Natural gas and renewable energy take centre stage in Morocco

 

Lacking the hydrocarbons reserves of some of its neighbours, Morocco has had to rely on imports of fossil fuels to develop its economy. This has left the country exposed to fluctuations in global energy prices and has impacted the kingdom’s budgetary position. However, a handful of measures to reduce dependence on energy imports are finally translating into palpable results and initiating a restructuring of the sector.

In 2008 Morocco took a strategic decision to embark on a programme that incorporates renewable energy sources into its electricity generation capacity. This has already led to developments in solar energy, which has become a fundamental part of the energy mix. A more recent move to increase the contribution of gas-powered generation is also set to further reduce the economic impact of energy imports. “The ambitions to boost the share of renewables in the energy mix are important, but for the foreseeable future the country will also need to continue developing conventional energy, such as gas, in parallel to balance the grid and be able to provide a permanent dispatchable energy,” Anas Kabbaj, executive country director Morocco of General Electric, told OBG. In addition to putting renewable energy and natural gas at the forefront of its energy sector, Morocco is promoting more exploration of its own territory. This drive has been responsible for attracting international players into one of the least explored countries in the region.

This combination of regulatory measures and development plans is impacting different levels of the energy sector. More broadly, though, it will require new, largescale infrastructure in order to support expansion. Meeting this need is likely to help maintain Morocco’s steady growth rate over the medium term.

Sector Drive

The government’s goals for the sector are ambitious. The authorities are aiming for a 12% reduction in energy consumption by as early as 2020 and a 15% reduction by 2030, while at the same time sustaining economic growth and the expansion of a population that is currently at 35.7m, according to World Bank figures. This will require stringent efforts with regard to energy efficiency. But the kingdom has also set objectives for energy generation, aiming to have renewable sources account for 42% of all installed electricity capacity by 2020, and an impressive 52% by 2030. Achieving the necessary levels of sector modernisation will require large volumes of investment, and a balance between public and private sector efforts.

Structure & Oversight

Morocco’s energy sector has a diverse impact on the economy and remains a top priority in terms of the government’s development planning. The country reached a primary consumption level of 20.8m tonnes of oil equivalent in 2017, up from 19.48m tonnes in 2015, according to government figures. This underlines the pressing need for the country to continuously increase the amount of energy produced domestically and reduce the energy imports that weigh negatively on the budget.

According to the International Energy Agency, which Morocco joined in 2016, the kingdom’s net energy imports have risen steadily from just over 11m tonnes of oil equivalent in 2001 to 18.6m tonnes by 2016. In terms of cost, in 2017 Morocco spent Dh69.4bn (€6.2bn) on energy imports, according to government figures, a 30% increase on 2016 numbers. By the end of 2018 the total amount spent on energy imports had spiked by another 18.4%. The cost of oil imports alone rose from some Dh40.48bn (€3.6bn) to Dh47.9bn (€4.3bn) between 2016 and 2017.

The sector impacts the economy in other ways. Extractive activities including oil and gas production accounted for 2.4% of GDP in 2016, while the production and distribution of electricity, gas and water climbed from 1.8% to 2.8% of GDP between 2011 and 2016. Electricity production continues to be driven to a large extent by the use of fossil fuels.

Sector oversight is mostly in the hands of the Ministry of Energy, Mines, Water and Environment, which is in charge of overseeing overall policy. Within the ministry, the National Office of Hydrocarbons and Mines (Office Nationale des Hydrocarbures et des Mines, ONHYM) allocates contracts for oil and gas exploration, and is the main point of contact for firms aiming to operate in the kingdom’s upstream energy sector. The main utility, the National Office for Electricity and Water (Office National de l’Electricité et de l’Eau Potable, ONEE) is in charge of the production, transmission and distribution of electricity. Various other bodies have become important players in the development of the power sector. The Moroccan Agency for Sustainable Energy (MASEN), formerly the Moroccan Solar Agency, was established in 2010 to direct the kingdom’s move into solar energy generation. MASEN has been instrumental in the successful development of the Noor III concentrated solar power project, one of the country’s flagship renewable energy projects.

Another key change has come with the launch of a new independent sector watchdog, the National Authority for the Regulation of Electricity (Autorité Nationale de Régulation de l’Electricité, ANRE). This body is slated to begin operating in 2019. ANRE will oversee competition in the power sector, but also supervise the natural gas and petroleum products sectors. “The lack of a regulator was a big gap in the way the market operates,” Taoufik Laabi, managing director at GLOB Energy Conseil, told OBG. One of the most critical areas to be addressed is the lack of proper determination of rules and pricing for independent electricity producers aiming to sell electricity to the state utility, which has historically lacked clarity.

Regulatory Framework

Progress has been made in the energy sector as a result of several strategic decisions and regulatory steps. In 2009 the sector authorities adopted an overarching energy strategy. The plan was based on a set of key principles: to establish a diverse and efficient energy mix; to increase levels of energy efficiency; to expand exploration of the country’s energy resources; to foster regional integration with other electricity markets; and to drive the economic development of the country, with a particular focus on sustainability. Several key pieces of legislation were passed to advance this agenda, and the programme is making its effects felt. “There is a high level of awareness among Moroccan companies regarding energy efficiency. Major sectors, such as transport, industry and construction, currently include energy-saving initiatives in their development plans, and have set up simple solutions such as solar roofs or greener mobility,” Said Mouline, CEO of the Moroccan Agency for Energy Efficiency, told OBG.

This was followed by the release of the Morocco Solar Plan and the Morocco Wind Plan in 2009 and 2010, respectively. These two documents were key initial steps for the development of renewable energy sources, scheduled to become key contributors to the electricity mix over the coming years.

The country’s energy strategy is also related to other broad international commitments. At the COP21 UN Conference on Climate Change, the kingdom stated it would reduce its CO emissions by 13% by 2030. In addition, Morocco launched its National Strategy for Sustainable Development, focused on creating an environmentally friendly and inclusive economy by 2030.

Upstream Focus

As well as touching on a number of priorities related to the country’s development goals, the energy strategy focuses on harnessing traditional energy sources. The lack of any sizeable hydrocarbons discoveries has historically kept Morocco off the radar of oil and gas majors, though the authorities are aiming to attract more investment in the space. Several incentives have been introduced into Morocco’s Hydrocarbons Code since 2000. These have included an exemption from Customs duties as well as value-added tax on equipment, materials and services needed for exploration and exploitation activities, and a 10-year corporate tax exemption from the date of the beginning of commercial production.

Over the course of 2017 firms that have partnered with Morocco’s ONHYM invested Dh1.24bn (€111.5m) in hydrocarbons exploration across the kingdom, matched by an additional Dh39.4m (€3.5m) investment by the ONHYM. Exploration investments were expected to have increased by more than 18% in 2018. As of December 2017 a total of 21 companies had engaged in exploration activities over an area totalling 170,000 sq km.

In recent years a host of new players have been entering Morocco’s hydrocarbons exploration arena. UK-based Chariot Oil & Gas was awarded an offshore exploration licence by Moroccan authorities in February 2017, covering two permits – of which the company holds a 75% stake and ONHYM the remaining 25% – with a total area of nearly 1400 sq km off the coast of Kenitra, on the Atlantic Ocean. The company also has a 10% share in Rabat Deep, a nearby exploration plot, where it partnered with Woodside, Eni and ONHYM.

Sound Energy announced in early 2018 it had found signs of significant gas reserves after drilling its third well at its Tendrara exploration concession in the country’s eastern region, where the firm holds a majority stake in a total concession area of 14,500 sq km. Another positive gas discovery was reported in early 2019 in its TE-10 well at the same concession. The company was still evaluating the full breadth of its gas discoveries at Tendrara, but the potential for commercially viable gas reserves has been gaining traction over recent years. Furthermore, Tendrara’s location, 120 km from the Maghreb-Europe Gas Pipeline, will facilitate the transport of any significant gas discoveries in the region to Western European customers.

Generation Capacity

Despite advances in the hydrocarbons segment, sector developments have mostly focused on increasing generation capacity to meet demand. At the end of 2018, the country’s electricity capacity stood at 11 GW. This represented a 18% increase relative to 2017 figures, and was mostly due to the augmentation of the capacity of the Jerada coal-fuelled thermal power plant.

This facility, which already featured three units with 55 MW of generation capacity each, embarked on an expansion project in 2014. Completed in December 2017, the expansion added some 318 MW of additional installed generation capacity.

Even more significant was the commissioning of the new 1386-MW Safi coal-powered station in December 2018. The project was launched in 2013, after Safi Energy Company, a consortium made up of Engie, Nareva Holding and Mitsui, won the tender to operate it, launched by ONEE. The new unit required a $2.6bn investment, and involved the signing of a 30-year contract to sell output to ONEE. The new Safi power plant will be able to handle approximately 25% of the kingdom’s electricity demand. ONEE also recently completed extension work at the Dakhla diesel-powered plant, where 16.5 MW of capacity was added in 2018.

Renewable Energy

Over the past decade, Morocco has rebuilt its energy sector to incorporate renewable energy sources into its generation capacity. The country’s current goal is to reach 42% electricity capacity from renewable energy sources by 2020, and up to 52% in 2030. To this end, hydropower, solar and wind generation capacity are being deployed across the kingdom. These ambitions are well aligned with the country’s natural resources. According to government estimates, Morocco has roughly 3000 hours of sunlight a day, which comes to an annual solar energy potential of 5 KWh per sq metre. For years, this potential was mostly harnessed through the Global Rural Electrification Programme, which in some cases uses photovoltaic technology to provide energy in remote areas. Included in the project was the building of the Ain Béni Mathar power station, a 472-MW unit that combines natural gas and solar energy, and began operations in 2010.

However, with the opening of the 160-MW Noor I concentrated solar project in 2016, Morocco embarked on a nationwide energy revamp. This has transformed the country into a global reference point in the field. “In 2010 Morocco had barely any experience in this sector. We had to study, generate skills and learn how to correct things. Now, with this experience, we are in a position where we can accelerate the development speed of the renewable projects we are implementing,” Laabi told OBG. In November 2018 King Mohammed VI held a Cabinet meeting at which he encouraged energy sector bodies to accelerate the implementation of Morocco’s renewable energy generation and energy efficiency efforts. This might include an upwards revision of the 2030 renewable energy goals.

Wind generation is another critical addition to Morocco’s future energy prospects. Although the kingdom built its first wind energy park in 2000 in Koudia El Baida, a concrete step towards revitalising the segment was taken in 2015, when the country launched its first wind farm in Taza in northern Morocco, with an initial capacity of 150 MW, through a power purchase agreement between ONEE and EDF. Thanks to its vast coastline and several mountainous regions, Morocco’s technical wind energy potential is roughly 5000 TWh per year, according to government agencies. The Integrated Wind Energy Programme, which was launched in 2010, has tahe goal of expanding the country’s wind generation capacity to 2000 MW by 2020.

Hydropower has been part of Morocco’s energy mix for several decades and is key to the achievement of the kingdom’s long-term renewable goals. As of 2017 Morocco had an installed hydropower capacity of 1770 MW, and this is also slated to rise to 2000 MW by 2020.

Gas Drive

A notable programme that is set to drive investment in the energy sector, as well as reshape the way energy is produced in Morocco, is the government’s plan to increase the role of liquefied natural gas (LNG) imports in the kingdom’s generation capacity. The plan is partly linked to a commitment to reduce the presence of more polluting energy sources within the energy mix. The focus on LNG is also intrinsically connected to Morocco’s commitment to renewable energy. “Gas-powered plants are needed if Morocco is to have adequate flexibility to properly manage a large renewable generation capacity,” Laabi told OBG.

The marquee project in this regard is the construction of a new LNG complex at Jorf Lasfar, on the Atlantic coast. The unit is expected to cost $4.5bn and will include an import terminal, a jetty, a 400-metre pipeline and new gas-powered plants. The project is slated to allow Morocco to import as much as 7bn cu metres of gas through to 2025. Alongside import infrastructure, the gas-to-power project involves building two new power plants in Jorf Lasfar and two others in Kenitra, near the capital. In conjunction, these four units are expected to add 2400 MW of electricity generation capacity. Sector authorities told international media in late 2018 that as many as 80 companies had expressed an interest in participating in the LNG project bid. Although the initial project for the Jorf Lasfar complex included a refinery, this was abandoned due to the high costs the construction would have entailed.

Downstream

Bolstering the country’s domestic refining capacity could have a positive impact on Morocco’s downstream sector. SAMIR, the country’s sole refinery, was inaugurated in 1962 in Mohammedia, but a host of problems, including accumulated debt, prevented it from operating adequately and led to total cessation of activity in August 2015. A year later a Moroccan court declared the unit would need to be liquidated. The lack of a properly functioning refinery has meant the country has had to import higher amounts of fuel products from abroad. In 2014, the refinery’s last full year of activity, SAMIR provided about half of the kingdom’s annual consumption of refined fuel products. “The new refinery that was discussed as a potential inclusion into the Jorf Lasfar project was supposed to be funded by private investment, but the idea was dropped. Two refineries for a country of our size would only make sense if there were a lot of exports, say to West Africa. In addition, the margins on refining are quite small,” Youssef Aherdan, secretary-general of the Moroccan Grouping of Petroleum Companies (Groupement des Pétroliers du Maroc, GPM), told OBG.

Fuel was previously subsidised, but the government began liberalising prices in 2015 in an effort to stem government spending, although butane gas still receives government support due to its importance for domestic cooking. As of mid-2018 some 20 fuel distributors were operating in the Moroccan market, including subsidiaries of international firms Total Maroc, Vivo Energy Maroc and Libya Oil Maroc. Without an operating refinery in the country, these distributors import oil products through Moroccan ports. These are then sold through a network of roughly 2500 petrol stations across the kingdom. As of February 2019 the government was in negotiations with several new distributors aiming to enter the market. Morocco consumes 12m tonnes of hydrocarbons per year or roughly 250,000 barrels per day, with consumption increasing at 3% to 5% yearly, according to figures released by the GPM. The authorities are implementing infrastructure modernisation to increase fuel storage capacity.

Outlook

Morocco’s decision to focus on renewable energy, which began to take shape roughly a decade ago, is showing its merits. Over the last several years the kingdom has been able to develop know-how in the renewables sector, expand its clean energy production capacity, and establish a new industry that is helping to attract investment and create jobs. All this has helped to inject dynamism into the kingdom’s energy sector, and this momentum is likely to continue over the coming years. In order to be able to build on these achievements, however, the sector authorities will need to step up regulatory efforts to properly define market conditions. Ensuring the rules of the game are clear is an essential prerequisite to attract private investors.

Morocco’s hydroelectric infrastructure is well developed and accounts for much of its active renewable energy generation capacity. An acceleration of development of wind and solar power, scheduled to take place over the coming years, is likely to further push the country towards its goals in terms of renewable energy sources. Linked to this, the option of increasing gas-fuelled generation could not only help to reduce the environmental impact of electricity generation, but also allow the existing infrastructure to better adapt to a significant renewable energy generation component.

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The Report: Morocco 2019

Energy chapter from The Report: Morocco 2019

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