News
25/10/24
Africa pushes domestic gas role in transition
Gas could complement renewable power build-out, but guaranteeing supply will
require risky investment in infrastructure, writes Elaine Mills Cape Town, 25
October (Argus) — Natural gas has the potential to play a pivotal role in
Africa's energy transition, enabling greater energy security for the continent
as well as decarbonising its economy — but ensuring domestic demand prospects
can compete with regional LNG export opportunities still presents a major
challenge. The African Union and African governments have stressed the
importance of gas as a bridging fuel for Africa on its journey to achieving
equal energy access and net zero emissions. Africa accounts for 40pc of new gas
discoveries made globally in the past decade, mainly in Mozambique, Senegal,
Mauritania, Tanzania and more recently Namibia. "Its significant natural gas
reserves could turn Africa into a key player in the global gas market, while
improving energy access for its rapidly growing population," the IEA says.
"Africa has a very timely and good opportunity right now," agrees Norwegian
state-controlled Equinor's senior vice-president, Nina Koch. "Gas is becoming
increasingly important, not only as a transition fuel but as a long-term
solution for the energy security challenges that we are facing." Leading African
producers Algeria, Egypt, Nigeria and Libya together accounted for over 80pc of
Africa's total production of 265bn m³ in 2023. Of this volume, about 115bn m³
was exported, 60pc of it in the form of LNG, according to the IEA. However,
governments in sub-Saharan Africa want increasingly to support gas
infrastructure investments for domestic consumption to meet their own rapidly
rising electricity demand and support industrialisation objectives. According to
the IEA, between 2020 and 2023 natural gas consumption in Africa almost tripled
to 172bn m³, but still represented only 4pc of global demand. Until now, the
role of natural gas in sub-Saharan Africa has been limited, with an estimated
share of only 15pc in the energy mix. Nigeria is the largest natural gas market
in the region, with an estimated 21bn m³ consumed in 2022, of which 40pc was
used for power generation. But Africa's gas demand is projected to increase
rapidly, especially in sub-Saharan Africa, where the IEA estimates that it will
grow at 3pc/yr and could reach 187bn-246bn m³ by 2030 and up to 437bn m³ by
2050. Complement not compete "Gas as a bridging fuel is particularly important
in the sub-Saharan Africa region, where energy demand is growing quickly and
renewables cannot yet meet all the needs," Italian firm Eni's regional head,
Mario Bello, says. As a lower-carbon base-load power generation fuel than coal
or oil, proponents argue that gas can complement the growth of interruptible
renewables rather than compete with it. Domestic pricing presents an immediate
challenge — widespread subsidised gas retail prices currently mean that 58pc of
Africa's natural gas consumed is priced below the cost of supply, according to
the International Gas Union. And the rapid rise in sub-Saharan Africa's gas
consumption could result in domestic demand outstripping supply in the next
10-15 years, leaving a gap that smaller gas projects could fill, with the
growing help of African lenders. The African Export-Import Bank (Afreximbank)
has provided financing to support Nigeria's first indigenous FLNG project, with
capacity of 1.2mn t/yr to supply the local market. Policy makers in several
African gas-producing countries will increasingly support these
domestic-oriented schemes in the coming years. In Nigeria, Angola and Senegal,
governments are already demanding that gas is used to support electrification
and industry rather than for export. New natural gas markets are emerging in
Ghana and South Africa, supported by the development of domestic production as
well as new import infrastructure, to meet growing electricity generation needs
and replace coal and oil use in the power sector. The case of South Africa, the
continent's largest economy, shows the kind of challenges that will face
Africa's ambitions to develop its gas sector. Gas accounts for less than 3pc of
the country's energy mix, but this is growing and the Industrial Gas Users
Association (IGUA) of South Africa estimates that gas demand in 2033 could more
than quadruple to as high as 800 PJ/yr. South Africa's only primary supplier of
gas, Sasol, supplies 185 PJ/yr, of which 160 PJ/yr is imported from Mozambique
through the Rompco pipeline. But Sasol's Pande and Temane fields in Mozambique
are fast depleting, and the firm has warned that by mid-2028 at the latest it
may no longer be able to supply gas to South African industry. Sasol's
"unilateral decision" to cut off gas supply "poses an existential risk to large
industrial gas users and is likely to lead to the deindustrialisation of the
South African economy", IGUA warns. Given long lead times for alternative gas
supply solutions, "the governments of South Africa and Mozambique have six
months to come up with a new plan and start executing it", energy advisory SLR
Consulting's Steve Husbands says. Currently, Mozambique has the most advanced
LNG import terminal being developed at Matola, and over the short term, South
Africa will be reliant on this facility to meet its gas demand needs, according
to IGUA. In the medium term, LNG import terminals are planned at Richards Bay,
Coega, and Saldanha Bay. Longer term, upstream gas exploration opportunities
exist offshore South Africa and especially on its side of the Orange basin. But
the country's domestic ambitions suffered a major setback recently when
TotalEnergies decided to quit block 11B/12B, which contains the Brulpadda and
Luiperd discoveries that hold a combined estimated 3.4 trillion ft³ (96.3bn m³)
of natural gas. Meanwhile, Namibia is due to become a global oil and gas supply
hub over the next 10 to 15 years. "South Africa needs to understand that the
bargaining position of Namibia and Mozambique is different and it's strong,"
Husbands says. These countries will be guided by self-interest and they will
price according to alternatives, such as exporting LNG. Credit risk IGUA has
also focused on facilitating gas energy demand aggregation, whereby industries
collaborate to secure cost-efficient gas supply through volume aggregation, the
enablement of infrastructure and the dilution of commercial risks. South
Africa's industrial development depends on gas, state-owned Central Energy Fund
(CEF) chief operating officer Tshepo Mokoka says. To enable this, gas-to-power
projects are needed to anchor the development of a large-scale,
capital-intensive gas industry, he says. The CEF is working to locate
gas-to-power plants of at least 1,000MW at the ports of Richards Bay, Coega and
Saldanha Bay. Gas-to-power projects need three to five years of government
support to get off the ground, he says. "Without it, the critical LNG
infrastructure that is required at the different ports will be sterilised,"
Mokoka says. For Africa more broadly, a lack of creditworthy utilities as gas
offtakers, combined with small-scale and fragmented markets, makes it more
difficult to aggregate demand for large developments. These challenges have led
to underinvestment in gas processing facilities and transportation
infrastructure, which makes developing gas reserves for domestic use a tough
sell for investors across the continent. "You need feedstock as well as
guaranteed offtake to ensure the economic viability of gas projects," Lekoil
chief technical officer Sam Olutu says. "It is important to secure midstream
offtake even before an upstream project is commissioned, as it gives you more
control over pricing, so that you are not forced to flare the gas." Some
governments are increasingly keen on developing industrial capacity in areas
that require intensive energy use such as fertilisers or cement manufacturing
that will provide enough reliable gas demand to make a project economic. Send
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