Africa Could Benefit from Europe’s Energy Diversification Effort

Africa is expected to reach maximum gas production at 470 billion cubic meters (bcm) by the late 2030s, about 75% of Russia’s production in 2022. The EU has announced its intention to phase out Russian gas by two thirds by the end of this year, which could result in a supply crunch that would be felt around the globe. Projects in Africa could ease some of that.

Even with the number of gas projects being developed or currently delayed, Africa still has significant production potential. The continent is estimated to increase its gas production from about 260 Bcm in 2022 to as much as 335 Bcm by the end of this decade. If oil and gas producers decide to increase efforts on their gas projects in Africa, the short and mid-term output could surpass expectations.

Russia historically has been the dominant gas supplier of Europe, accounting for 62% of the continent’s imports on average over the past decade. Africa has also been an important supplier with 18% of European imports.

The projects in Africa however, has always been considered as high risk due to high development costs,  challenges accessing financing, issues with fiscal regimes and other above-the-ground risks. Nevertheless, oil and gas giants such as BP, Eni, Equinor, Shell, ExxonMobil and Equinor have signaled a shift in strategy towards further investment in Africa, with several projects that were previously halted, including LNG. Companies consider restarting or accelerating previously shelved projects in response to rising global demand.

While the U.S. has ramped up LNG deliveries to Europe in recent months, the volumes are far from meeting the demand. Asian and European importers will need to consider Africa as they develop projects, as many African producers are focusing on supplying energy locally as well as to intra-African markets along with catering to global markets. Existing pipeline infrastructure from Northern Africa to Europe and historical LNG supply relationships make Africa a strong alternative for European markets.

African nations that already supply gas to Europe are capable of scaling up exports. Their advantage is that there are already 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. Moreover, discussions of long-distance pipelines connecting gas fields in Southern Nigeria to Algeria via the Trans Saharan Gas Pipeline (TSGP) and the Nigeria Morocco Gas Pipeline (NMGP) have increased 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) all the way to Europe via West African coastal nations and Morocco. African LNG exports have mostly come from Nigeria and Algeria, with smaller volumes from Egypt, Angola, and a fraction from Equatorial Guinea.

Europe looks at the possibility to increase output and exports of gas-rich African nations. The EU’s decision earlier this year that all natural gas investments are equivalent to investments in “green” energy signal 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 financier of the proposed $13-billion TSGP project.

BP has several big gas projects in Senegal and Mauritania, the Greater Tortue Ahmeyim (GTA), Yakaar-Terenga and BirAllah LNG projects. LNG volumes from the 2.5 million tonnes-per-annum (tpa) GTA floating LNG (FLNG) Phase 1 have already been sold, and some gas from Yakaar will be used as feedstock for Senegal’s gas-to-power plant. However, gas from GTA LNG Phase 2, the remaining gas from Yakaar–Teranga and BirAllah are yet to be contracted and these volumes could ease the constrained LNG market in the coming years. GTA FLNG Phase 2 has a planned capacity of 2.5 million tpa, while the Yakaar–Teranga and BirAllah LNG facilities could have capacity of 10 million tpa.

Italian energy company Eni has said that it can ease some of  Europe’s dependence on Russian gas from its African projects. Those projects are located in Algeria, Egypt, Nigeria, Angola and Congo-Brazzaville. In the past month, Italy, in association with Eni, signed deals to boost gas imports from the North African nations of Algeria and Egypt, and then more recently, two more gas supply agreements with two Sub-Saharan African nations, Congo-Brazzaville and Angola.

Equinor, ExxonMobil and Shell also have significant LNG portfolios in Africa that are yet to be developed. These may also counter the potential gas supply deficit in the future. ExxonMobil has a 25% stake in Area 4 in Mozambique, with significant potential for expansion.

The announced exits from Russia by Shell and Equinor could see the two to refocus on the long-stalled Tanzania LNG development. The increased demand for natural gas driven by the ongoing war in Ukraine and pullbacks from Russian supplies could also drive a renewed focus on exploration and development in Nigeria to feed these LNG exports over an extended period.

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