Côte d’Ivoire needs natural gas to satisfy electricity demand

Côte d’Ivoire needs natural gas to satisfy electricity demand

As electricity demand is projected to expand beyond Côte d’Ivoire’s existing supply of power generation sources, the country depends on future discoveries of natural gas to meet its domestic growth and regional export commitments.

Since the end of a decade-long period of instability and civil war, Côte d’Ivoire’s economy has rebounded impressively, and the country has recently regained its standing as a regional energy exporter. As a member of the West African Power Pool (WAPP), Cote d’Ivoire has increased its exports of electricity to neighboring countries such as Benin, Togo, and Burkina Faso.

With the extension of the WAPP from Côte d’Ivoire to Liberia, Sierra Leone, and Guinea (the CLSG portion), Côte d’Ivoire has made further commitments to export electricity. When considering this with the expected growth in domestic demand for energy, it becomes unclear whether Côte d’Ivoire will have enough supply to meet its surging demand.

Rising domestic demand

With a GDP growth rate of 8.8% in 2013, Côte d’Ivoire is one of the fastest growing economies in the world and the most dynamic in West Africa. Since President Allassane Ouattara consolidated power in 2011, Côte d’Ivoire’s improved political environment and macroeconomic management policies have attracted an influx of investment, particularly in the industry sectors.

In the next 10 years, Côte d’Ivoire’s industry sector is expected to expand substantially. Increasing activity in gold mining, along with nascent, but growing manufacturing and food processing sectors, will cause industry to demand significantly more electricity.

After a decade of economic uncertainty, Côte d’Ivoire is finally set to regain its prior economic dominance in the region. The government has shown a commitment to improving the business climate and incentivizing investment, and it would not be surprising to see industrial companies relocating from Nigeria or Ghana into Côte d’Ivoire within the next 10 years.

Within the growing industry sector, demand projections show a large increase in natural gas use. This demand will be driven almost exclusively by the mining sector, as several large gold mines are expected to come online within the next five years.

Overall, Côte d’Ivoire’s national oil and natural gas company, Petroci, projects the industry sector will demand 850 million standard cubic feet per day (MMSCFD) of natural gas by 2023, more than 17 times higher than the current demand. This will dramatically shift the energy consumption mix within the country.

External export commitments

The above charts* only show the shifting energy mix domestically. But due to Cote d’Ivoire’s activity in the WAPP, the country will also face increasing external demand, especially from the new CLSG line. The Ivoirian electricity utility has not concluded a power purchase agreement (PPA) with the utilities in the WAPP-CLSG yet, but the government has already committed to selling 83MW to the countries. This marks a 50% increase from the amount of electricity exported in 2012.

This is especially concerning because if Côte d’Ivoire signs PPAs with utilities in the WAPP-CLSG, the country could face financial duress in the case that it is unable to generate sufficient electricity to meet its external and domestic commitments.

For example, Ghana recently had to resort to buying electricity from Côte d’Ivoire at spot market prices due to a shortage of natural gas from Nigeria in the West African Gas Pipeline (WAGP) line. Côte d’Ivoire is also considering joining the WAGP, a consortium of natural gas providers similar to the WAPP, which will place further pressure on the natural gas sector.

A sector highly dependent on natural gas

It is certain that demand for Côte d’Ivoire’s electricity will grow, but will there be enough supply?

Currently, 67% of electricity in Côte d’Ivoire is generated from thermal power utilizing natural gas. Only about a quarter is generated from hydropower, and no new dams have been built in over a decade since the expansion of thermal power in the 1990s. Three thermal power plants generate 2/3 of total electricity. Natural gas production is expected to increase by almost 60% in the next 10 years, but electricity demand is projected to surpass the capacity of existing gas reserves.

Côte d’Ivoire is estimated to have about 28.3 billion cubic meters of natural gas. In 2012, the country produced 1.305 billion cubic meters. Though this leaves a substantial portion of natural gas yet to be exploited, new investments in exploration and drilling are necessary to uncover the commercial viability of deposits and prevent the decline of production.

To meet growing electricity demand, Côte d’Ivoire is depending on the discovery of additional natural gas deposits. Though a dependence on natural gas is much better than coal (which is the case in many other developing countries), it is also concerning because natural gas prices can be volatile.

Diversifying the sector

The Ivoirian government has made plans to decrease dependence on natural gas in the future, by increasing hydropower capacity and developing renewables. However, short-term energy policies are centered on the natural gas sector. There have been many initiatives to expand capacity in thermal power plants, and minimal work has been done in the hydro and renewables sector.

Recently the government has expressed a desire to increase large hydro capacity; however, there are many environmental and social risks associated with these types of projects that often obstruct the process. Côte d’Ivoire has significant potential in other renewable energy though, including wind, solar, biogas, and mini-hydro. Beyond small-scale projects, there has been little effort to develop this potential, which is in part due to the lacking regulatory framework for renewable energy.

Overall, Côte d’Ivoire’s dependence on natural gas for thermal power production places unsustainable pressure on the electricity sector. On the positive side though, there are many opportunities for foreign investors in the energy sector, particularly in renewables, as there is an apparent gap between demand projections and existing supply.

* Current consumption was calculated from 2012 International Energy Agency Data for Côte d’Ivoire. Projections were calculated using data from PETROCI reports, in combination with market analysis from Ecobank and Oxford Business Group. As biofuels are primarily used in the residential buildings sector, it was assumed their demand would grow in line with GDP growth.

About Author

Marina Tolchinsky

Marina Tolchinsky has previous experience with economic policy research in sub-Saharan Africa and monitoring and evaluation of development programs. She has lived and worked in Liberia, Ghana, and South Africa. Marina is currently pursuing a Masters degree at the Johns Hopkins School of Advanced International Studies (SAIS) concentrating in International Economics and African Studies.