In the recent past, the oil and gas industry has been challenged on many fronts – to engage and adapt to a changing policy and investment landscape and to evolve ways which do not simply support but contribute and, perhaps, 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 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). Speakers warned of the need for the continent to upgrade in the light of the energy transition regime.
For instance, the speakers were unanimous that in transiting to the cleaner energy regime, Nigeria and other African countries would require at least $15.7 billion to upgrade their 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 per cent). Crude oil containing less than 0.5 wt per cent of sulfur is considered to have low sulfur content and is known as ‘sweet crude oil’. Higher sulfur content than 0.5 wt per cent 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, Oil and Refining Research Analyst, Vitol, Maryro Mendez, noted that despite the withdrawal of fund from fossils, investment with sustainability plan had been on the rise. Citing Bloomberg, she noted that sustainable debt yearly issuance borders $824.7 billion as capital raised for renewables funds now dominate the energy sector.
According to Mendez, the 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.
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 with 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.
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, Honeywell-UOP’s Luque Guillermo decried that the industry has been hit hard by the 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