ENERGY DOSSIER

A major energy t ransit ion

The global energy companies’ shift towards greener sources of power comes as a blow for oil-rich African countries. What’s good for the goose is not good for the gander

By PIERRE-OLIVIER ROUAUD

On the continent, Total, Shell and Eni are prioritising their gas developments. But their projects in renewable energies and carbon offsetting are still modest. This focus on gas is good news for some environmentalists, but bad news for African oil-producing countries that

Senegal’s Grand Tortue Ahmeyim LNG project

benefit from the tax revenue and jobs that come from oil.

Under pressure from public opinion and Western regulators, but also from their shareholders and financial partners, the oil sector’s majors, and especially the European ones – Shell, BP, Total and Eni – have begun an unprecedented change: their voluntary and gradual withdrawal from the extraction of crude oil in favour of ‘greener’ energies. Shell’s CEO Ben van Beurden has said that the Dutch-British group’s oil production peaked in 2019 and is now declining by 1% to 2% per year.

The stated goal of many oil majors, supported by the European Union and the United Kingdom, is ‘carbon neutrality’ by 2050. The European majors have no legal obligations at this stage, but they have set this target for all their activities, including the final use of the fuels they sell – which is by far the most important factor in carbon emissions. For example, Total’s direct emissions amount to about 45m tonnes of CO2 equivalent, but

the group estimates those related to vehicle fuel at 450m tonnes.

In the global negotiations on CO2 emissions, the continent is more of a spectator than a player. It generates 9% of the world’s liquid petroleum (oil) production (7.2m barrels per day) and 6% of natural gas production. But it remains a modest emitter of greenhouse gases: with 17% of the world’s population, Africa accounts for only 2% of emissions.

SHARE OF INSTALLED RENEWABLE AND FOSSIL FUEL GENERATION CAPACITY IN AFRICA BY REGION IN 2019

Bubble size based on total installed capacity in the respective region

Renewable energy

Fossil fuels & nuclear

107,928 MW

No appetite for new projects

Half of Africa’s oil production is exported. However, when it comes to energy, the priority for Africa’s governments is first and foremost to improve access to it for their populations: 600 million people still lack electricity, and the massive use of biomass has devastating effects on health and the environment.

The road to energy transition for the European majors will be long. A small consolation for their managers is that the US giants Exxon and Chevron – which are both less present on the continent than the Europeans and less convinced of the risks linked to climate change – and the Chinese companies CNOOC and Sinopec are much further behind.

For the African national oil companies, energy transition is not their concern: their goal is to optimise the exploitation of hydrocarbon resources, of which they hold a large part of the continent’s reserves. Energy transition is a Western concept designed to solve a Western problem.

The African deposits that have already been exploited should easily find investors, even if they are no longer led by the majors. In Nigeria, for example, Shell, Total and Eni recently sold 45% of the offshore OML 17 field to billionaire Tony Elumelu for $1.1bn. The risk for African countries from the sudden focus on energy transition is that developments will slow down. Jonathan Evans, BP’s director of new African projects, stated during Africa Oil Week, at the end of 2020, that, due to the carbon-emission constraints, BP will launch very few oil extraction projects on the continent.

This trend is all the more pronounced since the majors’ Western financial partners are now more reluctant to invest in large extractive projects. Barclays and Credit Suisse have announced that they will cease financing the East African Crude Oil Pipeline in Uganda and Tanzania, which would have allowed Total and CNOOC to develop their Lake Albert fields.

“Development agencies and even multilateral donors are increasingly reluctant to finance fossil-fuel projects, even gas,” says Stéphane His, senior consultant at the French research firm Enerdata.

48,289

35,754

22,668

Natural gas Coal Hydropower Diesel & fuel oil

7,234 5,753 1,940 1,626 830

SOURCE: IRENA

Solar Wind Nuclear Bioenergy Geothermal

PRIMARY ENERGY DEMAND IN AFRICA

Renewables Natural gas Oil Coal Biomass

2%

45% 16%

SOURCE: IEA

23%

13%

Green and mean

The policy is not to everyone’s taste. Cameroonian lawyer NJ Ayuk, president of the African Energy Chamber, denounces the “demonisation” of the sector and the “anti-African” attitude of Western governments and environmental organisations like Greenpeace. An example of their influence is the recent decision of the British government’s foreign credit agency UK Export Finance (UKEF) to no longer support gas projects in Mozambique.

In this context, how are the European majors reducing their carbon footprints in Africa? In addition to ‘operational efficiency’ (reducing methane leaks from wells or ending flaring and optimising well drilling), their plans are based

Egypt’s Zohr giant offshore gas field

around three strategies: gas, renewables, and nature-based carbonoffset projects.

On the continent, if the majors are backing off from oil, they are pushing hard for gas with tens of billions of dollars in projects. “On a global level, the majors are switching over. Most of them already derive half of their revenue from gas,” says His. The reason is well-known: coal was used for 37% of the world’s electricity generation in 2019. Replacing it with gas would cut global CO2 emissions in half.

It’s a gas, gas, gas!

Gas is the ‘transitional energy’ touted by Patrick Pouyanné, Total’s CEO. This vision is strongly contested by environmental NGOs, which point out that gas production is still polluting, that it emits CO2 and that it is not a renewable energy.

On the continent, while continuing to work in countries with a long experience in the gas sector, such as Algeria, the majors have established themselves in new production countries where major discoveries have been made. In Egypt, Eni has changed the country’s energy landscape with the giant Zohr field.

Mozambique has three gas megaprojects totalling more than $55bn in planned investments. But the largest of these, Mozambique LNG, was suspended by Total following the attack on the nearby town of Palma at the end of March. The second project on the list, Rovuma LNG, led by Eni with the support of ExxonMobil, is still awaiting the final go-ahead.

In West Africa, Shell (25%) and Total (15%) are leading a $4bn investment in a seventh LNG processing unit on Nigeria’s Bonny Island with the semi-public group NLNG. In Senegal and Mauritania, the offshore Grand Tortue Ahmeyim (GTA) field, led by BP in partnership with the explorer Kosmos, is expected to produce its first gas in 2023 and to boost the economies of those two countries. Finally, in Angola, Chevron, Eni (operator), Total and BP, together with Sonangol, are currently developing a $12bn integrated liquefied natural gas (LNG) project in Soyo.

While the gas equation relies mainly on exports to developed countries or major emerging markets (such as China), the good news for Africa is that it can benefit local electrification projects.

This is the case in Mozambique and Senegal with the GTA project, which is intended to supply several power plants. In Ghana, Shell has just invested in the Tema LNG terminal, which will make the country the very first south of the Sahara to import LNG. Total expects to do the same in Côte d’Ivoire and Benin. In Angola, the future Soyo terminal will supply a 750MW power plant. For the governments of these countries, the preoccupations of Western companies with reducing their carbon footprint could not be further from their minds.

$55bn

Combined planned investment in Mozambique’s three gas megaprojects: Mozambique LNG, Rovuma and Coral

ENVIRONMENT

Green shoots

To meet their goal of becoming carbon neutral by 2050, energy companies are backing largescale reforestation projects, like Total’s in the Republic of Congo

By CHRISTOPHE LE BEC

Besides focusing on gas and renewables, the world’s major energy companies are also working on ‘negative CO2 impact’ solutions to offset the emissions resulting from their activities. In Africa, their efforts are focused on forestry projects, particularly within the UN’s REDD+ framework (Reducing Emissions from Deforestation in Developing countries). This initiative relies on a strict methodology and independent certifiers such as the US organisation Verra.

Total has set up a subsidiary, Nature Based Solutions, dedicated to environmental projects. With a budget of $100m per year starting in 2020, it aims to capture 5m tonnes of CO2 per year by 2030. With the specialised French consultancy Forêt Ressources Management (FRM), Total has signed a partnership with the Republic of Congo to plant a new 40,000 hectare forest on the Batéké Plateau.

This forest is intended to be a ‘carbon sink’, accumulating and storing around 13m tonnes of CO2 over 20 years and thereby lowering its concentration in the atmosphere. The planting of acacia trees on this sandy plateau some 200km north of the country’s capital, near the Lefini and Congo rivers, is expected to create a forest environment more resistant to bush fires, and to increase biodiversity. The project, which is fully financed by Total – around $230m over the life of the project –includes agroforestry crops developed with local populations for sustainable agricultural and wood energy production.

By 2040, the responsible management of the forest using planted trees should enable the natural regeneration of local species and the supply of sawn timber and plywood to the Republic of Congo and its neighbour the DRC.

Acacia seedlings for the Batéké forest project

FNC

Local sustainability

According to Nicolas Terraz, head of Total E&P Sub-Saharan Africa, this is the first project of its kind on the continent for the French group, which is aiming for carbon neutrality by 2050. Its environmental performance will be certified by independent auditors under Verra’s Verified Carbon Standard and its Climate, Community & Biodiversity standards.

“We want to develop these projects alongside recognised partners, such as FRM, from whom we have a lot to learn, and in dialogue with local communities, in order to anchor our commitment over time and contribute to local development,” said Adrien Henry, vice-president of Total’s Nature Based Solutions, at the announcement of the project’s launch on 16 March of this year.

British-Dutch firm Shell is developing its largest projects in Asia – in Indonesia, in particular – and is involved in reforestation projects in Ghana and Kenya. Meanwhile, Italy’s Eni is supporting the REDD+ Luangwa Community Forests Project in Zambia, which aims to capture 1.5m tonnes of CO2. The group promises other partnerships in Mozambique, Ghana, Congo, DRC and Angola.

Total’s Prieska solar park in South Africa

GREEN ENERGY

Oil majors are slow on solar and wind

LAURENT ZYLBERMAN/GRAPHIX IMAGES/TOTAL

Administrative hurdles, poor infrastructure and the necessity for small-scale projects are all deterrents to the big players. That’s where partnerships come in

By PIERRE-OLIVIER ROUAUD

The oil majors are touting their global ambitions for renewable energy. France’s Total plans to invest $60bn in the sector within the next 10 years and is targeting 100GW of capacity on a global scale – that is 322 times the installed capacity of Africa’s largest wind farm at Kenya’s Lake Turkana. BP is targeting 30GW by the same date, while Shell has pledged to invest an annual $2bn-$3bn worldwide.

But, for the moment, the investment of the majors in renewables on the continent remains small. While Eni is promising solar projects in Egypt and Angola (Solenova, a joint project with Sonangol), it currently only has small photovoltaic plants in Tunisia, Algeria and Angola with less than 40MWp each in capacity.

Total operates in the solar sector through various subsidiaries, including Total Eren and the US company SunPower, which has developed the South African Prieska plant (86MWp). After Uganda in 2016 (10MWp in Soroti), Total Eren commissioned a 126MWp photovoltaic park near Aswan in Egypt in mid-2019. The group has also signed a contract with Greentech to build a 35MWp solar plant in Angola, and has developed industry-focused projects such as the IAMGOLD Essakane gold mine in Burkina Faso (15MWp). Shell is virtually absent from Africa as a project leader in renewables, as is BP, despite its 2018 partnership with Egypt’s Hassan Allam Utilities.

2030

Date on which Kenya’s Lake Turkana Wind Power Project is due to reach its full capacity of 310 MW.

Risks and red tape

“The majors take a global approach to carbon-emissions reduction and are focusing their transition efforts on developed and large emerging countries. Because of the structure of these economies and their energy mix, the impact is more rapid and massive than it would be in Africa,” says Francis Perrin, associate researcher at the Policy Center for the New South in Rabat.

A lack of will, or is it something else? The time it takes to set up projects in Africa and the poor electricity networks are obvious deterrents. In addition, there is the risk of cyclones to wind power in tropical areas, the lack of legislative frameworks in many countries, and ambiguity over land rights, which has proved a problem in Kenya.

Oil companies accustomed to mega-projects are ill-equipped to handle a multiplicity of small projects, microgrids or M-Kopastyle solar energy. “The future of electrification in Africa depends in part on decentralised renewable production. But the majors still have very little presence in this niche,” says Stéphane His of the Enerdata consultancy.

To speed things up, many of the companies are looking for partnerships. Through its foundation, Shell has provided $45m to a micro-electrification initiative supported by the US International Development Finance Corporation. In 2019, Shell and Japan’s Sumitomo bought a 15% stake in Powergen, a Kenyan microgrid developer. And Total has created Total Access To Energy Solutions (TATES) to develop pilot projects and support start-ups in East Africa.

EXPERTADVICE

66 avenue Marceau 75008 Paris - France Standard : + 33 1 53 57 70 70 rebecca.major@hsf.com

www.hsf.com

Green Energy in Africa: Accelerating energy transitions across the continent

International investors need to reduce their carbon footprint globally and are being pushed by market forces, legislators, courts and shareholders to do so.

Africa needs an «energy progression» as well as an «energy transition». In many parts of the African continent, it is not a question of chang ing the way electricity or transport networks are used, but a question of making reliable electricity supplies and transport networks available for the first time. Africa’s natural resources also need to be used to provide revenue for African citizens.

We think that the African continent can use the global «green b u s i n e s s revol u t i o n » to i t s advantage.

African governments and legislators can harness this green revolution to facilitate access to electricity for African populations and encourage exports that suit the needs of international investors. The challenge will be to find a happy balance in order to protect the African economic environment with a healthy level of exports, and the social and economic domestic environment with an energy progression.

There will be enormous investments in Europe in these areas in the next few years, by private companies, national governments and the European Union. African governments and African businesses need to position themselves now to capture some of these investments and encourage sustainable investment in the African energy sector going forward.

Some international companies are seeing Africa as a good testing ground for innovative t ec h n o l o g i e s a n d b u s i n e s s models. For example, we are seeing investments and potential investments from Europe (and elsewhere) into off-grid solar, battery storage, improved hydroelectric technology and various uses of blue and green hydrogen. Africa could become an attractive place for using

Rebecca Major,

Partner, Head of Energy and Natural Resources, Paris

technologies such as hydrogen and renewable sources to make existing and new natural resources projects greener and t h e re f o re mo re ma rket a b l e in the future. We have been talking to our clients about g re e n e r min es, greener ga s and LNG production, greener ammonia production and greener refining and beneficiation processes generally in Africa.

We hope to see African policy and legislation continue to evolve to take account of this game-changing revolution and look forward to continuing to advise international investors a n d g over n m e n t s o n t h e s e exciting challenges.