Should U.S. Fund Africa’s Gas-To-Power Projects?

By D.A. Barber AFKI Original Published: February 10, 2015, 9:39 am
Sasol gas-to-power plant Photo: Wärtsilä

As natural gas becomes cheaper, many sub-Saharan Africa countries with significant deposits are developing gas-to-power projects to cope with electricity needed to boost their economies.

“The use of natural gas for domestic consumption makes a lot of sense – they’ve got a lot of gas and they don’t have a lot of electricity,” said Jennifer Cooke, director of the Africa program at the Center for Strategic and International Studies, in an AFKInsider interview.

The Overseas Private Investment Corp., or OPIC, is the U.S. government agency that supplies the bulk of the funding for the Power Africa initiative.

There is a dispute over U.S. funding for such gas-to-power projects as a “transition” to renewable power in light of climate change concerns being debated in preparation for Congress’ reauthorization of OPIC.

“The U.S. has to be careful about how it imposes standards on these countries,” Cooke told AFKInsider.

With the exception of South Africa’s reliance on coal to generate electricity, most of Africa relies on expensive diesel imports.

With the continent’s electricity generation expected to quadruple by 2040, gas-to-power projects could grow by up to 25 percent — the current growth rate is 17 percent — according to the International Energy Agency’s Africa Energy Outlook report. For West Africa, gas is expected to make up 50 percent of overall electricity output by 2040, driven by energy policy reforms in some countries.

The same is occurring with the huge recent gas finds in East Africa.

Meanwhile, other countries have been exporting gas through liquefied natural gas (LNG) terminals, with Mozambique, Equatorial Guinea and Cameroon planning on floating LNG export projects as ways to bring their natural gas to oversea markets.

“The economics of (gas-to-power) are not that good in a place like Mozambique where there isn’t a high, steady existing demand for electricity. So an investor going in would much rather invest in (liquefied natural gas) for export, rather than domestic use,” Cooke said. “I think that’s actually a conundrum that a lot of these natural gas producers are going to have to face: How do you make investing for domestic use profitable because a government like Mozambique is not going to be able to subsidize cheap fuel for cheap electricity into its future.”

Yet Mozambique has also passed a law forcing companies developing liquefied natural gas projects — including U.S. firm oil Anadarko Petroleum and Italy’s Eni — to use 25 percent of their production domestically. In fact, Mozambique’s National Hydrocarbons Company signed a contract in December to sell natural gas to the publicly owned electricity company, EDM, to generate power at the recently completed $250-million Ressano Garcia power station near the border with South Africa.

But the economics for exports are dimming.

While the price of crude oil dropped from $115 per barrel in June 2014 to less than $60 today, lower demand from Asia contributed to a drop of about 50 percent in the liquefied natural gas price, according to a January 2015 report by Wood Mackenzie.

Funding Gas?

The U.S. is in a position to nudge this gas-to-power trend along, including projects that capture and use gas reserves produced during oil production that are burnt away during “flaring.”

Of the six core Power Africa initiative countries, four are already developing natural gas.

While the Overseas Private Investment Corporation’s original charter puts emissions limitations – or a carbon cap – on its funding activities, the 2014 omnibus appropriations legislation temporarily lifted that restriction in 2014.

Now, some are hoping this year’s re-authorization of the agency will make that change permanent while critics say lifting the ban would weaken environmental safeguards meant to curb climate change emissions.

But the issue is a bit more complicated when considering electricity development in sub-Saharan Africa. While natural gas does have climate implications, some feel funding agencies could be more flexible since many countries in the region have recently prioritized their energy policies towards using their domestic gas rather than exporting it.

“The OPIC example is an interesting one, where domestic groups are pressing for limits on carbon emissions, but that kind of handicaps a lot of African producers that are currently either flaring the gas or using coal for energy – which is worse,” Cooke told AFKInsider.

An additional 60 million people in poor nations could gain access to electricity if OPIC were to invest in natural gas projects, according to an estimate in the January 2014 Center for Global Development report, “Maximizing Access to Energy: Estimates of Access and Generation for the Overseas Private Investment Corporation’s Portfolio.”

Opposition by environmental groups

“Our encouragement of more flexibility in the poorest countries was met with absolute refusal from the environmental groups,” said Todd Moss, chief operating officer and senior fellow at the Center for Global Development, in an AFKInsider interview.

Since that January 2014 report – and after OPIC’s carbon cap was temporarily lifted – the agency did approve $50 million to support the 450-megawatt Azura-Edo Power Project project near Benin City in Nigeria. In December, the International Finance Corporation, part of the World Bank Group, also announced it was mobilizing $292 million in funding for the $750-million project.

“Once the carbon cap was temporarily lifted, there was a flood of project proposals that went into OPIC that were for natural gas projects in Africa,” said Ben Leo, a senior fellow at the Center for Global Development and co-author with Moss of the January 2014 report, in an AFKInsider interview.

“There are a number of projects which are in discussion, but until they’re officially OPIC board-approved, I can’t discuss them,” Charlie Stadtlander at the Overseas Private Investment Corporation told AFKInsider.

New Gas Projects

Despite other hurdles such as building expensive infrastructure, gas-to-power projects continue to pop-up in many gas-rich countries.

Nigerian officials said during November’s Indigenous Oil Summit in Lagos they expected to be generating 30,000 megawatts of electricity from gas by 2020. The Nigerian National Petroleum Corporation also announced plans in January for a $5-billion Trans-Nigeria Gas Pipeline to deliver gas to the northern and eastern parts of the country, as well as completing expansion of the Escravo-Lagos gas pipeline by year’s end.

U.S.-based Symbion Power and General Electric have also committed $1 billion to building gas-fired power plants in Tanzania, which recently prioritized using its estimated 53 trillion cubic feet of natural gas domestically.

In Northern Kenya, Canadian-based Africa Oil and U.S.-based Marathon Oil have proposed a gas-to-power project.

Ghana has nearly completed its Atuabo Gas Processing Plant to supply 120-million cubic feet of gas per day from the offshore Jubilee field to electric power plants in the town of Aboadze. With two more gas fields expected to be on line by 2017, Ghana is planning to reduce its dependence on unreliable gas supply from Nigeria’s West African Gas Pipeline. The Nigerian pipeline supplies customers in Benin, Togo and Ghana, but has been plagued by shutdowns.

And state-owned Namibia Power Corp. hoped to finish its $1.3-billion Kudu Gas Power Plant by 2018 to more than double the country’s current 400 megawatts of electricity production, but had to extend the date for construction bids after London-based Tullow and Japan’s Itochu Corp. lost interest.

Unforeseen Opportunities

While natural gas supporters say expanding gas power projects can check rising coal and oil emissions as sources like solar energy achieve greater acceptance, others question whether natural gas is an appropriate bridge fuel to renewable energy since it will fly in the face of future global carbon emission standards.

“I hear from a lot of African leaders and citizens that Africa is such a tiny producer of greenhouse gases and yet it’s being disproportionately held to standards that are set by the big polluters,” Cooke told AFKInsider. “So, there is some resentment on some of the rules that limit what they can do – for example – with natural gas.”

“It would be great if we held them to the same standards, but we’re holding them to a higher standard because they have less access to other kinds of capital,” Moss told AFKInsider.

There are upsides to expanding gas-to-power projects in the region that could be used to argue for greater U.S. funding.

For one, gas turbine requests have seen an uptick due to the trend of replacing aging coal plants with natural gas electric generators, according to an August report from Frost & Sullivan.           

Germany-based real estate firm Lamudi sees another economic upside. Gas development and construction projects like Tanzania’s Mtwara-to-Dar es Salaam pipeline will increase demand for housing and office space, according to Lamudi’s November report of the future of real estate in 16 emerging markets that include Tanzania, Ghana, Ivory Coast, Kenya, Morocco and Nigeria.

Climate change, waste and environmental concerns

But the real opportunity is helping mitigate the climate change impact of wastefully flared natural gas at oil wells in countries like Nigeria and Angola by using that gas to generate electricity, which is in line with the Global Gas Flaring Reduction Partnership promoted by World Bank.

While oil and gas companies produced 2.3-trillion cubic feet of gas in 2013, only 1.9 trillion was actually used, according to the Nigerian National Petroleum Corp.’s 2014 activities report.

In November, Nigeria launched a tracking system to monitor gas flared so the government could impose sanctions against the offending companies – with the average amount of revenue lost estimated at $2.5 billion. And according to Minister of Environment Laurentia Mallam, the amount of electric power that could have been generated from the lost gas is estimated at more than 27 gigawatts, which “could provide 40 percent of Nigeria’s total electricity requirements.”

“You’d think that we would want to help them to build plants to stop the flaring, but no; (environmentalists) still see that as a loss,” Moss told AFKInsider.

Moss said that under the old OPIC rules, if companies like GE refurbished an old power plant to make it more efficient using new technology, it would only be counted as “all new emissions,” as opposed to shutting down the plant.

“It’s actually insane because the idea that Nigeria or Ghana would shut down their natural gas power plants because outside environmental groups want them to, it just makes absolutely no sense,” Moss told AFKInsider. “They were prioritizing global emissions wherever they could, rather than the effects on human welfare.”

But using gas for power to mitigate emissions is already being done at other sites.

GE’s Tronox Namakwa Sands furnace gas project near South Africa’s Saldanha Bay recently won the Southern African Association for Energy Efficiency 2014 Project of the Year Award. That 14-megawatt project uses gas turbines to recycle smelter furnace waste gas to generate electricity onsite.

In Rwanda, the government has contracted Symbion Power to build a facility to process methane gas – also a greenhouse gas – dissolved in the waters of Lake Kivu and use it at a 50-megawatt power station located at Cape of Busororo.

But as far as U.S. financial agencies stepping up their funding of these types of gas-to-power, time will tell.

“I think African countries will want to develop as cleanly as possible, but when it’s a choice between oil and natural gas, natural gas is a huge step forward, so why not work with them on natural gas?” Cooke said.

“In a lot of locations it’s much cheaper to do solar or wind. But there’s also a lot of places where gas is going to be cheaper,” Moss said. “If the Omnibus had not lifted the cap, I don’t think the White House would have been able to fulfill its (Power Africa) targets without gas.”

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