countries with large riverine areas need to develop hydro dams. Mini-power grids must be encouraged to boost local demands. Technological advancements through research of traditional biomass solutions will be necessary to develop methods already employed in rural areas. International alliances can help knock the current scepticism about nuclear energy development.

Large revenue potentials lie not just in the form of boosting existing capacity to meet local demands but in intercontinental and international trade. It is no secret that nations with fulfilled energy capacities attract developments in industrialisation, tourism and foreign investment.

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