No more excuses of blaming China for copper; now that oil and gas prices are down, how do we profit?

By Mwine Lubemba

After a couple of Castle Lites on New Year’s Eve, a chemical engineer and colleague shouted. Forget copper and renewable energies; the age for fossil fuels is not yet over!

Not—again? I replied…

Then as if to emphasize, he said, I have just three words for you my friend: “Fossil Fuel Energy.” Tell your PF friends to stop wasting their time worrying about low copper prices and energy from solar panels; the answer is “Fossil Fuel Energy!”

He handed me his cell phone. He was reading a Wall Street Journal article. It was titled:  “low oil prices for the long haul…”

Can you read that? He asked me as though I am dumb.

True, there it was in black and white. OPEC dropped a bomb last week in its annual World Oil Outlook (WOO) when it claimed oil prices would return to US$95 a barrel from their current 11 year lows of US$35.

But other energy experts think otherwise and say not until somewhere around 2040, one expert said.

If we believe this expert, that’s 24 years’ from today!

So what? Professor Lubemba—I hear you ask? What if they’re all wrong?

I had two problems with the WSJ report.

First the energy expert is pro low oil prices and didn’t consider the current geological situation in the Middle East. Nevertheless, low oil prices would present excellent energy opportunities for Zambia. Let’s call this -scenario A. In scenario B next week, we should look at what’s likely to happen if the geological situation in the Middle East upsets our scenario A and send oil prices skyrocketing back to the US$100’s.

So if oil prices remain low for the next 24 years to 2040, that’s like taking a time machine back to 24 years ago in 1992 when Chiluba was President and my good o’l friend Ronald Penza was not yet Minister of Finance. It means privatization of state companies was not yet in motion and the economy was still primarily government controlled. Exchange controls were still not completely liberalized. Import permits and licences were still being enforced. Essential commodities were still in short supply and we had to drive to Kariba Town in Zimbabwe over the Kariba Dam bridge and even to Malawi to buy coca cola and Sobo orange crush.

Hey! We use the above scenario just to put 24 years into perspective. It’s a long-long- time span we’ve come from!

But what this means is that for the next 24 years oil prices will be damn rock bottom low and some cranky son of a black man U.S. official supported by our High Priest seating in a luxurious villa in Rome wants to come on the scene and say, Oh no! You blacks better stop using oil! It’s causing climate change. Use renewable energies instead. Don’t worry even if it costs your poor economies 50% to 100% more?

Why do we sound angry and say all this? For God’s sake, oil prices will be low for 24 years! And we’re angry because many black Africans, and Zambians especially, are being cheated and we think for any black country looking to take advantage of the beaten down energy market this year, this OPEC announcement is certainly not a forecast to be taken lightly. OPEC has the reserves to keep oil prices near current levels for a considerable period of time, and due to the relatively enormous cost expenditures of fracking technology in the U.S., that these white folks invented so they can beat and free themselves from black and Arab controlled oil, many primarily white owned U.S. exploration and drilling companies are already struggling to keep their heads above water. And they sure will go under if they don’t resort to causing a war in the Middle East. (Please keep this in mind- when we come to discuss scenario B next week).

That’s why we’re angry, if oil prices will be low, we think this fossil fuels-climate change nonsense is a decoy.

Not only is the upside for oil capped, though-the downside also remains substantial.

In case you don’t follow Canadian news, which I find many Zambians don’t, here is the Bank of Montreal’s response when recently asked if oil prices could collapse to US$20:

“The short answer is “YES.” We believe that crude oil prices could fall further unless global oil production is reduced…we estimate that the global oil market could be oversupplied by roughly 920,000 bpd in 2016.”


And U.S. Energy Information Administration– confirms this in its report:

“Global petroleum and other liquids continue to outpace consumption leading to inventory builds throughout the forecast period. Global oil inventory builds in the third quarter of 2015 averaged 1.8 million b/d down from 2.0 million b/d in the second quarter, which had the largest inventory builds since the fourth quarter of 2008. The pace of inventory builds is expected to slow in the fourth quarter to roughly 1.4 million b/d. In 2016, inventory builds are expected to slow further to an average of 0.6 million b/d.”

And the position of the Chicago based oil markets consultancy Ritterbusch & Associates on the near term action reports that:

“A bearish trading stance is still being advised as we still view an ultimate price decline in nearby WTI and Brent futures to the US$32.50 area.”

No doubt current oil prices do represent an attractive long term opportunity for all non-oil producing countries such as Zambia and investors interested in oil based energy generating companies out there, because all these American companies invested in fracking technologies expecting a sudden bounce back to 2014’s highs of over US$100 oil in 2016 would be setting themselves up for a major disappointment.

That’s why the most basic question Zambians and other poor African countries should be asking themselves is not how to be fooled again by  asking themselves which expensive clean energy solutions they should adopt but rather they should be asking what’s the next best thing to come from the crippled energy market! How can our poor economies play the low oil prices without having to take on the risk of further downside or stagnant prices?

And why not really? If for the next 24 years oil prices will be at rock bottom? Yes— that’s a period like from 1992 to 2016, why not use “Fossil Fuel Energy and quite easily triple our energy potential?” And for the whole of this investment in pipelines and power generation capacity to be accomplished at the price one or two proposed solar panel farms?

Indeed our electrical energy requirements in 1992 were lower than we need today. So our bulk 24/7 electrical energy generations options today and the next 24 years in Zambia will have to be scaled up pretty fast.

True, the downside is that Zambia will have to import oil and gas for its electrical energy power generation and so do many other nations around the world import and transport their oil and gas using Bulk Oil and Gas Ocean tankers– over long distances.

The case for Zambia is attractive considering in 2012 operators in neighbouring Mozambique announced as much as 150Tcf of natural gas discoveries.

This has positioned our very nearby and next door neighbour Mozambique a major world player in the natural gas sector over the next decades above Nigeria and Venezuela- making this natural gas play as an excellent electrical energy generating source opportunity Zambia need not miss. (Source: OPEC-CIA Fact Book and SEPTEC Advisory Estimates Reserves as of 31/12/2011).

But it requires urgent upgrading of the existing TAZAMA pipeline to handle both commingled oil and especially natural gas from Mozambique and Tanzanian gas fields. South Africa is already positioning itself to begin importing increased gas volumes from Mozambique by 2017-18 over a distance of 535 miles using its existing natural gas pipeline to Sasolburg.

The nearest point for Zambia to set up a Combined Cycle Gas electricity power generating station using Mozambican gas is Chipata or Lundazi both about 1000kms over Lake Malawi from Rovuma Basin in Mozambique or Chadiza and Katete for the same Rovuma Basin gas or from Pemba province if going over Lake Malawi should prove a big challenge.

A new electricity transmission grid can then be constructed to feed into the nearby Copper belt, Muchinga and Northern Province power lines.

Italy’s ENI and U.S’s Anadarko and their respective partners including China’s CNPC and India’s Oil and Natural Gas Corporation lead the consortiums that discovered about 150tn cubic feet (tcf) of gas off Mozambiques’coast. The LNG projects are expected to require about US$50 billion in investment finance to full production.

Although natural gas out of Mozambique might not sound like the most exciting investment out there, it’s certainly not an area we’ll want to ignore now that the combined sub-US$35 oil and gas seems likely to stick around for a while or as some energy experts predict —24 years. Besides these new gas discoveries in the market have created a large excess and this will keep the cost of gas relatively low.

Falling oil and gas prices may have created mayhem for the broader energy gas producing industry, but the world electrical energy generation industry is well positioned to take advantage of the situation for years to come.

Then comes the auxiliary numerous products that can be manufactured from natural gas as a starting chemical raw material. Fertilizers come to mind, and so do plastics, industrial and pharmaceuticals as well as several agricultural chemicals. The permutations are so numerous they’d make your brain cells over heat and evaporate for choice.

The question most friends ask when I talk about natural or synthetic natural gas that we can manufacture from coal at NCZ is what can be manufactured from this Mozambique natural gas and synthetic natural gas from coal at NCZ?

In fact if we are going to import natural gas from Mozambique for our electrical energy power generation we must also think of ways to use the same natural gas to make high value products that Zambians and other people in the region will want to buy from us so that we can value add and keep generating more money from the higher value products to pay for the imports. It is also the reason why other nations in far flung regions in the world will be sending huge ships half way round the globe in search of Mozambican natural gas and they’ll sign long term supply contracts with the Mozambican gas producers.

And for solar, wind and other clean fuels fanatics, natural gas is the most environmentally friendly hydrocarbon fossil fuel. Only water and carbon dioxide result from its combustion, while the combustion of oil products and coal results in soot and ash. In addition, the emission of the greenhouse carbon dioxide while the combustion of natural gas is the lowest, due to which it is called “green fuel”. Natural Gas is now the most popular fuel in the power industry of large cities for its high environmental performance.

It is possible to drive on natural gas as a motor fuel. Compressed (or pressurized) methane will cost half as much as petrol with the octane number of 76; it extends the service life of engines; and can improve the urban ecology. Engines powered by natural gas comply with many clean fuel standards such as the Euro-4 environmental standard. The natural gas can be used for conventional vehicles, as well as for agricultural, water, air, and railway transport.

Liquid motor fuels can also be produced from natural gas using the gas-to-liquid technology (GTL). Since natural gas is a quite inert product, it is first virtually always converted into a more reactive gas-vapour mixture, the so-called synthesis gas (mixture of CO and Н2). Then, it is taken for synthesis to produce liquid fuel. This may be the so-called synthetic oil, diesel fuel and petrol as well as lubricants and paraffin’s.

Briefly, liquid hydrocarbons were first produced from synthesis gas by German chemists Franz Fischer and Hans Tropsch in 1923. They used coal just as at NCZ in Kafue as a source of hydrogen at that time, though. Currently, different modifications of the Fischer-Tropsch method are applied in many marketed processes for conversion of gas into liquid hydrocarbons.

Fast forward>>>at gasoline extraction units, gas is separated into unstable natural gasoline and lean gas – a product, which is then pumped into gas trunk lines. The same cleaned gas is supplied to chemical plants to make methanol and ammonia from which Ammonium nitrate for explosives and fertilizer can then be produced. And for our clean fuel fanatics, Methanol may also be used as a fuel source in fuel cells.

After separation from gas, unstable gasoline is supplied to gas fractionation units to extract light hydrocarbons such as: ethane, propane, butane, and pentane. These products also become feedstock for further processing. For example, polymers and rubbers are subsequently produced from them. The propane-butane mixture is a finished product by itself – it is pumped into cylinders and used as a household fuel. Methanol (CH3OH) is produced from natural gas under a scheme similar to the Fischer-Tropsch process that was employed at NCZ.

It is used as an agent for preventing hydrate plugs that are formed in pipelines at low temperatures. Methanol can also become a feedstock for manufacturing more complex chemical substances: formaldehyde, insulation materials, varnishes, paints, and glues, fuel additives, and acetic acid and so on.

Mineral fertilizers are produced from natural gas by means of several chemical conversions. At the first stage, it’s ammonia. The process of ammonia production is similar to the gas-to-liquid process, but different catalysts, pressure, and temperature are required.

Ammonia, as mentioned earlier, is a fertilizer starting material; it is also used as a coolant in refrigerating units and as a feedstock for production of nitrogen compounds, apart from ammonia nitrate for agriculture and explosives industry, you can produce nitric acid, carbamide etc.

But all this may come to naught. You might also disagree after what I’’ll tell you in scenario B next week.

Just a thought,




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