Oil Energy and Gas as an Emerging Sector: Mutual Interests of India and Africa.

Dr. Suresh Kumar, Africa Review, May 2012

Introduction

The demand of natural resources of oil and gas has increased manifolds since the post 1990 globalization and it is available at higher prices (of three-four times more) as compare to 1990. The Iraq-Kuwait crisis, Somalia Crisis and other are the result of increased demand of oil and gas in the open market as the multinational oil companies are fetching raw oil free of cost from the crisis-ridden areas. As we know, India needs energy security to sustain economic growth of 10% and India currently imports 70% of its oil and 50% of its gas. Africa Gas reserves and production are playing an important role having reserves representing nearly 8-9% of global reserves. Africa reserves-to-production ratio is among the highest in the world at the current rate of production. These reserves will last 78 years. As all the major Euro-dollar powers are hungry to capture oil and gas reserve in Africa, it is important for India to work differently in Africa to cater the needs of oil and gas.

Geopolitically, India needs energy resources as a means for securing the broader interests of foreign market, defence, social stability and upcoming political growth. India has significant reserves of coal but it is relatively poor in oil and gas resources. India does not produce more than 30 percent of its oil needs from the oilfields within its territorial boundaries. The domestic production has been stagnating at around 32 million tonnes a year. It appears that the proportion of crude demand being met from indigenous production presently is likely to decline further. Estimates suggest that by 2020, only about 25 percent of the total demand will be met internally. OIL and Natural Gas Corporation (ONGC) India has ventured into deepwater exploration. It is estimated that there are hydrocarbon reserves worth 1 billion tones of oil equivalent (btoe) in the deepwater of India. The ONGC deepwater exploration programme involves an estimated investment of US $ 0.75 million per day (Power. 2005: 27). At present, it is rather an expensive investment and none of private investor is willing to take up either in individual capacity or align with ONGC.

India is the sixth largest energy consumer in the world and is one of the world’s fastest growing consumers. Estimated to be a US $ 90 billion industry, the oil and gas industry is among the largest contributors to the central and state exchequers in India sharing approximates US $ 13.58 billion. The Forum summit of India and Africa 2011 further strengthened the issue of technology transfer. The PPP model (Public-Private-Partnership) are investing in different fields of energy security in Africa and signing the memorandum of understanding with them giving the priority to the transfer of technology. Reliance Industries Limited (RIL) has signed an agreement of Transfer of technology with Nigeria in petroleum Refining, oil and gas exploration and started the different training programmes for Nigerians. The training program of India will strengthen the African Human Resource Development providing employment opportunities to indigenous people, contribute in real economic growth and securing India’s energy security. Similarly, South Africa has started a joint venture in Jharkhand Coal Mining and agreed to share its Coking Coal to Oil technology. It is another landmark on technology transfer that will improve India’s oil requirement. This is the major difference of India’s foreign economic policies as compare to the world community that will act as gateway for sharing the energy technologies among each other and strengthen Indo-Africa fraternity.

India-Africa combination may share energy sector and work each other as indispensable partner. India has drawn up a road map to intensify cooperation in the hydrocarbon sector with African countries. It identifies the broad areas of cooperation in exploration, refining & production, stepping up crude oil imports & exports of petro-products by India, retail marketing of fuels & lubricants by Indian companies in Africa, and training of technical & managerial personnel of African nations in hydrocarbon industry management.

Commercial energy production in Africa has nearly doubled since 1970, and is expected to increase another 68% by 2020. Production has remained about flat (at around 7%) as a share of the world total African commercial energy production grew from 14.8 quads in 1970 to 26.5 quads in 1997, and is forecast to reach 45.5 quads in 2020. Natural gas production grew the most, by 3.9 quads, followed by growth in oil and coal (3.8 and 3.6 quads, respectively), hydroelectricity (0.4 quads), and nuclear power (0.1 quads). Oil accounted for over 86% of African commercial energy production in 1970, with coal a distant second at 11%, hydroelectricity at 2%, and natural gas at 0.5%. As of 1997, oil had declined to 63%, while coal had increased to 19%, natural gas to 15%, hydroelectric to 2.3%, and nuclear power to 0.5%. As a share of world commercial energy production, Africa has stayed about constant since 1970 at 7%, and is expected to remain at about this share through 2020. African commercial energy production is distributed very unevenly throughout the continent. Around 99% of Africa’s coal output, for instance, is in southern Africa (mainly South Africa). Natural gas production, on the other hand, is overwhelmingly concentrated in North Africa (mainly Algeria and Egypt). Crude oil production is concentrated in North Africa (Algeria, Egypt, and Libya), West Africa (Nigeria), Central Africa (Gabon), and southern Africa (Angola). East Africa produces almost no oil, gas, or coal (Energy Information Administration, 2006).

Africa’s Potential of Oil & Natural Gas

Africa has 117.482 billion barrels of oil and gas reserve as on 1^st January 2009. The natural gas in Africa is having 504.211 trillion cubic feet mentioned in Table-1. India is promoting the industry through investments, healthy competition and an institutionalized regulatory regime.

Oil and Natural Gas Corporation (ONGC) Videsh of India is active in the deepwater exploration in India and has the mandate to invest in overseas are being evaluated by the Government. Companies are aggressively pursuing overseas markets. With over 3 decades of experience in developing countries, “ONGC Mittal Energy Ltd (OMEL) finalized the investment proposals for setting up a 15 million tonnes per annum export-oriented refinery, a 2,000 MW power plant and railway lines in the African country. The refinery would have an initial capacity of 5 million tonnes and would be expanded to 15 MT.

ONGC Videsh Ltd. and Oil India have “drilled for oil in an off-shore well oil block with investment of US$12.5 million in Coˆte d’Ivoire. These companies have identified hydro-carbon and mining at the most targeted investment area for Indian trade and industry in Ivory Coast. Other African countries where Indian oil companies are planning to enter include Burkina Faso, Equatorial Guinea, Ghana, Guinea-Bissau and Senegal. Today, Africa currently accounts for about 20 percent of India’s oil imports. And India has focused development initiatives on the resource-rich countries of West Africa” (Africa Oil. 2011: emphasis mine).

Table-2 highlights the major project working in Africa to upgrade and expansion in energy infrastructure. India participates in thermal, coal, oil and gas, petroleum products and renewable energy sector. All these projects are involved in different parts of Southern and Central Africa. Indian companies are taking care of international norms to protect environment sustainability.

Investment Opportunity in Africa

1. Power and Energy

The power crisis and its shortage are well marked in Africa despite their tremendous hydro, solar and other sources. India’s experience of power generation and its distribution to all remote areas to cater its millions of population is willing to exchange with Africa. Africa responds this gesture and invites the interested sectors of India to work in this sector. Table-3 shares the investment opportunities in power sector in Africa.

Africa calls for power technologies and equipment suitable for rural areas, where population density is low and, therefore, investment in robust electricity transmission infrastructure is not feasible. Alternatives include off-grid small-scale and affordable generators and low-cost solar energy panels.

Table-4 shares the possibility of hydroelectric power generation in other African countries. Republic of Congo has rich potential of hydrocarbon in the coastal rivers and production of petrochemical products. Zambia has vast water resources and coal reserve that explain in Table-4.

India has a strong and matured power back-up industry. Its exports of generators and inverters have been growing considerably due to the ability of leading domestic manufacturers to produce quality and innovative products at par with international standards. Africa has significant potential for hydro, wind and solar energy, which are yet to be exploited. Renewable energy may be the answer to many of Africa’s power woes. It can become a sustainable source of energy for regions in longer terms.

African countries are looking for the green oil technology. Benin has Biomass densification essentially involves two parts (a) to compact loose biomass material with pressure and (b) to maintain the product in the compressed state after removal of pressure with the project Value of USD 1 300 000. Cameroon invites a very large project for Rural Electrification project, which requires importation of all materials and accessories from India. D R Congo invites project on Jatropha Culture with the value of USD 10 Million. Malawi needs 6 Hydropower generation projects in different ranges of 300 MW, 150 MW and Up to 50MW each. Mozambique requires development of power plants in Gas-fired, Coal-fired, Hydropower, Bio-diesel, Bio-diesel Plant, Production of coking coal and thermal coal. Namibia is looking for Biomass Briquettes making from sustainable waste materials for energy generation.

Conclusion

Overall, India has geographic advantages in linking the African and Asian continents. There is a need to develop energy trade between Indian Ocean and Atlantic Ocean route in building Indo-Africa trade and economic relations in a comprehensive way. Indian investors are committed to work with the African energy sector with the understanding of transfer of technology. Along with it, African human resource gets short and long term training programmes related to energy sector that will help in receiving the transfer of technology. Reliance is working with this understanding in oil and gas sector of Nigeria. The elected governments in Africa wooed Indian investors by assuring guaranteed protection on the one hand and the investors reciprocates it positively on the other hand. It is a genuine concern of India global energy policy that draws a parallel thinking vis-à-vis developed countries.

Table-3 Power and Energy Infrastructure Investment Opportunities in Africa

Source: Project Opportunities, 2012. CII and EXIM Bank of India: 7-115.