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Is Africa’s oil and gas sector under threat?

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Is Africa’s oil and gas sector under threat?

The current flurry of activity around climate change comes ahead of UN talks in Lima, Peru, this month, which will set the groundwork for a global warming pact to be debated in Paris early next year. The tentative progress being made has encouraged some observers that negotiations are on track, but as ever, the devil will be in the detail. And Africa’s oil and gas interests will be keeping a particularly close eye on how any treaty talks differently about developed and developing economies. Many argue that any deal must be careful not to stand in the way of poorer countries industrialising and growing. This means that Africa’s obligations ought to be different to those of nations that reached high levels of industrialisation long ago.

Another way in which African oil and gas companies may avoid restrictions imposed by a climate change agreement comes in the form of Carbon Capture and Storage (CCS). CCS is a technology whereby fossil fuels are “stripped” of their dirty gas emissions that are then buried in underground reservoirs.

The first full-scale CCS plant, located in Canada, is reportedly operating relatively successfully, and in a surprise announcement, the European Union recently endorsed the process in its climate and energy package. If the technology were to be developed and the knowledge transferred to Africa, it could be used as an option to offset greenhouse gas emissions and therefore allow the continued exploitation of hydrocarbons.

The oil and gas industry could certainly do with these kinds of breakthroughs as a number of financiers and investors have warned that fossil fuels might be the next sub-prime crisis in waiting. Mark Lewis, the former head of energy research at Deutsche Bank, for example, says that if the Paris meeting results in emissions limits, the fossil fuel industry “would stand to lose $28 trillion of gross revenues over the next two decades, compared to a business-as-usual scenario. The oil industry alone would face ‘stranded assets’ of $19 trillion.”

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Renewable competition

A further challenge that the oil industry will need to confront going forwards is competition from renewable energy. The rapidly declining price of solar panel systems and, to a lesser extent, wind turbines, makes them highly attractive propositions, especially with more African utility companies offering “buy-in” tariffs. Solving issues around energy storage and consistent generation would even further open up the possibility of grid-scale power plants using concentrated solar power.

There are currently systems being tried such as pumping water uphill during the times when electricity is generated then letting it fall to drive turbines and generate power at “off-times”, or attempts to use solar energy to heat molten salts which can store the energy to be released when needed. These are promising technologies, but in their current formulations, neither is particularly efficient.

However, scientists such as Nicolas Calvet, professor of mechanical and materials engineering at the Masdar Institute in Abu Dhabi, are constantly innovating and researching in the hope of developing more viable alternatives. And Calvet, who leads Masdar’s thermal energy storage research group, believes he may be onto a promising new system. Calvet believes using sand, which is both cheaper than salts and can store thermal energy at 1000°C rather than molten salts’ 600°C, could work even better.

It will be a while before we know how viable, efficient and scalable such a system would be, but either way it is clear that Africa’s oil and gas industry faces considerable challenges in the near future.

Whether from economic arguments against exploration, growing concerns around climate change, or competition from renewable energies, the delegates of Africa Oil Week will no doubt be polishing their crystal balls to work out what’s next for the industry. 

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Written by Stephen Williams

Stephen Williams is a freelance journalist, based in London UK. Having worked in publishing for over 40years, he has focused on covering issues that directly affect the majority world. A specialist on Africa, his remit also includes the Middle East and North Africa region. Currently, Williams works for a number of London-based print publications including New African magazine.

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