The African Refiners and Distributors Association (ARDA) and leading international financial specialists are exploring alternatives that will unlock sustainable financing for the downstream petroleum sector on the continent as tightening global financial conditions present challenges for oil and gas initiatives.
The Association, along with the global stakeholders, who convened at its third annual virtual workshop on Sustainable Financing recently, are actively advocating for billions of dollars of investment to finance existing, essential multi-billion-dollar refinery, storage & distribution, and liquefied petroleum gas (LPG) projects throughout Africa.
ARDA communicated that considering the fact that the downstream section of the oil & gas value chain contributes 33% of oil and gas emissions, it is urgent to undertake efforts to effectively decarbonize African Downstream operations through carbon abatement initiatives while also incorporating Environment, Social and Governance (ESG) factors. These efforts will attract much-needed sustainable financing to develop the sector.
The Executive Secretary of ARDA, Anibor Kragha, emphasized during the annual workshop that strategies for carbon mitigation remain essential to secure financing for implementing long-term plans to enhance refining, value-added petrochemicals, efficient storage & distribution, and LPG for Clean Cooking strategies across Africa.
Recognizing that refineries play a significant role as emitters of CO2 and providers of fossil fuels, Kragha also stated that regulations would increasingly impact the profitability of refining companies in selected regions. He added that top performers in the refining sector can mitigate downside risks through internal-abatement efforts and pursue new opportunities for value creation.
Disclosing that ARDA, the SIR Refinery in Cote d’Ivoire, Advisian, and Vitol have already initiated the first-ever Refinery Carbon Abatement Project in Africa, Kragha, a former NNPC COO Refining & Petrochemicals and ExxonMobil Nigeria Treasurer, said that the future of refining and the downstream sector relies on reducing the environmental footprint and increasing capital efficiency.
He said: “An inclusive, equitable energy transition roadmap must be deployed that captures priorities, challenges, and perspectives of Africa’s low-emitting countries…the roadmap must not prioritize near-term emissions reductions (with relatively little climate benefits) over support for economic development and energy transformation.”
Kragha also revealed that ARDA is working with key stakeholders on two Funds to ensure that Africa’s Downstream Energy Transition Plan is matched with a Finance Plan. The first Fund will cover refinery upgrades for cleaner, low-sulfur fuels and emissions reductions, strategic storage & distribution investments, and petrochemical projects for value addition and carbon footprint reduction.
The second Fund, being developed in conjunction with the UN-backed Global LPG Partnership, will be a dedicated Africa LPG Sector Development Fund to deploy financing for the rapid scale-up of clean cooking with LPG across the continent through national LPG sector ecosystems.
Bowale Odumade, Senior Investment Professional in charge of Transportation and Logistics at Africa Finance Corporation, presented a Case Study of the Uganda Fuel Transportation and Storage Projects. The case study focused on addressing unsatisfactory road transportation of fuel from Kenya to Uganda and the associated issues including high costs, road congestion, and high CO2 emissions. This transformative low-emissions fuels storage & distribution project will utilize world-class infrastructure assets – barges, tank farms, jetty, etc. – to achieve a 50% reduction in transportation cost and time and reduce green-house gas (GHG) emissions by an estimated 90%. The project aligns with AFC’s mission to sustainably address Africa’s infrastructure challenges.
Ms. Odumade also emphasized that key considerations for accessing financing for African Downstream projects include addressing regulatory and market, supply, financial and structuring, currency risk, sponsor strength, phased development as well as developmental impact and sustainability issues.
Speaking on the topic of “Accessing Sustainable Financing for African Downstream Projects,” Latham & Watkins Project Development & Finance Practice, jointly represented by John-Patrick Sweny (Partner) and Chidi Onyeche (Associate), noted that project financing for the oil & gas sector is undergoing a state of transition due to ESG impacts. However, financing sources remain committed to a low-carbon future. They advocated for scaling up concessional finance to strengthen Africa’s resilience to climate change and expedite the shift towards green energy. Sub-Saharan Africa received just $15.7 billion in concessional climate finance in 2020, even though Africa needs $190 billion per year until 2050 for carbon mitigation and an additional $50 billion per year by 2050 for adaptation.
According to the experts, divestments of oil and gas assets by international energy companies may accelerate the shift to alternative sources of capital, primarily traders and other speculative private capital.
“Private sector participation will need to grow, particularly in the power sector, but will require viable and successful projects and innovative financing programs,” said Sweny and Onyeche. They further noted that the issuance of ESG bonds by African entities increased from $3 billion in 2018 to $5.1 billion in 2021. They emphasized that a pipeline of credible, climate-related, “bankable” projects is crucial to unlocking private investment.
In a presentation titled “Generating Carbon Credits from Downstream Projects – Way Forward,” Kolawole Owodunni, Executive Director & Chief Investment Officer of the Nigeria Sovereign Investment Authority (NSIA), shared that NSIA is actively participating in the development of the carbon credit markets in collaboration with the Nigerian National Council on Climate Change (NCCC). This collaboration aims to develop a carbon tax framework for Nigeria and the African Carbon Markets Initiative (ACMI) to develop African voluntary carbon markets and increase the production of African carbon credits. A key initiative is NSIA and Vitol’s collaboration to create the innovative Carbon Vista Fund. This fund, with an initial commitment of $50M, will invest in a diversified portfolio of assets in Nigeria that have the potential to generate carbon credits for export.
Owodunni stated that Carbon Vista will invest in a range of high-integrity, socially impactful projects focused on carbon avoidance and removals. The platform aims to attract capital from institutional investors seeking access to the voluntary carbon market. The Carbon Vista Fund will allocate funds to clean cooking & water purification, agriculture, forestry, manufacturing, and renewables projects over the next few years. NSIA is also leading the establishment of a renewable energy fund that will develop, co-invest, and operate projects in the renewable energy sector in Nigeria.
Maryro Mendez, Oil and Refining Analyst at Vitol, highlighted that Africa has significant potential to utilize Voluntary Carbon Markets for climate funding. However, African Carbon market activity is currently far below its potential of 2400 MtCo2e per year by 2030, despite some growth.
Mendez also shared the hands-on approach that ARDA, SIR Refinery, and Vitol are taking towards the implementation of carbon abatement projects in the refinery in Abidjan. Specifically, the ARDA-SIR-Advisian-Vitol team has identified projects to generate CO2 savings at the refinery and assessed their business case in terms of energy savings and/or carbon credits. The project is now in the investment decision stage, and considerations for financing, project implementation, and monitoring are being evaluated. Finally, Mendez stressed that decarbonization necessitates collaboration and investment, and the downstream industry has various options to achieve a lower carbon footprint.