This exclusive op-ed, brought to you by ESI Africa and Future Market Insights, examines why 2022 is set to be this decade’s defining year to address sustainable economic growth through power and energy in Africa.
Access to power and energy is the key to industrialisation, modernisation, and socio-economic development of the African continent. With an abundance of natural resources and unprecedented renewable energy potential, Africa is on the path to reap maximum benefits from the power and energy sector in 2022. It is also expected to boost the economy of the region through employment and new industry establishment.
Oil and gas are valuable energy resources and lifelines of developed economies. It supports socio-economic development and ensures energy security. As the foundation of global energy and economic development, oil and gas has the potential to eradicate the energy crisis, and enable economic growth. Positioned as the world’s last frontier in oil exploration, Africa is accelerating oil and gas exploration activities, making important discoveries in the past year that mark the beginning of a promising decade for the continent.
Sustainable and green energy has massive potential if done right with the proper measures. Multinational companies and international organisations have joined hands to promote sustainable energy development and enable universal access to electricity through programmes like “Agenda 2063: The Africa We Want” and the “2030 Agenda”. However, difficult operating environments, lack of transparency, regulatory uncertainty, political instability, and ongoing lack of infrastructure might hinder investment opportunities.
For the power and energy market, 2022 will be the year that defines the decade as many leaders, organisations and businesses have expressed their interest and commitment to attain inclusive and sustainable growth in Africa. In this op-ed, we discuss key trends that you must look out for in the African power and energy industry and what are the winning imperatives in this market.
Rise in oil and gas exploration and production activities
There is a need to improve access to modern energy to boost Africa’s economic development. Currently, in sub-Saharan Africa, fossil fuels make up about 40% of the total energy mix. We can expect a rise in these numbers as oil and natural gas exploration projects accelerates throughout the continent.
Despite the massive impact of the COVID-19 pandemic on fossil fuel development and investment, the discovery of new light oil and shale gas reservoirs has reaffirmed Africa’s position and potential to be a key oil-producing region.
Oil and gas field service providers will be the primary beneficiaries of the [oil and shall gas discovery] trend.
The most famous discovery of 2021 was the discovery of a massive reserve of light oil off the coast of Angola in the deep-sea block 15/06. Discovered by Eni Offshore Angola, the reserve holds the potential for 200-250 million barrels of oil. This will make West Africa, the second-largest oil-producing country in the sub-Saharan region.
In 2021, pockets of shale gas were also discovered in South Africa’s Karoo Basin as announced by the countries’ Mineral Resources and Energy Department. Initial testing and sampling results have shown promising results. Findings indicate that the country holds a potential 390 trillion cubic feet of recoverable natural gas. Such findings will drive the southern-African country’s economy and facilitate them towards clean energy transition.
Such oil and gas discoveries along with regulatory changes will present significant opportunities across the continent. Oil and gas field service providers will be the primary beneficiaries of the aforementioned trend.
With the rapid growth in energy demand and expansion of local consumer markets, oil exploration companies will be targeting drilling service providers. According to Future Market Insights’ report on Oil and Gas Field Service Market, a surge in petroleum products prices and advancement in enhanced oil recovery techniques will be the key growth drivers for the industry in 2022 in this region.
Increasing investment towards research and development of time-saving drilling rigs is expected to revolutionise the oil extraction and production industry in upcoming years.
Establishment of new natural gas pipelines
Natural gas pipelines are required to transport gas from gas wells to processing plants, import-export facilities, and homes. Therefore, an increase in Greenfield and Brownfield exploration activities will prompt the oil companies to establish a system of interconnected natural gas pipelines for the region.
the sales of high-performance oil and gas valves will surpass $12 billion by 2022 year-end.
As these exploration activities are carried out in harsh environmental conditions, the demand for high-performance gas valves will increase. According to the Future Market Insights report, the sales of high-performance oil and gas valves will surpass $12 billion by 2022 year-end.
These new oil and gas values are made of corrosion-resistant alloy (CRA) and can withstand high temperatures, corrosion and sour gas. The introduction of these pressure regulators in every African country will streamline the gas trade within the continent.
We are also seeing a sharp increase in the construction of natural gas pipelines across the continent. As governments are eyeing to increase gas exports to international markets, the demand for piping services and oil and gas values will increase significantly.
Some of the most popular projects include:
- The proposed $6 billion African Renaissance pipeline project connecting Mozambique’s gas-rich Robma River basin to Gauteng, South Africa.
- Proposal for a 1,800km Tanzania-Uganda Natural Gas Pipeline Project to transport LNG from Dar-es-Salaam, Tanzania to Kampala, Uganda.
- The proposed Ajaokuta Kaduna Kano natural gas pipeline will serve as part of the broader Trans-Nigeria pipeline project. These pipeline projects will not only promote gas exports from Africa, but also increase gas trade within Africa.
High demand for renewable energy
Africa’s energy crisis continues to serve as a direct constraint to economic growth. Currently, more than 600 million people do not have access to electricity and more than 900 million do not have access to clean fuel for cooking, says International Energy Agency.
Electrification of rural areas has become a priority for many African governments. Infrastructure deficits and untapped resources, combined with a net zero emissions target have created notable opportunities for foreign investors in the green energy sector.
Renewable energy is becoming an important part of Africa’s energy sector. It has gained significant traction and investment in recent years. Although the continent’s energy composition is almost entirely composed of fossil fuels and biomass, renewable energy is projected to account for a major chunk of total power generation capacity in the next ten years.
Early movers in renewable energy development are Egypt, South Africa, and Ethiopia.
Africa has an abundance of clean energy sources such as hydro, solar, and wind, as it lies near the equatorial line. Though the capacity varies across the continent, it is expected that clean energy will power around two-thirds of Africa’s mini- and off-grid systems over the next decade.
Early movers in renewable energy development are Egypt, South Africa, and Ethiopia. 2022 is expected to be a very productive and profitable year for Egypt, as the country aims at producing 20% of electricity from renewable energy sources by 2023. With the 1,650MW Benban Solarpark, which went live in 2019, and the ongoing $37 million solar plus storage project to power Egypt’s Sukari gold mine, Egypt has taken step towards integrating solar in its energy structure.
The Grand Ethiopian Renaissance Dam plans to add 6.45GW of installed capacity to the Ethiopian country’s power grid. When completed, the dam will be the largest hydroelectric power plant in Africa and the seventh-largest in the world.
What’s the recipe for winning in Africa’s power and energy sector in 2022?
Partnerships are the key
The African market is highly nuanced and complex. Partnering with experienced local companies will give you access to networks and regional decision-makers. By partnering you can navigate around the regulatory environment in the region, overcome sales challenges and avoid costly mistakes. You must be diligent when assessing potential partnerships, especially when it comes to reducing the risk of unknowingly engaging in corruption.
Portfolio diversification
You must curate the product portfolio at the beginning of the operation. Depending upon the business challenges of the particular region, you must diversify beyond core business functions. Some companies are diversifying into renewable energies to counteract the risk of oil and gas commodity price fluctuations. As your portfolio evolves, you need to recalibrate your portfolio to focus on transformative changes that leverage multiple types of innovation at the same time.
Capitalise on digitalizstion
Robotics, digitisation and the Internet of Things (IoT) are transforming the operating environment for oil and gas companies. Companies are adopting digital technologies to develop resilience against the recession and adverse consequences in Africa. The rapidly changing dynamics of the industry require new technology-driven solutions to address the turmoil. By leveraging digitalisation you can improve productivity, secure operations, and reduce costs.
Plan for volatility
Africa’s power and energy sector is a high-risk high-reward environment. You must be prepared for the risks of investing and operating in this market. You must be vigilant about the changing regulations and policies, partners or suppliers, infrastructure, people and the environment.
You must plan ahead and keep in mind political, security, governance, and economic, structural, national liquidity and currency risks. You must understand the local environment and develop regional mitigation strategies. Understanding the evolving landscape helps you in risk management in a sustainable and opportunistic way.
Source: https://www.esi-africa.com/