The one safe bet on the energy transition today is that it will unfold according to African rather than Western priorities. The only country on the continent that makes a significant contribution to global carbon emissions is South Africa.
The start of operations at the country’s first commercial liquefied natural gas (LNG) plant in Virginia in Free State in September marks a step forward in diversifying the country’s energy sources.
Renergen is the helium and LNG producer behind the Virginia Gas Project. Its CEO, Stefano Marani, says environmental, social and governance (ESG) factors are becoming increasingly important in South Africa. The country has about 400,000 heavy-duty trucks.
Fleet owners know that relying on diesel risks costing them market share, Marani says. The conversion of the country’s truck fleet to liquefied natural gas (LNG) is making “very good progress,” he adds. Electric batteries powerful enough to be used by heavy trucks on South African terrain are at least a decade away. “LNG is the only real solution from an ESG angle,” he says.
A heavy vehicle using LNG is about 25% cheaper to run than a diesel vehicle, according to research by Hannam & Partners investment bank. LNG trucks are 8% more fuel-efficient, and carbon emissions are reduced by around 30%, the research says. Hannam estimates that about 50,000 trucks could convert to LNG over the next 10 years.
Renergen trades on the South African and Australian stock markets. Phase one LNG capacity at the Virginia plant is 2,700 gigajoules (GJ) per day, rising to 24,000GJ in phase two, which is scheduled for 2025. The increased production will be used to serve the truck market, Marani says.
The project also produces helium, and the first-phase helium capacity of 350kg per day will rise to 5,000kg in the second phase. Helium is used in nuclear power stations and for fibre optics.
No shortage of funders
The US International Development Finance Corporation has signed a retainer letter under which it will evaluate making a loan of up to $500m to fund the project’s second phase. Marani wants to raise $250m in further debt and says that funders have offered him as much as $700m.
Blue Gem Research in South Africa says in a note that the total capital expenditure bill for phase two is likely to be about $1bn. The large pool of debt funders interested in phase two gives Renergen the time and flexibility to find the best sources of equity investment, Blue Gem says.
Pollution from diesel-powered trucks includes carcinogenic substances, which are reduced by up to 90% by the use of LNG, Marani says. From a fiscal perspective, this can be a “major boon” in terms of savings on health costs. For policymakers, promoting LNG use instead of diesel is an “absolute no-brainer”.
One way forward would be for governments to provide incentives for original equipment manufacturers to develop all-LNG trucks. More filling stations are also needed to support the shift to LNG, Marani says. The process of getting trucks to switch to LNG in South Africa is currently completely dependent on Renergen, Marani explains. More market entrants in different parts of the country would make LNG a more practical and visible option and increase its use. “Competition downstream will benefit our business,” Marani says.
Guinea’s largest gold mine
The fact that solar batteries are not yet powerful enough means that diesel and heavy fuels continue to dominate in West Africa, says Andrew Pardey, managing director of Predictive Discovery, which trades on the Australian stock exchange and counts BlackRock among its investors. “Every second truck is a diesel or heavy-fuel truck,” he says. “Solar only works when the sun shines.”
The company needs to generate its own power for its gold-mining project at Bankan in Guinea. The most likely solution will be a combination of diesel and heavy fuels, with some solar power, Pardey says. The company plans to submit a scoping study to Guinea’s government by the end of 2023, which would then enable it to apply for a mining permit.
Pardey is a former CEO of Centamin, which operates Egypt’s only gold mine. The Bankan project lies in the Siguiri Basin, the least-explored region in the West African Birimian greenstone belt. Once developed, Bankan will be Guinea’s largest gold mine, and the potential for further discoveries means it could become one of the largest in West Africa, Pardey says.
The courage to ‘fail fast’
Bankan’s current resource of 4.2m ounces rests largely on open pits, and underground drilling is likely to increase the estimate, Pardey says. The next resource estimate from Bankan is due in late January or early February. Gold mining, Pardey argues, can improve GDP and livelihoods in Guinea, while generating value for shareholders.
Africa has an estimated 30% of the world’s mineral reserves, yet many jurisdictions remain underexplored. The global energy transition has led to an increased need for copper, lithium, graphite and cobalt. That has led to a plethora of junior miners seeking finance for African project development.
Livesey is optimistic about gold production prospects in the country, calling it a “brand new frontier”. He is frank about the risks facing smaller exploration companies, with the sector having become “a lot more precarious”.
Those who caused and benefited from the emissions need to contribute more.
Operators need to have the courage to “fail fast”, and get out of a licence if it won’t work. “There are too many junior exploration projects that will never really make it, but they keep spending” because it’s an easier option than biting the bullet, Livesey says. Investors, in turn, need to understand jurisdiction and geology, as well as have confidence in the team doing the exploration: “It’s easy to get caught up in the hype and lose a lot of money. ‘Do your own research’ is very real in the exploration space.”
Mature oil fields
African countries are pushing ahead with fossil-fuel exploration even as many in the West are demanding a shift to new energy sources. According to GlobalData, about 70 crude and natural-gas projects will start operating in sub-Saharan Africa by 2025. The projects will add about 2.3m barrels per day of crude and condensate production, and 9.6bn cubic feet per day of gas, the research says.
It’s crucial to consider the “social context of the energy transition”, says Paul McDade, CEO of Afentra, which is in the process of buying oil production and exploration assets offshore Angola. Though the West is pushing for energy transition, Africa has not yet had the chance to industrialise, he points out.
“The past is important,” in the sense that historical fossil fuels were part of the process of raising living standards in the West, but not in Africa, McDade says. “Africa needs hydrocarbons. There’s a big social impact if Africa moves away too quickly.”
Afentra trades on London’s Alternative Investment Market (AIM). The company is purchasing assets offshore Angola from state-owned oil and gas company Sonangol and Croatia’s INA.
McDade sees scope to create shareholder value by buying mature oil fields that the majors don’t want to hold. He plans to work with Sonangol to increase recovery from Block 3/05 in the Lower Congo Basin, which has been in production since the 1980s.
Africa needs hydrocarbons. There’s a big social impact if Africa moves away too quickly.
Many oil assets in the North Sea offshore the UK have changed hands in the same way recently, and McDade, a former CEO of Tullow Oil, says a similar pattern can develop offshore West Africa if sufficient capital is provided.
McDade sees a shift in Western attitudes as a result of the war between Russia and Ukraine, with energy-security issues climbing the agenda alongside climate change. Some institutions and pension funds that had been moving money out of fossil fuels on ESG grounds have paused due to the outperformance of the resources sector, he says. There’s now a renewed “openness to investing in hydrocarbons”.
That, McDade argues, has been accompanied by a shift in political emphasis. The COP27 in Egypt, he says, had a “pragmatic” tone, in contrast with the “idealistic” approach at the COP26 in Glasgow. “Those who caused and benefited from the emissions need to contribute more.”
Transparency in Angola
Some would argue that seeking social justice for Africa is where the real idealism lies. The history of the oil and gas industry in West Africa stretches back to the 1950s, yet most people in Nigeria and Angola have not benefited. McDade says that the two countries are “relatively young and their politics are still developing”.
In Angola, at least, McDade sees grounds for hope that resources can be better used in the future. The country’s regulatory environment has improved since his previous experience there in the early 2000s. In the past, he recalls, state oil company Sonangol effectively used to regulate itself. Afentra’s purchase of Angolan assets has so far been “very transparent and well-governed”.
