African Gas Market: Challenges, Growth Opportunities, Forecast

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By Ndubuisi Micheal Obineme

Africa holds over 600 trillion cubic feet (tcf) of proven gas reserves and accounts for 7.1 percent of the global gas reserves as of 2019, according to a Deloitte report. The Continent is gradually turning into a big gas market in the world and the development of African gas resources can address its electricity deficit, bring power to major industries, unlock billions of dollars of investment, generate long-term economic growth, and create employment opportunities, including a major preferable supplier of gas to European countries among others.

In this article, The Energy Republic provides a comparative analysis of the latest trends and challenges, including the outlook of the African Gas Market with expert commentaries and recommendations on possible ways Africa can develop and utilize its abundant natural gas resources for domestic use and export market earnings.

Africa is at the cross-road, a continent trying to emerge out of the COVID-19 pandemic and global energy transition agenda to become a leading continent for the both domestic and export market.

According to the BP Statistical Review of World Energy (2019), Africa held the world’s fourth-largest proven reserves of natural gas behind the Middle East, the Commonwealth of Independent States (CIS), and the Asia Pacific region. The report revealed that Africa has the world’s largest production lifespan of technically recoverable gas resources, estimated at 673 years and ahead of Latin America (508 years) and Eurasia (296 years).

Industry experts believe that increasing investments across the upstream sector will allow the continent to harness its about 620 tcf of gas reserves – a critical resource for addressing energy poverty by 2030.

Algeria, Egypt, and Nigeria will remain the top three natural gas producers and provide 80% of the natural gas flows anticipated across Africa in 2022. Northern and Western Africa dominate the continent’s natural gas market. Nearly 50 percent of Africa’s proven gas reserves are in the northern side of the region, while the western part houses around 30 percent of the resources. Other African nations have been rising as potential leading producers on the continent.

In pursuit of the global push toward energy transition, gas has become a critical energy resource. Africa is home to over 600 million people without access to electricity and 900 million people without access to clean cooking. To address this, the Nigerian government, for instance, has adopted natural gas as its transition fuel — a path key industry leaders have advised other African countries towards meeting their net-zero target.

In 2021, Nigeria flagged off construction for the Nigeria Liquefied Natural Gas (NLNG) Train 7 project, which the Final Investment Decision (FID) was taken in December 2019. The project when completed will increase the capacity of the NLNG existing six trains from 22 million to 30 million tpa.

Aside from the listed countries, Natural gas was found in commercial quantities in several African countries, including Mauritania, Côte d’Ivoire, Ghana, Gabon, Congo-Brazzaville, Angola, Namibia, Mozambique, Tanzania, Rwanda, and Ethiopia. Mauritania: Mauritania holds 1.00 trillion cubic feet (Tcf) of proven gas reserves as of 2017, ranking 67th in the world and accounting for about 0.014% of the world’s total natural gas reserves of 6,923 Tcf. Mauritania has proven reserves equivalent to inf times its annual consumption.

Challenges:
Despite the abundant natural gas reserves in Africa, the lack of investment in gas infrastructure continues to stand as a major challenge in Sub-Saharan Africa, unlike in Northern Africa. Significant investments are needed to build trans-regional and intercontinental pipelines, regionalize the African gas distribution market and expand the continent’s distribution networks for the export market. To achieve this, it requires loads of investment.

Gas development in Africa is confronted with challenges around regulatory uncertainty, insecurity, climate change as well as poor infrastructure. These factors have been responsible for the unsanctioned of some key projects in countries like Angola, Equatorial Guinea, Nigeria, and Senegal, among others.

“Projects in Africa are, however, historically seen as having increased risk and can be delayed or go unsanctioned due to high development costs, challenges accessing financing, issues with fiscal regimes, and other above-the-ground risks,” Rystad Energy said in a statement recently.

In April 2021, TotaEnergies withdrew all Mozambique LNG project personnel and declared a force majeure due to rising insecurity in the north of the Cabo Delgado province of the country.

“Considering the evolution of the security situation in the north of the Cabo Delgado province in Mozambique, Total confirms the withdrawal of all Mozambique LNG project personnel from the Afungi site. This situation leads Total, as operator of the Mozambique LNG project, to declare force majeure.

“TotalEnergies expresses its solidarity with the government and people of Mozambique and wishes that the actions carried out by the government of Mozambique and its regional and international partners will enable the restoration of security and stability in Cabo Delgado province in a sustained manner,” TotaEnergies had said in a statement.

Similarly, in May 2021, Shell announced its plans to exit from Nigeria’s onshore and shallow water exploration and production business, citing insecurity. Recently, Seplat Energy, an indigenous Nigerian company, announced that it will be acquiring all the onshore and shallow water assets of Mobil Producing Nigeria Unlimited. This was followed by TotalEnergies’ plans to sell its stakes in about 20 Joint Venture assets in Nigeria. Although MPNU and TotalEnergies have not given reasons for their plan to exist, it may not be unconnected to security challenges in Nigeria.

Aside from insecurity, the infrastructure required to deepen gas utilization domestically and drive export is lacking. This is even more challenging as most gas projects in Africa are greenfield with large capital requirements. The majority of the African countries that want to use gas for power or industrial use do not have the necessary infrastructure, especially pipeline networks to supply and distribute gas.

“The gas industry in Africa will require $721bn between now and 2035, said Rolake Akinkugbe-Filani, an energy and infrastructure expert in an op-ed in 2019, adding that “the significance of the sector’s underfunded status cannot be underestimated as natural gas constitutes 25 percent of the continent’s power generation source.”

“Current levels of financing for the energy sector in Africa as a whole are woefully inadequate running at around $8bn years or 0.4% of the continent’s GDP (African Development Bank).

“LNG projects alone will require at least $80bn in investments over the next decade, pipeline infrastructure another $20bn, and gas-to-power projects another $8bn in investments,” Akinkugbe-Filan stated.

At the current rate of investment in energy infrastructure in Africa, including gas-to-power, it may take the continent additional 50 years to meet the 2030 universal access to energy target, according to the United Nations Development Programme (UNDP).

Also, most of the gas projects that receive funding on the continent are export-oriented projects, said Akinkugbe-Filani, citing commercial viability as the reason.

“Investment in energy infrastructure to serve domestic consumer and commercial markets is a lot more challenging as operational and regulatory risks undermine the willingness of investors to take risks,” she noted.

Another challenge hindering gas development in Africa is the global push toward energy transition. As a result of this, the sanctioning of some projects has been delayed because of funding issues.

Highlighting the need for leading and emerging African hydrocarbon producers to establish capital attractive regimes that can help increase the participation of investors and international majors for industry expansion, the African Energy Chamber hosted a webinar to discuss the challenges and opportunities within Africa’s energy sector and the importance of collaboration amongst African stakeholders to boost the market growth.

During the webinar, the panelists discussed the challenges and opportunities within Africa’s hydrogen and oil and gas sectors, debating investment, infrastructure, and how Africa can emerge as the preferred supplier to European markets in the wake of the Russia-Ukraine crisis.

“Africa has the money to build its infrastructure, it is getting half a billion US dollars by selling
oil and gas per day. We just need to direct that money towards infrastructure development.

“At the same time, Africa also needs to improve its taxes on energy to attract investments and to avoid majors exiting the market. Chevron and other big firms are leaving the West African market because fiscal terms are not making sense, there are high taxes,” stated Leoncio Amada Nze Nlang.

Verner Ayukegba added, “Without peace in African hydrocarbon producing countries, there won’t be any deals. Peace is important and with it, we will see more oil and gas companies that have a strong base across the continent expanding their operations in oil and gas-rich countries. We are so happy South Sudan has reached a deal to ensure security and this means more energy deals will be signed. Moreover, we need to de-politicize energy deals to ensure long-term energy partnerships are signed.”

Additionally, participants also analyzed the impact of the Russia-Ukraine crisis on the African oil and gas market and the possibility of Africa increasing energy exports to Europe.

Grace Orife, explained that, “We need private investors and African investors because Europe is not going to give us the money to accelerate infrastructure deployment.

“Looking at the huge gas reserves Africa has, domestic gas supply should be a priority before we supply to Europe and other markets considering we have 600 million people across the continent that do not have access to energy. With gas also considered clean energy, Africa should utilize it to address energy poverty and decarbonize at the same time.”

Abdur Rasheed extended on this notion, adding that “Since Africa is the closest to Europe, why are we not the priority market to get gas to Europe? The challenge we have seen regarding Africa not getting gas to Europe is the lack of infrastructure. However, Africa is already exporting gas to Europe. What we need are more investments and transmission systems. We are glad the Niger, Nigeria, and Algeria pipeline deal has been signed. This is something that should have been done years ago. Underinvestment has restrained Africa to expand to Europe. Nigeria and other African countries that have high gas reserves need to ramp up infrastructure development to be able to increase exports to Europe.”

Finally, the webinar also highlighted the importance of collaborations such as the Team-Energy Africa initiative, an initiative between the AEC, the United Nations Economic Commission for Africa, and the Secretariat of Sustainable Energy for All, that will launch in Kigali, Rwanda from 17-19 May 2022. With the Team-Energy Africa initiative launching with $1 billion in funding, the project will play a key role in accelerating electrification in Africa to ensure the achievement of sustainable development goals.

Growth opportunities
A report published by African Coalition for Trade & Investment in Natural Gas (ACTING), revealed that Sub-Saharan Africa has exploited only 5% of its total identified gas-to-power (GTP) potential of 400GW. Based on under-construction projects, pre-FID projects and existing thermal plants planned to be converted, the ACTING report estimated that installed and grid-connected
GtP capacities could increase by 55% in Sub-Saharan Africa by 2025 and reach approximately 28 GW. New GtP markets will certainly include Senegal and South Africa, likely include the Democratic Republic of Congo and Botswana and potentially include Namibia by 2030.

Gas is seen as the energy of the future and African countries like Algeria, Angola, Egypt, Mozambique, and Nigeria, among others, have been playing key roles in global gas exploration and production.

There are enormous growth opportunities in Africa’s gas sector. In Mozambique, the country’s gas resources have the potential to meet both regional and international gas demand. According to AEC’s 2022 outlook, supply-demand levels between 2022-2025 indicate that there is sufficient Liquefied Natural Gas (LNG) supply to satisfy growing demand as new projects come on onstream in 2022 such as the Coral Floating Liquefied Natural Gas project (FLNG) in Mozambique. The Coral FLNG, comprising approximately 450 billion cubic meters of gas, is located in the Rovuma Basin off the coast of Mozambique. Upon completion, it will produce 3.4 million tons per annum (mtpa) of gas for export to Europe and Asia in 2022.

There is also the TotalEnergies’ 12.8 mtpa Mozambique LNG project and Eni and ExxonMobil’s 15.2 mtpa Rovuma LNG. These projects have the potential to make Mozambique a competitive gas exporter in the world.

The growth of Mozambique’s gas market in 2022 and going forward will be a game-changer for Africa’s hydrocarbon market and “will help set the continent on a trajectory towards becoming a global energy hub.”

“At a time when gas production across Africa needs to ramp up to meet growing energy demand, factors such as inadequate funding in new E&P activities and diminishing production in legacy projects is challenging the ability of African hydrocarbon producing countries to expand gas output. However, large-scale projects and investments made in Mozambique – with its 100 trillion cubic feet of reserves – can help expand Africa’s gas market,” AEC said in a statement recently.

Citing the Energy for Growth Hub, AEC stated in a statement recently, that Mozambique’s gas could rake in $50 billion in foreign investments and help the government to generate $95 billion in revenues over the next 25 years by formulating the right policies to attract investments as well as maintaining stable political environments.

“Mozambique’s gas reserves have the potential to address energy poverty across the entire southern African region by helping neighboring countries such as Zimbabwe, Botswana, Malawi, and South Africa meet gas demands. However, political instability in the country and a lack of investment in enabling infrastructure will need to be addressed for Mozambique to become one of the top-10 global LNG exporters,” AEC statement quoted the Executive Chairman of AEC, NJ Ayuk, as saying.

Also, Equatorial Guinea is in pursuit of becoming a regional gas hub, with an increasing scale of project developments and building of regional partnerships to drive socio-economic development both domestically and regionally.

“We are promoting investments not only in exploration but also in transportation and the downstream
sector.

“What is happening in Europe has given us a new view of how important hydrocarbons are for our continent. Gas is going to be an important part of Africa’s energy mix and central Africa will play a key role in ensuring energy security across the continent. That is why we are starting to work together with the DRC, Chad, and Guinea to create a gas market and develop the infrastructure to transport gas and methanol.

“My priority remains our Gas Mega Hub and we are working with Nigeria and Cameroon to make Punta Europa the central area of processing and exporting gas. Hopefully, by October this year, we will be announcing new agreements on this. The revolution from oil and gas is happening and that is why we are working with our neighbors to ensure we capture the trapped gas,” said Minister of Mines and Hydrocarbons, Equatorial Guinea, Gabriel Mbaga Obiang Lima during a roundtable interview hosted by AEC, recently.

For some years now, ExxonMobil has been trying to adjust its position in the Zafiro field. Commenting on this, he said, “Zafiro has been a jewel for us and provides revenue for Equatorial Guinea. The issue that ExxonMobil has is that its contract expires in 2025. When the contract expires, that asset will go to the state. What we are doing at this stage is engaging with ExxonMobil to see if we can have a mutual agreement that will maintain their investment and exploration. Regarding Fortuna, we all recognize the challenge of FLNG.

“We have different parties interested and are working on possible projects. By October I will be able to be more specific, but we believe that Equatorial Guinea will go into FLNG.”

In the Democratic Republic of Congo (DRC, there are opportunities for both regional players and global investors. DRC has approximately 30 billion cubic meters of methane and gas reserves. However, not much has been done to develop this field. The government is making effort to change the status quo. It has started by signing agreements with regional players, including Equatorial Guinea to begin a gas revolution in the country.

Similarly, in Nigeria, there are big opportunities for investors in the gas sector. The country has about 209 tcf of proven gas reserves. This is according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). With the country’s investment-driven Petroleum Industry Act (PIA), which came into effect in August 2021, and the government’s drive to deepen domestic utilization of gas, many industry experts see Nigeria as an investment destination for gas.

“In line with our aspiration towards becoming a net exporter of petroleum products, opportunities abound in the rehabilitation of our existing refineries as well as the construction of greenfield condensate refineries.

“As we strive to deepen domestic gas utilization, it has created more opportunities in the downstream sector, especially in LPG and CNG plants across the country.

“There are also opportunities in the pipeline and storage tank construction; as well as developing
Shipping Capacity, said the Chief Executive Officer/Group Managing Director of the NNPC, Mallam Mele Kyari, at the 2021 Nigerian Oil and Gas Opportunity Fair (NOGOF).

Forecast
According to the BP statistical review of World Energy 2019, gas production in Africa could reach 440 billion cubic meters (bcm) by 2035, representing between 9 percent – 12 percent of the total global supply. New research by Rystad Energy forecasts that Africa’s gas will reach 470 billion cubic meters (Bcm) conservatively, by the late 2030s, equivalent to about 75 percent of the expected amount of gas produced by Russia in 2022.

The continent is forecast to increase its gas output from about 260 Bcm in 2022 to as much as 335 Bcm by the end of this decade. Rystad noted that if oil and gas operators decide to accelerate their gas projects on the continent, near and mid-term natural gas production from Africa could exceed 470 bcm.

As a result of the ongoing invasion of Ukraine by Russia, the European Union March announced its plans to cut Russian gas imports by two-thirds by the end of this year alone. Russia is the dominant natural gas supplier to Europe, with an average of about 62 percent of overall gas imports to the continent over the past decade, according to Rystad Energy. With Europe looking for an alternative gas supply, Africa stands to benefit.

“African nations that have historically been gas suppliers to Europe are well placed to scale up their exports. Africa’s advantage is that it already has existing pipelines connected with the wider European gas grid. Current pipeline exports from Africa to Europe run through Algeria into Spain and from Libya into Italy.

Talks of long-distance pipelines connecting gas fields in Southern Nigeria to Algeria via the onshore Trans Saharan Gas Pipeline (TSGP) and the offshore Nigeria Morocco Gas Pipeline (NMGP) have picked up in recent months. While the TSGP aims to utilize existing pipelines from Algeria to tap into European markets, NMGP aims to extend the existing West Africa Gas Pipeline (WAGP) to Europe via West African coastal nations and Morocco. Further afield, African LNG exports have predominantly come from Nigeria and Algeria, with smaller volumes from Egypt, Angola, and a fraction from Equatorial Guinea. In addition, large-scale discoveries offshore in Mozambique, Tanzania, Senegal, Mauritania, and South Africa have the potential to yield additional natural gas exports once developed,” Rystad Energy said in a statement.

“Europe is now considering how gas-rich African nations can be helped to scale up production and exports in the years to come. The European Union’s decision earlier this year that all-natural gas investments are equivalent to investments in “green” energy signals that African gas is considered sustainable. The supply crisis driven by security interests may push Europe to fund projects that will also help

with energy affordability back home. For instance, Europe could be a key financer of the proposed $13-billion TSGP project.”

Aside from potential major exports to Europe, gas demand for domestic use in Africa is expected to rise, as countries on the continent commit to carbon neutrality. This demand will be driven by industrialization, population, and expansion in economic activities. By 2050, about half of global population growth is expected to occur in Africa. Specifically, the population of sub-Saharan Africa is projected to double by 2050, according to the United Nations (UN).

Africa has been a consistent gas exporter to Europe, with an average of 18 percent of its gas production exported to Europe.

However, the proposal by the European Commission, the executive arm of the European Union in February to classify some natural gas as green investments could be a turning point for gas development in Africa. With oil majors exiting Russia, Africa may be their next destination as Europe looks for an alternative to Russian gas.

“A rapid population increase in Africa is anticipated even if there is a substantial reduction of fertility levels in the near future. Regardless of the uncertainty surrounding future trends in fertility in Africa, the large number of young people currently on the continent, who will reach adulthood in the coming years and have children of their own, ensures that the region will play a central role in shaping the size and distribution of the world’s population over the coming decades,” the UN says.

Africa is potentially a big gas market but needs to fund its build-up of infrastructure, including railway lines, refineries, and pipelines to develop its gas resources.

“Private sector-led investment initiatives will ensure sufficient capital supply, however, governments should commit to funding banks to fund energy projects. The political will to fund banks will enable other investors to put their money in the sector.
The MoU signed by Afreximbank and APPO for the energy bank is a great start and will act as a blueprint on how Africa can collectively work to address the lack of infrastructures such as refineries and pipelines that is pushing Africa to be a net exporter of refined petroleum despite having massive oil and gas reserves.

The AFC is seeking to participate in the development of refineries such as the Cabinda in Angola,” said Vice President of Natural Resources at Africa Finance Corporation (AFC), Taiwo Okwor, at a panel discussion hosted at the 8th African Petroleum Congress and Exhibition (Cape VIII), which took place from 16 – 19 May 2022, in Luanda, Angola.

In conclusion, Africa’s LNG export to grow further post COVID-19, according to Gas Exporting Countries Forum (GECF) analysis. Africa accounts for 11% of global LNG exports and its LNG exports have increased by more than five million tonnes in the last five years.

GECF forecasted that between 2021 and 2023, around 200 Mtpa of LNG projects are targeting FID with around 23 Mtpa in Africa.

According to GECF, Africa’s GDP is expected to rebound to 4% in 2022. While Gas production will start to recover post-COVID-19 and will continue to grow further in 2022.

GECF’s outlook also highlighted that 26 Mtpa of new LNG capacity is expected to be commissioned in Africa between 2021 and 2027 which represents 17% of the global capacity addition during this period.

GECF sees a bright future from LNG exports from Africa to meet the growing energy demand and is supporting Africa’s LNG industry through gas supplies from its member countries.

“Africa is well-positioned to supply the emerging and potential market. The continent is an attractive destination for LNG business as Nigeria, Ghana, Ivory Coast, Morocco, Namibia, and South Africa are potential markets.

“Africa has great potential for natural gas and renewable energy sources. Its economies are growing fast and there is a cordial relationship going on between Africa and the global community,” GECF added.

“As natural gas demand increases worldwide, Africa and its gas resource base will play an increasing
role in the supply chain”.