• Sunday, April 21, 2024
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Analysis: Can Africa fill the gap as EU embargoes Russia gas?

$1.3bn owed to IOCs halts new gas investments

The demand for natural gas from Africa by European countries has been on the rise since the invasion of Ukraine by Russia in February 2022. Now the European Union (EU) is on the verge of placing an embargo on Moscow’s energy supply: Africa’s chances of profiting from its energy resources have never been brighter.

Africa holds around 13 percent of the world’s natural gas. The continent has 620 trillion standard cubic feet (17.56 trillion cubic metres) of natural gas, and according to S&P Global Platts, almost 40 percent of global new gas discoveries in the last decade were in Africa, mainly in Mauritania, Mozambique, Senegal, and Tanzania.

Natural gas sells around $3.1 per million British Thermal Units indicating a potential $2trillion gas market. To position Africa to fill the gaps in Europe, experts say work is needed to revive and build new gas infrastructure in Africa.

“Qatar signed a long-term gas supply contract with Europe after the recent World Cup, and a few from Africa as well, but when we take so long to activate the ‘low hanging fruits’ due to policy inconsistencies, funding, and most importantly the political will and proper commercials, then I fear the fruits would go bad and fall as against being plucked,” said Jide Pratt, country manager at Trade Grid.

Looking for an additional gas supply source and reducing his country’s reliance on Russian gas, Mario Draghi, a former prime minister of Italy, announced that an energy deal had been signed with Algeria in July last year.

Recently, Claudio Descalzi, chief executive of Italian energy major Eni, said the EU should look to African countries for a south-north energy axis to replace Russian gas.

According to the International Energy Agency, the EU is looking to replace the average 13.4 billion cubic feet (380 million cubic meters) per day of liquefied natural gas (LNG) imported from Russia, which amounts to 4.9 trillion cubic feet (140 billion cubic meters) or 45 percent of the EU’s total gas consumption a year.

“Before the ‘south-north energy axis’ goals are realised, African countries need to ensure they have the infrastructure to maximise the opportunity that the Russia-Ukraine war has created,” Omono Okonkwo, an energy analyst wrote on a LinkedIn post.

Etulan Adu, an oil and gas production engineer said a transition of the European energy strategy away from dependence on Russian fossil fuels represents an opportunity for Africa’s gas producers. “However, there are also risks involved.”

Gas Infrastructure

Invoking a force majeure due to the effects of flooding on production and distribution, Nigeria LNG recently said it would be unable to meet the demands of a supply contract with Galp, a multinational energy conglomerate based in Portugal. Galp, for its part, has turned to Algeria to fill the gap, importing gas via the Medgaz pipeline.

“This episode exemplifies the challenges associated with the emerging energy landscape, which is characterised by transactions involving significant market, operational, political, and geopolitical risk,” Adu said.

Recent changes, he said, have also revealed Europe’s frailties and inconsistencies. Brussels has toned down its green advocacy that has harmed African oil and gas producers. Ironically, those countries are now an important part of Europe’s efforts to overcome an energy crisis that, along with inflation and recession, is severely affecting Europeans’ livelihoods.

He said the number of energy deals signed by the EU and European states with developing countries has increased significantly and that diversification is a priority. Outside of Europe, the US has solidified its position as a critical LNG supplier, with exports to the EU increasing rapidly.

“Given the existing infrastructure – pipelines connecting to the European gas network – and recent deals, Algeria, Egypt, Angola, and Nigeria are particularly well-positioned to increase exports to Europe and benefit from this momentum,” said Adu.

New deals

Some African countries are trying to step up to the plate. Following an agreement signed last year, Eni and Algeria’s Sonatrach are planning joint projects to boost gas exports to Italy.

Read also: Nigeria’s gas demand to exceed supply by 3bn bcf by 2030- McKinsey

Last August, the Nigeria LNG (NLNG) said construction of Train 7 which would increase the plant’s capacity by 35 percent, from 22 million tonnes per year to 30 million tonnes per year, at 26 percent completion.

The Nigerian government has approved a memorandum of understanding between the NNPC Limited and the Economic Community of West African States for the construction of a 5,660 km (3,517 miles) long Nigeria-Morocco Gas Pipeline.

Egypt and other African countries are also investing in gas projects to scale up and position for the prospects to come.