The race for energy transition
The global focus on cleaner energy usage is gaining huge momentum in developed economies. This is why international oil companies and multinational corporations are divesting investment in hydrocarbon to alternative sources of energy; some have even set targets for exiting fossil fuel operations. But, with huge hydrocarbon deposit and great prospects for earning good revenue, African countries may be challenged in the race for the new dawn in the industry. The United Nations, however, points the way forward on needed steps. MUYIWA LUCAS reports.
In recent times, the oil and gas industry has been challenged on many fronts to engage and adapt to a changing policy and investment landscape and to also evolve in ways which support contribute and even lead efforts to decarbonise the energy system.
This is why globally, there is a gradual shift from policies that have supported oil and gas production to policies that instead are starting to disincentivise fossil fuels, including carbon pricing and the European Union’s Emission Trading Scheme (EUETS). In addition to disincentives, many governments are encouraging the use of substitute technology and fuel, especially renewable energy.
Investors are also becoming a strategic driver of decarbonisation action, growing increasingly attuned to the demand horizon for hydrocarbons and shifting attention to the environmental impact of oil and gas production through Environment Social Governance (ESG)-focused investing. Oil and gas companies are responding by looking at where and how they do business and confronting a rethink of business models in a decarbonising world.
But the dwindling investment in hydrocarbons by the IOCs may be a source of concern for African countries endowed in fossil fuel. It is a common knowledge that huge funding is required in exploiting the commodity from its exploration to production and distribution.
A warning bell to this unfolding scenario was sounded at the second virtual workshop on Refining and Specifications organised by the African Refiners and Distributors Association (ARDA). Speaker after speaker warned of the need for the continent to upgrade in the light of the energy transition regime.
For instance, speakers at the workshop were unanimous that in transiting to the cleaner energy regime, Nigeria and other African countries would require at least $15.7 billion to upgrade existing refineries if they are to reduce sulphur content in their operations and products. The association noted that the upgrade was necessary to ensure that Africa embraces cleaner sources of fuels.
Sulfur is a major by-product of oil refining and gas processing. The Sulphur content of crude oils varies from less than 0.05 to more than 10 weight percent (wt%). Crude oil containing less than 0.5 wt % of sulfur is considered to have low sulfur content and is known as ‘sweet crude oil’. Higher sulfur content than 0.5 wt % results in crude oil being known as ‘sour crude oil’.
The Executive Secretary of ARDA, Anibor Kragha, noted that adoption of harmonised specification would halt importation of fuels not meeting the AFRI specs into Africa. In addition, he explained that it would give existing refineries until 2030 to upgrade their facilities to produce cleaner, lower sulphur AFRI-6 specifications, arguing that targeted financing was urgently needed for projects to upgrade refineries and infrastructure.
“Another key focus area is for African countries, especially those sharing common fuel supply chains to develop an integrated policy covering both fuel quality and vehicle exhaust emissions. This is to achieve the ultimate objective of clean air in our African cities. Without this integrated and coordinated policy, the objective of clean air will not be realised whether by imports or local production,” he said.
Also speaking at the event, Oil and Refining Research Analyst at Vitol, Maryro Mendez, noted that despite the withdrawal of fund from fossils, investment with sustainability plan had been on the rise. Citing statistics from Bloomberg, she noted that sustainable debt annual issuance now borders around $824.7 billion as capital raised for renewables funds now dominate the energy sector.
According to Mendez, lack of uniform policies make it difficult for refineries to pass on the cost of carbon to customers as carbon price shifts the cost burden of climate change from society as a whole to the entities responsible for the emissions, providing lack of incentive for refiners to reduce emissions.
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She noted that the refining sector accounts for only three per cent of the global energy sector emissions, adding that while refineries contribution to global energy sector emissions is low, the opportunities for reducing them are significant.
“Refineries globally have started thinking about measuring, monitoring and reducing carbon emissions and environmental sustainability has to be a priority for refiners and Africa is no exception,” Mendez said. She said 80 per cent of refinery carbon emissions come from fuel combustion, hence fuel source and energy optimisation would present the biggest opportunity to reduce emissions.
‘’ The challenge is not technical but is commercial with facilities requiring sufficient incentive and capital to invest without impacting on their competitive position,” Mendez added.
Speaking on “Upgrading refineries to produce AFRI-6 standard fuels,” Data Manager at CITAC, Richard Augood, said investment was still needed to make African refineries comply with AFRI-6. New process units required are to improve key fuel specifications, especially Naptha Hydrotreater (NHdT), Diesel Hydro-desulph. (DHDS), Benzene Extraction, Sulphur and Hydrogen Plants.
For compliance in the aspect of gasoline, Augood noted that North African countries such as Algeria would need to upgrade its Adrar refinery, while in Egypt, refineries like Amreya would need Benzene extraction. In Libya, Azzawiya would need Benzene extraction, El Brega would need NHT, Benzene extraction while Sarir would need to be upgraded with NHT, Benzene extraction,” he stated.
In West and Central Africa, Angola, Sonaref refinery needs NHT, benzene extraction as Chad’s SRN needs CGDS and Benzene extraction while Congo’s CORAF needs NHT, Benzene extraction and H2 and Côte d’Ivoire’s SIR needs Benzene extraction and H2.
In Nigeria, Warri, Kaduna and Port Harcourt refineries, he said , would need NHT, CGDS, Benzene extraction while Senegal’s SAR must be upgraded with benzene extraction to meet AFRI Specifications.
Also speaking at the event, Honeywell-UOP’s Luque Guillermo decried that the oil and gas industry has been hit hard by the current global economic situation with rapid drops in demand. He added that the changing mix of preferred products, volatile crude prices, and difficulty safely staffing production sites posed a challenge.
This prevailing development according to him, is forcing demand for some products such as diesel and naphtha to exceed demand for gasoline and jet fuel.
Jump starting transition
The United Nations (UN), Secretary-General, António Guterres, maintained that renewable energy technologies like wind and solar already exist today, and in most cases, are cheaper than coal and other fossil fuels. Hence, there is the need to put them to work, urgently, at scale and speed. He listed five ways to jump-start the renewable energy transition which the world needs to prioritise now to transform energy systems and speed up the shift to renewable energy.
“The good news is that the lifeline is right in front of us, because without renewables, there can be no future,” he said.
These steps include:
Make renewable energy technology a global public good: For renewable energy technology to be a global public good – meaning available to all, and not just to the wealthy – it will be essential to remove roadblocks to knowledge sharing and technological transfer, including intellectual property rights barriers.
Essential technologies such as battery storage systems allow energy from renewables, like solar and wind, to be stored and released when people, communities and businesses need power. They help to increase energy system flexibility due to their unique capability to quickly absorb, hold and re-inject electricity, says the International Renewable Energy Agency. Moreover, when paired with renewable generators, battery storage technologies can provide reliable and cheaper electricity in isolated grids and to off-grid communities in remote locations.
Improve global access to components and raw materials: A robust supply of renewable energy components and raw materials is essential. More widespread access to all the key components and materials – from the minerals needed to produce wind turbines and electricity networks, to electric vehicles – will be key. It will take significant international coordination to expand and diversify manufacturing capacity globally. Moreover, greater investments are needed to ensure a just transition – including in people’s skills training, research and innovation, and incentives to build supply chains through sustainable practices that protect ecosystems and cultures.
Level the playing field for renewable energy technologies: While global cooperation and coordination is critical, domestic policy frameworks must urgently be reformed to streamline and fast-track renewable energy projects and catalyse private sector investments. Technology, capacity and funds for renewable energy transition exist, but there needs to be policies and processes in place to reduce market risk and enable and incentivise investments – including through streamlining the planning, permitting and regulatory processes, and preventing bottlenecks and red tape. This could include allocating space to enable large-scale build-outs in special Renewable Energy Zones.
Nationally Determined Contributions, countries’ individual climate action plans to cut emissions and adapt to climate impacts, must set 1.5C aligned renewable energy targets – and the share of renewables in global electricity generation must increase from today’s 29 percent to 60 percent by 2030. Clear and robust policies, transparent processes, public support and the availability of modern energy transmission systems are key to accelerating the uptake of wind and solar energy technologies.
Shift energy subsidies from fossil fuels to renewable energy: Fossil-fuel subsidies are one of the biggest financial barriers hampering the world’s shift to renewable energy. The International Monetary Fund (IMF) says that about $5.9 trillion was spent on subsidising the fossil fuel industry in 2020 alone, including through explicit subsidies, tax breaks, and health and environmental damages that were not priced into the cost of fossil fuels. That’s roughly $11 billion a day. Fossil fuel subsidies are both inefficient and inequitable. Across developing countries, about half of the public resources spent to support fossil fuel consumption benefits the richest 20 percent of the population, according to the IMF. Shifting subsidies from fossil fuels to renewable energy not only cuts emissions, it also contributes to the sustainable economic growth, job creation, better public health and more equality, particularly for the poor and most vulnerable communities around the world.
Triple investments in renewables: At least $4 trillion a year needs to be invested in renewable energy until 2030 – including investments in technology and infrastructure – to allow us to reach net-zero emissions by 2050. Not nearly as high as yearly fossil fuel subsidies, this investment will pay off. The reduction of pollution and climate impact alone could save the world up to $4.2 trillion per year by 2030. The funding is there – what is needed is commitment and accountability, particularly from the global financial systems, including multilateral development banks and other public and private financial institutions, that must align their lending portfolios towards accelerating the renewable energy transition.
Indeed, in the Secretary-General’s words, “renewables are the only path to real energy security, stable power prices and sustainable employment opportunities.”
He disclosed that four key climate change indicators – greenhouse gas concentrations, sea level rise, ocean heat and ocean acidification – set new records in 2021. This, according to him, is yet another clear sign that human activities are causing planetary-scale changes on land, in the ocean, and in the atmosphere, with dramatic and long-lasting ramifications.
In conclusion, “the key to tackling this crisis is to end our reliance on energy generated from fossil fuels – the main cause of climate change,” Guterres.