BOTSWANA: Gas brightens power outlook

Africa's oil and gas resources have generally been considered from an export point of view. Fields have only been deemed worth developing if they were large enough to justify the construction of transmission pipelines, oil export terminals or gas processing centres.

Over the past few years,

however, there has been a trend towards making the most of any hydrocarbon discoveries and taking the domestic market into account when assessing the economic viability of any particular scheme. This approach has led or is leading to the development of gas fields in Tanzania, Mozambique and Namibia and now a new country could join the ranks of Africa's hydrocarbon producers.

Interest in Botswana's gas potential is certainly rising, but its gas reserves take a very different form to those of most other countries in the Southern African Development Community (SADC) region, as they comprise coal bed methane gas.

Although production of coal bed methane is very different to that of natural gas, its uses are much the same, including direct industrial consumption and electricity generation through thermal power plants. It can also be transformed into processed forms of gas, such as liquefied petroleum gas (LPG).

At the Mining Indaba in Cape Town in February, Botswana's minister of minerals and energy, Charles Tibone, said that preliminary research indicated that national gas reserves could stand at 60 trillion cubic feet (tcf).

While there is a world of difference between possible, probable and proven reserves, such claims may shortly be put to the test. Exploration efforts to date have been mainly funded by the government but private sector investment is proving increasingly likely.

The big question facing the government is whether to offer concessions to private firms or to set up Botswanan companies with some equity held by foreign investors, perhaps in the form of joint ventures, to enable production. Given the history of the Botswanan diamond industry, some form of state involvement in any development company seems likely.

The Kalahari Gas Corporation (KGC), which is partly owned by Covalent Energy Corporation of the US, has already begun exploratory drilling on the eastern side of the Kalahari Karoo Basin. The managing director of KGC, Julian Scales, has indicated that a pilot project could be launched near Lephepe to produce LPG for the domestic market. Botswanans currently rely on South African LPG for domestic cooking.

The former US ambassador to Botswana, Joseph Huggins, has been a particularly keen supporter of developing Botswana's gas resources. He says: "Botswana has more than 12.5 tcf of coal bed methane and Eskom is not going to meet increasing need for the supply of electricity in South Africa."

The US' Overseas Private Investment Corporation (OPIC) has already provided KGC with an $8.5m investment guarantee. An OPIC spokesperson commented: "Many industries will come to Botswana because we can reduce utility costs. We will be able to produce peak power, and even Debswana could use coal bed methane." However, a full environmental impact assessment (EIA) will be required before any prospective methane project can be given the go-ahead.

Power sector use

The most obvious use of the methane is in power generation. The country has generating capacity of just 132MW and is forced to import much of its electricity requirements from South African power company Eskom.

However, the government has set the state power company, the Botswana Power Corporation (BPC), a target of providing electricity to 70% of the population by March 2009, with total electrification by 2016. Many African governments have laid out such ambitious plans over the past 45 years and have failed, while this is a testing target indeed given that only 22% of Botswanans had access to electricity as recently as 2002.

Gaborone is generally more successful than most in achieving its goals, so it is possible that national electrification can be achieved at some point in the not too distant future. BPC has already embarked on a rural electrification programme and given that diamond revenues could help to fund the required transmission and distribution infrastructure, the big question concerns the balance of the generation mix.

The government seems eager to ensure that a far greater proportion of electricity requirements are generated within the country, so a thermal power plant seems the most likely.

A greater sense of urgency has been injected into government efforts to develop a new power plant by an imminent large-scale increase in electricity tariffs. Eskom is expected to end the supply of relatively low-cost electricity to Botswana in 2007 and the government hopes that new domestic generation capacity can help to stem expensive imports in the long term.

This new capacity could be coal fired, using Botswanan coal, but coal bed methane is certainly another attractive option, given that it would be more difficult to find an alternative market for the gas than it would be for the solid coal.

The government has so far focused its attentions on a plan for the construction of a coal fired plant at the Mmamabula coal field in the Mahalapye region, which could make the most of that field's reserves. Mmamabula lies just 60km from the South African border and so electricity exports would be an obvious option.

Existing domestic generating capacity is provided by the 132MW Morupole coal fired plant, which is fed by Anglo American's Morupole coal field. An expansion of the facility to 400MW has also been mooted.

Botswana has proven coal reserves of about 7.2bn tonnes: with 4.3bn tonnes on the Mmamabula field and 2.9bn tonnes on Morupole, although the country's prospective areas have not yet fully been explored, so the eventual reserves total could be a great deal higher. Even without new discoveries, there is certainly enough coal in the country to feed a new power plant or an expanded Morupole facility.

In August last year, the United States Trade and Development Agency (USTDA) agreed to fund financial advisory services on the proposed Mmamabula project. However, USTDA has also welcorned a Botswanan delegation, led by Tibone, to the US to investigate the operation of the US' own sizeable coal bed methane industry. Whichever plant is finally constructed may partly be developed with the export market in mind, given rising demand for electricity in South Africa. Power trading within the South African Power Pool (SAPP) is beginning to take off, so it could now be easier to secure financial support and investment for any Botswanan power project.

Wider economic implications

The development of a gas sector would certainly provide Botswana with another element to its economy. Although the country has an enviable post-colonial history of political and economic stability, the only major source of revenues has been diamond exports. This makes Botswana particularly vulnerable to fluctuations in diamond prices, while diamond mining provides relatively few jobs.

The government is therefore eager to encourage the development of other sectors that can not only provide a more balanced economic structure but which can also boost employment.

In common with most other hydrocarbon ventures, any coal bed methane project or new thermal power plant would create a limited number of jobs. However, in addition to the direct employment generated by any scheme, the electrification of Botswana would have a far greater impact. Apart from the production of agricultural raw materials, almost every other sector requires constant and reliable supplies of electricity. The combined methane and power project could therefore trigger the development of manufacturing and IT sectors.

The greater ease of exporting solid coal than methane gas may tempt the government to opt for a methane gas fired power plant. The expansion of the coal sector is still possible, as a railway line that already serves the Mmamabula field could be used to export coal via Richards Bay Coal Terminal (RBCT) in South Africa. This would allow Botswana to make the most of all its natural resources.

With a solid economic and political base, it is vital that Gaborone moves on from diamonds to diversify its economy. Many people work in the capital in non-diamond businesses but the entire national economy is oiled by diamond money. The provision of plentiful electricity supplies would not bring about diversification overnight but it would provide one of the main raw materials of most other sectors. If the Botswanan success story is to enter another positive chapter, the government needs to ensure that the country moves on to the next level of economic development.