Russia and Saudi are trying to manage supply of crude oil…..
In case you haven’t been following the double Black Swan- COVID-19 and a collapse in demand for oil and natural gas, I thought it was time for a quick update.
The result is such a dramatic fall in oil prices like we haven’t seen for decades. Due to the impact of CORVID-19 on the global economy the demand for crude oil has collapsed. Every oil company in the world is having to assess their spending plans and is now making radical cuts in their spending plans. Even if oil prices recover to $40 per barrel from today’s $25-30 level, challenging projects such as those in East Africa, will not reach FID soon, if ever.
For example, Exxon-Mobil has now delayed the Final Invesment Decsion for the massive Mozambique Rovuma LNG project which was to commercilaie 85 TCF of discovered natural gas. They have also delayed the latest phase of the Guyana offshore development which has been the crowning achievement in Exxon-Mobil’s recent exploration success. Six months ago Guyana was thought to reach a production level of 750,000 bopd by late this decade.
More than half of global licensing rounds could be canceled. The pandemic and the collapse of oil prices could lead to more than half of global licensing rounds for new oil and gas offerings getting cancelled, according to Rystad Energy. “This year was slated to be another remarkable year for exploration with about 45 countries launching at least 52 lease rounds, about 60% of them in offshore areas,” Rystad said in a report. Half of those could be canceled. South Sudan has just announced that it has suspended its planned licence round.
There are many stories about Tullow and partners advancing their Turkana Oil project in Kenya. In fact, according to reports in Upstream, a revised Environmental and Social Impact Assessment(ESIA) has been submitted to the Kenyan government with a change in the plan for the export facility to now build a tank farm onshore in Lamu rather and an offshore loading facility at greater cost. The Kenya government led LAPSSET ( Lamu South Sudan Ethiopia Transit ) project is continuing with stakeholder engagement including an ESIA. Within the LAPSSET corridor a pipeline from Turkana to Lamu is planned as a key part of the project. Given Tullow and partner Total are looking to sell their position in Kenya, it is unlikely this oil development project is going anywhere for quite some time. Ugandan authorities continue to publicise ongoing discussions with Total/Tullow and CNOOC about the Albertine mega oil development project. These projects are unlikely to proceed for some time.
THE RENEWABLE ENERGY FUTURE IN EAST AFRICA
It is now the time for Sub Saharan African countries to really drive forward in the development of their renewable energy resources. The International Energy Agency ( IEA) has just appointed its’ first Africa Programme Manager to expand engagement on energy issues across the continent. The IEA 2019 Africa report illustrates SubSaharan Africa and one example of a specific country’s plans in Kenya:
Renewable energy experts Anthony Mburu and Rao Konidena report in renewableenergyworld.com that Countries such as Libya, Egypt, Sudan, and the Democratic Republic of Congo (DRC), Ethiopia, Kenya, Rwanda, Tanzania, and Uganda are in Eastern Africa Power Pool (EAPP). In this region, pumped hydro dams are usually the main source of energy storage. In essence, a scan across most countries in the region show that reliance on hydroelectricity is significant. Energy storage systems will be the key to sustained use of intermittent sources.
Wind and solar are starting to be built at utility-scale, and that has driven the conversation towards deployment of battery energy storage. This storage interest is particularly strong in Kenya, where variable renewable energy generation now accounts for 14% of installed generation capacity.
The Eastern Africa countries have announced more than 2,000MW in new solar PV and wind power projects. These new projects are estimated to start online over the next three years. On the commercial and industrial front, Battery Energy Storage System (BESS) technologies have made headway, especially in both Front Of The Meter (FOTM) and Behind The Meter (BTM) applications.
The use cases lend themselves to three broad categories:
- Energy Access Projects / Rural Electrification
- Diesel Abatement / Replacement
- Weak Grid Mitigation.
Various rural electrification programmes and private sector-led investments across Kenya, Uganda, Tanzania, Rwanda, Ethiopia, South Sudan have deployed dozens of hybrid micro-grids (solar plus BESS plus generator). These represent the most common and only FOTM BESS applications in the region. Lead-acid batteries have dominated the market space due to lower capital expenditures (Capex), but Lithium BESS installations are making their mark.
Energy access projects are designed to provide towns and villages with reliable and cost-effective renewable energy, often displacing diesel generators and the darkness.
Some projects singled out by Mburu and Rao Konidena include:
- A 2.3MWh BESS coupled with a 450KWp solar PV site in Eritrea
- A 1.9MWh BESS coupled with a 400KWp solar PV at another site in Eritrea
- A 2MWh BESS coupled with a 1.5MWp solar PV site in DRC
- Ethiopian Government pilot programme with 6.5MWh of BESS spread across 12 rural electrification sites
- Kenyan Government pilot programme with 11.2MWh of BESS spread across seven rural electrification sites
The Ugandan and Kenyan governments can see the writing on the wall with respect to their oil developments. Both are now pushing forward with renewable energy projects in hydro, solar, wind and geothermal. Not all projects are going to proceed as hoped for. For example the 310 MW LakeTurkana wind farm which Vestas was developing was slowed due to delays in building the connecting transmission lines such that Google pulled out of their intended acquisition of an equity position in the project. Land acquisition was part of the hold up. This project should provide nearly17% of Kenya’s electricity needs when operational. Kenya Power is the purchaser of the power with a 20 year Power Purchase Agreement.
Kenya is also progressing hydro projects in the form of a small 14.7 MW ‘run-of-river’ project in Kaptis in northwestern Kenya. The project should start up in late 2020 or 2021. As one can see from the IEA graphs, Kenya is also a major developer of geothermal energy. Kenya’s geothermal energy developer, Kenya Electicity Generating Company ( KenGen) is evaluating another project called Akiira in the Olkaria region similar to the facility operating below. Alkiira could ultimately produce 140 MW by exploiting the rift valley geothermal resource.
And last but not least, The World Bank is committing $150m USD to support a solar electrification project in Kenya to connect 800 public facilities and 250,000 households.
Diesel abatement projects are also reaching commercial levels. Several hybrid mini-grids deployed to supplant thermal generation as the primary power source in commercial facilities that are situated away from the reach of the main grid. Diesel cost in the region of $1.00/liter, which translates into a Levelised Cost of Energy (LCOE) of $0.35/kWh, a combined solar + BESS LCOE in the region of $0.18-$0.25 is proving competitive. Adoption has, however, been slowed down by the high initial Capex associated with switching. More is needed to provide well-matched financing to spur uptake.
In industrial hubs, most activity in East Africa is concentrated, which is well supplied by the national grid. However, there are agricultural-processing facilities that are located relatively far from these industrial parks. Often, they happen to be situated at the end of a long distribution line with brownouts. By combining on-site generation (Solar PV) and BESS, grid-interactive mini-grids solve the brownouts problem. The advanced BESS controls enable these sites to monitor grid conditions and isolate the site when there is a grid outage or severe deterioration on power quality.
A notable weak grid mitigation project is a 4MWh BESS co-located with a 1.5MW Solar PV + grid at a Tea Plantation and factory in Kenya.
Uganda estimates that overall renewable energy potential is ca 5,300 MW. Including hydro, geothermal, biomass cogen, wind and solar. Uganda is investing heavily in hydro projects. The latest is the Ayago power station located east of Lake Albert on the Nile. When built the plant will have a capacity of 840MW. This project alongside the Karuma project upstream of Ayago would increase generating capacity by 40%. Financing with debt and equity of the $1.4bn USD project in conjunction with PowerChina International should be completed in 2020. The government of Uganda has just signed an agreement with Amea Power from the UAE to construct a 10 MW solar plant and a 10 MW wind farm in the West Nile region with construction to start in 2021. Amea is also eyeing plans to construct a 120 MW wind farm in Karamoja, northeastern Uganda alongside an 80 MW solar power plant. Uganda also has significant geothermal potential which should be considered. It might have much less environmental impact that these mega hydro projects.
Lastly just to remind us all that infrastructure roads and railways continue to be planned and supported by international investors, both Chinese, European and American.
US based Railnet International is planning to invest nearly US $11bn in a modern railway line and high-speed trains linking Zambia, Zimbabwe and Mozambique in Southern Africa. According to Railnet’s CEO Donald Kress his company is in talks with governments in the three countries and have already signed an agreement to start feasibility studies in Zambia.
The investment in the project, running from Zambia’s Copperbelt province to the port of Beira in Mozambique via Harare in Zimbabwe includes the cost of locomotives and wagons. “Feasibility studies are expected to begin soon and would be followed by a detailed engineering design for the project on the Zambian side.
This is the latest in a trio of railroads being planned in Ethiopia, Kenya and Tanzania leading to the coast which were described in the previous East Africa Update.
All oil and natural gas development plans in East Africa are off for now that COVID-19 has hit Africa and the global investors are doing everything they can to prevent a major depression in the global economy. It is time for renewable energy developments to get more focus and investment.
By Greg Coleman