Africa could hold the key to solving the world’s looming energy crisis but unlocking the continent’s vast potential will not be easy.
As supplies of oil and gas from traditional sources diminish, international energy companies are pushing into increasingly volatile and environmentally-sensitive territory in their scramble to meet demand. Among the most controversial projects on the starting blocks for 2011 are a proposed $17 billion development of the world’s third largest hydroelectric dam in the Amazon rainforest and the possibility of drilling in Alaska’s Arctic Refuge.
But it is in Africa that many believe the most potential lies for boosting energy supplies. Over the next two decades, 90% of new resource development in oil and gas will be in the developing world, and much of that in Africa. Industry experts are asking whether Africa’s transformation into an energy powerhouse could offer an answer to the energy conundrum – both as an oil producer and a testing ground for large-scale clean energy. But potential investors need also to be aware of the risks.
Africa already accounts for 10% of the world’s oil supplies but a second generation of oil production has emerged in the last three years, most recently off Ghana’s coast. This has been spurred in part by rapid advances in drilling technology which have prized open new reserves. “Everyone knew the Guinea basin was a very rich deposit for hydrocarbons, but until recently all the attention focused on a small group of countries that were seen as worthwhile investments,” says Philippe de Pontet, an analyst at political risk consultant Eurasia Group. ” [But today] even countries that were totally off the radar are getting a fresh look.”
Compared to Middle East crude, African oil has many advantages. It is light and low in sulfur – a quality highly prized by refiners – it is located primarily offshore and favorable production sharing agreements are readily available. “With the decline in production [of this kind of oil] in Europe, there should be a constant demand for crude from Africa in the future,” says Olivier Jakob, an analyst at Petromatrix. While some of the biggest finds have been in Uganda and Ghana, Sebastian Spio-Garbrah, founder of risk consultant Da Mina Advisors, says that exploration off the shore of Kenya and in Tanzania and South Sudan is the most crucial for the Asian market, due to lower shipping costs. “There you have the real prospect that exploration . . . could rise dramatically.” However, concerns remain over the environmental impact of so many large-scale energy projects in developing countries. “There’s certainly more talk of environmental protection,” says Julian Lee, an analyst at the Center for Global Energy Studies. “It’s not clear whether this will translate into regulation on the ground, but it will become much more important. Companies have fewer places to hide these days and are closely scrutinized by NGOs, if not governments. There’s certainly a general movement not to repeat the experience in Nigeria.” Mr. Lee refers to insensitive oil exploration in Nigeria’s primary producing region, the Niger Delta, over the last five decades. Multinational oil companies have caused many forms of oil-generated pollution and some environmental groups estimate the region now experiences the equivalent of the Exxon Valdez oil spill every year.
Ghana’s President John Atta Mills turns on the valve to allow the first barrel of oil to flow from the country’s newly opened Jubilee offshore oil field in December.
Regulation is no silver bullet in Africa, but it is hoped it could help pen a new chapter for African oil. According to Mr. de Pontet, the Gulf of Mexico Spill acted as a wake-up call for governments in relation to the tourism, fishing and farming industries. “Even in Angola the [government] is looking to enforce tougher regulations for offshore drilling. The BP spill gave additional momentum,” he says.
Not only is Africa rich in natural gas and oil, but the continent also has plenty of sunshine, strong winds, countless powerful river systems and hydroelectric dams.
Africa’s electricity supply continues to depend heavily on carbon-based energy sources, but an increasing number of governments are looking at the potential of wind turbines, solar panels and other forms of cleaner energy. Opportunity for development in renewable energy in Africa is huge, with the potential to draw in foreign investment as well as funding from the World Bank’s Clean Technology Fund to spearhead a green revolution. Energy experts believe renewable technologies could even allow poor communities without electricity to leapfrog the West’s high-carbon technology, in the same way mobile phones jumped over landline technology in many developing African countries. At the end of 2008, Africa’s installed wind power capacity was just 593 megawatts, but by the end of last year it was just under one gigawatt. (1000 megawatts). In South Africa and Kenya, with wind potential of up to 60,000 megawatts and 30,000 megawatts respectively, local projects are expected to boom. The carbon credit market may also prove a strong incentive for investment in other types of renewable energy. Kenya was the first African nation to build significant geothermal energy sources and is quickly expanding its supply, which now account for 10% to 15% of its energy mix. It plans to develop 10,000 megawatts from geothermal steam sources by 2030, shifting the East African nation’s electricity load from weather-dependent hydropower sources to renewable geothermal. It is also hoped that as technology improves and costs fall, solar power will also enter the African renewable energy mix.
A German-led consortium has already publicized plans to develop a €400 billion solar park in the Sahara Desert, a massive natural storehouse of solar energy. The Sahara Forest Project proposes building concentrated solar power plants which use mirrors to focus light on water pipes or boilers, generating superheated steam to operate conventional steam turbines.
The €400 billion plan to power Europe using thermo-solar cells in the Sahara desert takes shape. Critics have questioned the project’s viability and expense.
Scaling the technology to produce meaningful quantities of electricity is estimated to cost about $59 billion and to be operational by 2020. “Ultimately for Africa solar is the answer, although [costs mean] we may still be decades away,” says Hermann Oelsner, president of the African Wind Energy Association.
As with any investment in Africa, potential is never the problem. It is the time and cost of making such projects a reality that ultimately threatens even the most ambitious of investments.
Africa does hold great potential in energy especially in renewables like wind and solar. Various countries are trying to exploit the advantages that they have naturally. Namibia is going down the hydropower route and Egypt is building thermal power plants. There is plenty that Africa can do to better the environment and help contribute to a better more sustainable future while at the same time benefiting economically. As the benefits both economically and environmentally become clear, expect an increase in interest and investment especially since Africa is the new frontier after years of rapid rise and investment in Asia.