Africa poised to become energy powerhouse

A CONTRIBUTOR | APRIL 2011 | SOURCE: The Citizen

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.

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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 per cent 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 per cent 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, adding: “ [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.

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. (Agencies)

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).