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close this bookThe Courier N 130 Nov - Dec 1991 - Dossier: Oil - Reports: Kenya - The Comoros (EC Courier, 1991, 96 p.)
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View the documentOil
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View the documentPetroleum: working for ACP-EEC cooperation
View the documentPetroleum replacement polices in the ACP Stales
View the documentThe Resource Curse thesis: sowing oil windfall
View the documentOPEC - aIms, achievements and future challenges
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Petroleum replacement polices in the ACP Stales

by J. GIROD

Importers of oil and petroleum products tend to want to keep their bills down while exporters want to make as much as they can from sales on their external markets. The developing countries, ACPs included, importers and exporters alike, are no exception to this rule. The fact that importers have managed to cut their oil purchases by using substitute products is particularly important in reducing external constraints.

The contrasting situations - and they sometimes turn to antagonism - are primarily due to chance geological differences, the benefits of which are very unevenly spread. The vast majority of ACP countries (50 out of 69) import petroleum, even if, paradoxically, the Group as a whole exports 89% of its output (126 out of the 148 million tonnes produced in 1989). But geology, mercifully, has left the door open and further oil prospection campaigns could well alter the present position. Most of the African nations, particularly those in the central and eastern parts of the continent, are making an effort here, a complement to the already longer-standing investigations in the Gulf of Guinea. Although prospection is going all too slowly, one or two of the states where discoveries can be viably exploited will be able to replace all or part of their petroleum imports with national production.

Another solution is to try and produce substitute energy (natural gas and coal) and make a better job of exploiting such replaceable sources (HEP, biogas, solar energy and wind power) as are available locally. This means that petroleum products can gradually be replaced in various cases and import requirements reduced.

This is substitution of the first type - i.e. replacement with other resources. The second type is substitution within petroleum consumption. Despite all the advantages of petroleum as a source of energy (high yield, wide range of equipment, easy delivery, minimal distribution infrastructure), the desire to cut their oil bills forces the importing countries to keep their supplies down to a minimum and they can do this by juggling domestic prices to gear substitution in a particular direction and switching one petroleum product for another or petroleum products for other forms of energy.

This, clearly, is easier to do, because the means involved are lighter and quicker to mobilise. There are fewer question marks too than in the former case and less risk attached than to the launching of a new branch of production or distribution of new equipment driven by this sort of power. So we shall begin by looking at both sides of the second type of substitution before going on to substitution with other resources.

However, it must be clear that neither possibility is exclusive and that most countries have them side by side in their energy plans. In both cases, periodic import regulations are there to remind us that the main idea of substitution programmes is to save money in the short or medium term, or indeed in the more distant future, and not just swap one quantity of energy for another and the best results are obtained by associating purely technical aspects with many other (economic, social, financial and institutional) aspects. The complexity of the problems and choices is ample justification for talking about a substitution policy here.

Swapping petroleum products

A first solution, apart from rationing or quotas, is to substitute one petroleum product (petrol, kerosene, diesel etc.) for another. Import substitution as between crude and other petroleum is obviously one aspect of this.

The national and international prices of the different petroleum products vary despite the fact that they can sometimes be used for the same purpose (heating, steam and transport), so juggling supplies can cut energy bills.

The wave of refinery building which began in the 1960s (there were 28 in service in 22 ACPs, 14 in importing countries, by 1989) with a view to processing cheaper crude instead of buying expensive petroleum products was a clear reflexion of this policy. The results have not been all that positive, however, because production costs in most of these often small and ill-equipped refineries are currently very high and Dakar, for example, had to close down for a few months in 1986 when it was cheaper to buy petroleum products on the international market than to produce them at home.

The set-up of the refineries and the quality of the crude they process are such that the range of finished products does not always tie up with domestic needs or the best export outlets. There is often a surplus of heavy fuel and naphtha and a shortage of petrol and diesel, in which case export earnings may well not cover import spending.

In both intermediate and final use, varyingly priced petroleum products also account for substitution. It may well be encouraged, if not imposed, by relative price fixing or subsidies, for example, in heating processes with a view to replacing light by heavy and it may also be spontaneous, as when car-owners switch between petrol and diesel because the tax system makes one cheaper than the other.

Power stations and industries with heavy energy consumption are the first to be concerned by substitution. In bath cases, but particularly the former, substitution may be induced by measures involving more than prices. The rehabilitation of power stations and networks which many ACPs have undertaken, will no doubt boost the output of existing facilities, while better electricity supplies (as regards frequency and duration of cuts, stability and repair time) could ultimately discourage private power supplies and perhaps even confine them to industries which need an emergency supply. This should result, first, in a drop in the consumption of petroleum products and, second, in diesel being rep laced by fuel oil as diesel generators make way for more powerful stations when users stop making own supplies and the public utilities put out more.

Introducing and managing any substitution policy is a delicate matter quite apart from this and there are many examples of counter-effects and counter-performances being triggered by ill-designed tariffs and speedily amplified by ingenious consumers. The pace of economic activity, the structure of industry and the state (age and rate of replacement) of the plant can all amplify or diminish the possibilities of substitution. Price fixing, relative price levels, the effect of subsidies and tax advantages and the all-important relation between domestic and international prices can also heighten the difficulties. No one solution is a guarantee of success and, in the event of failure, the authorities can always try and keep price levels or the relations between them stable by means of compensation or stabilisation funds.

Substituting other forms of energy

No substitution policy, not even one aimed at just cutting the oil bill, can discount the other forms of energy which a country uses. The best way is to allocate each form of energy to the jobs it does best. In practice, other objectives and many obstacles (including an inadequate range of national products) prevent this being done systematically and the countries are led to adapt to their real situation and even (as has been happening ova the past few years) to go against it by replacing local products by imported petroleum products.

Substitution has remained a very limited practice in final and intermediate energy consumption in the ACP States. However, there has been a drive to promote electricity for steam production in countries where HEP supplies are plentiful (Zaire) and currently surplus to requirements (Burundi) and the use of agricultural waste is now very common in the food and agricultural industry. In Cd’Ivoire, for example, the sugar and oil industries produce 100 GWh p.a., which is 12% of the electricity consumption of industry as a whole.

It is important to have these operations as part of energy control programmes, as there are many common aims. There again, substitution may be the direct or indirect result of other action - improvements to the insulation of homes and offices (less air conditioning and, there fore less electricity and petroleum products required), for example, or increased use of draught animals or vegetable fertiliser. The energy system has its chains of conservation or substitution, but they only appear if all means of supply and all uses of energy are considered.

Contrastingly, the present or foreseeable situation may involve reverse substitution - i.e. petroleum products may be called to replace traditional supplies in some cases. The campaign to get people to cook with butane instead of wood and charcoal, which is particularly strong in the Sahel, runs counter to the present move to cut oil consumption, yet given the disastrous consequences of over-intense deforestation, it is perfectly justified in the long term.

Another example is the surge in thermal electricity production, accounting for 34% of total output in the African countries in 1989, as opposed to 19% in 1980 (IEA reports ACP production as 83 TWh in 1989, 6 TWh of it for countries in Africa). Because of financial constraints this time, there was increasing demand on thermal power stations, to the detriment of the HEP stations where heavier investments were called for. And there again, the extra fuel consumption (essentially of diesel and fuel oil) which circumstances imposed, has to be replaced according to the situation of each country - where the desire to cut the oil bill has other constraints to contend with or is confined by insurmountable barriers in the short or medium term.

Substituting by producing alternative resources

Since 1975, many developing countries have tried to alter the structure of their supply to the benefit of national energy. In South East Asian countries such as Malaysia, the Philippines and Thailand, petroleum products have lost more than 20% of their share of total energy consumption So natural gas in the space of five to seven years. Brazil has added alcohol, cane waste, HEP, natural gas and charcoal to the national petroleum output since 1975, cutting energy imports in the process.

In the ACP States, substitution programmes of this kind are still only on the drawing board, while hydro-electricity, which is in plentiful supply in the majority of the countries of Africa, has slipped backwards, as we have just seen. There are still opportunities, but given the major problems attached to taking advantage of them, boundless optimism would not be wise.

Natural gas tends to be thought the best solution, at least as far as projects are concerned. It is currently burnt, reinjected or used in petroleum installations (boilers and thermal power stations) and it could be used to supply public power stations (as in Project Fox Trot in Cd’Ivoire and other similar schemes in the oil-producing countries) and in fertiliser plants. There are 20 or so countries of Africa with resources, often in association with oil, and in some cases they are adequate to supply the domestic market. It would only be possible to export liquefield gas in very large quantities (as in the case of Nigeria).

Other alternative sources are coal (Southern Africa, Niger and Nigeria), peat (Belize, Burundi, Rwanda, Guinea and Senegal) and geothermal energy (Djibouti, Ethiopia and Kenya) and of course there is decentralised production of solar energy, wind power and mini-and micro-hydraulic installations in the regions and more specific systems such as vegetable waste in the food and agriculture industry, alcohol in transport (in the Caribbean), poor quality gas in engines and so on.

The difficulties of mobilising (prospecting, producing, transporting and supplying for consumption) resources are considerable and the costs heavy, particularly with non-replaceable energy - clear illustration of the fact that energy substitution is never free.

Natural gas is very difficult to exploit and the fact that reserves, even large ones, exist is by no means a guarantee that every project will be a profitable proposition. Very careful consideration has to be given to the attendant uncertainties, particularly as regards the price of competing petroleum products, and cutting the oil bill cannot be the only consideration. Even with coal, which is a little easier to exploit, national production does not necessarily spell savings. This may be an extreme example, but in 1989, Nigelec, the Niger electricity company, bought 109 GWh at CFAF 103 per kWh from Sonichar, the firm working the Anon Aarel coal seam to produce electricity, when it cost CFAF 11 per kWh to import from Nigeria (this station’s output is currently very poor).

Another obstacle to natural gas and coal is that they replace fuel oil in intensive operations (thermal stations, fertiliser plants and cement works, for example) and there is already a surplus of fuel oil on both national and international markets. Replacing gas or diesel in isolated thermal stations would involve mini- and micro-hydraulic, photovoltaic etc installations which would tend not to have the mass effect of major facilities and not, therefore, lead to any substantial savings.


Table 1: Production, trade and consumption in the ACP countries, 1980 and 1989

Every country’s path to greater autonomy of energy is strewn with difficulties, constraints and paradoxes. Will regional cooperation provide viable answers by widening outlets which are too narrow for a single country alone (Nigeria has plans to improve the organisation of oil markets on the west coast of Africa and there are regional refinery projects and a SADCC coal scheme) or capitalising on complementarities (the WAPEX and UPDEA scheme to connect the electricity supplies of Nigeria, Benin, Togo, Ghana and Cd’Ivoire)... although would this not add political and institutional problems to the preceding obstacles? Can existing organisations (the CEAO, ECOWAS, SADCC, PEZ and CARICOM) take these projects over or do they have to be run by special bodies?

We have been waiting for answers to these questions for years. The present calm on the oil markets has given us a little more time, but it should not stop us from running energy exploration and conservation programmes in parallel. Unlike what happened in the 1970s, it is now capital and not energy which is scarce at international level - which gives a quite different meaning to the substitution policies we need to run.

J.G.