AT BREAKBULK EUROPE…

Region: Africa

Problem: Africa’s reliance on European demand for gas could backfire if the bloc wants to diversify suppliers

Solution: A focus on Southern and East Africa infrastructure development could prove a safer bet for project cargo handlers short-term energy crisis resulting from Russia’s invasion of Ukraine.

Raising several concerns about the expansion plans, the report titled The Scramble for Africa’s Gas highlights that much of the continent’s gas pipeline buildout has yet to secure investment and that regional imbalances in gas plant generation persist. At the same time, investments in planned liquefied natural gas, or LNG, export terminals dwarf planned investments in gas plants to power Africa. The estimated capital expenditure for the development of LNG terminals is US$103 billion; 92 percent would be for LNG export terminals. This total estimated investment would increase the region’s 79.3 million tonnes per annum of LNG export capacity by 111 percent while doing little to improve electrification on the continent, according to the report. It warns that without long-term financing and offtake agreements, these assets are likely to quickly become stranded once the European energy crisis abates.

Careful Planning, Clear Objectives

Duncan Bonnett, an African project expert and analyst at Africa House, told Breakbulk that African countries need to be careful in placing too much reliance on Europe’s interest in the continent’s gas reserves. “There has been a clear indication from the European Union that it never wants to be held hostage by Russia again and while the move towards Africa’s potential to provide it with gas is real, the intent they are showcasing should not be ignored. Europe does not want to be held hostage by anyone anymore in terms of energy supply so what we can expect from that continent is energy diversification going forward.”

Patrick Prestele, a consultant at Frost & Sullivan Africa, said in the global context Africa holds around 13 percent of the world’s natural gas and while there are concerns about the exact potential of the continent there are reasons to be optimistic about the future of the gas industry.

“Several African countries are developing down and upstream natural gas projects. These are especially found in West and Southern Africa, including Mauritania/Senegal where Phase 1 of the Greater Tortue Ahmeyim Floating LNG project is underway, the Sanha Lean Gas project in Angola, the Republic of Congo’s Fast LNG Project, the much anticipated Baleine Phase 1 in the Ivory Coast, the Tanzania Lindi Project, the UgandaEthiopia Gas Pipeline as well as Mozambique’s Coral South LNG,” he said.

Highlighting the complexity of the African continent, he said that there are also several projects showing high potential but not moving forward at all. “These projects are being kept from further development because of limited or absent funding, geopolitical instability or external factors such as terrorism - as has been the case with Mozambique’s Total Energies LNG project. The potential will certainly not be released due to the absence of funding,” he said.

Bonnett added that Africa’s gas story – or the potential that it holds for the continent – is not new. “Talk of gas projects has been around for years, particularly in the traditional oil and gas markets such as Nigeria which has flared gas for decades. If one looks at countries such as Toga, Benin, and the Ivory Coast then gas has been part of the project discussion for some time.

“It is in Southern and East Africa where the so-called excitement is being generated as it is a new phenomenon.

Mozambique and Tanzania have made massive finds and projects were quick off the bat even though there have been delays.”

Bonnett said it was important to recognize that projects in Africa do not develop quickly and it can take years to get them off the ground. “When we look at Mozambique in context then the projects in the country have developed very quickly with the first offshore terminals already producing gas. The Total project was put on hold due to insurgency but is expected to start up again in July this year and work is ongoing in the Ravuma Basin project, although that has not reached Final Investment Decision stage as yet.”

He added that developments at the Bailine project in Ivory Coast were particularly notable as they happened in record time, demonstrating that projects can take off quickly and successfully in Africa under the right circumstances. “Mozambique would have been a lot further down the line had it not been for the outbreak of the Covid-19 pandemic and the insurgency. This set the onshore LNG project back by years and it would have been at least 60 percent completed by now.”

Bonnett said while concern that African gas projects could result in stranded assets was justified to some degree, there is a fair amount of projects underway on the continent to keep project cargo operators busy for decades.

Moving in the Right Direction

DSV general manager for oil and gas business development in Africa, Leandro Trindade, said the speed at which projects are taking off is increasing. “There are a lot of countries on the continent that are moving quickly. Namibia is a good example. Even in South Africa, with the discovery of helium in the Free State, we have seen very fast movements calling for project cargo operators to be ready and able on the ground.”

Trindade added that onshore development in several countries is ongoing and moving in the right direction.

“Africa has an energy crisis, where approximately 600 million people do not have access to electricity, yet Africa is the place where so many discoveries have been made over the last decade. The potential is there but we need foreign investment to develop these projects.”

Prestele agreed that this is possibly the biggest hurdle for project developers on the continent.

“Access to financing is by far the biggest challenge. Africa relies heavily on direct investment. All of the leading economies on the continent have natural gas infrastructure projects either developed or with plans in place to expand. Financing is needed.”

He said other projects to watch out for included South Africa’s Richard’s Bay refinery upgrade, the Nigeria-Morocco gas pipeline, the Nigeria-Algeria gas pipeline, as well as the Rovuma Basin LNG project in Mozambique.

Project cargo operators are keeping a close eye on the gas developments on the continent. Bonnett said while it was anyone’s guess if the continent would realize its full gas potential, the reality is that projects in the gas sector and logistics service requirements are on the rise.

However, it is currently very much a chicken and egg situation. “Are project cargo operators readying themselves for a gas infrastructure boom? Yes and no,” Trindade told Breakbulk. “It is the chicken and egg scenario. No carrier or cargo handler will invest in assets while there is no volume confirmed and no investment in a project, even if the potential is huge. Once the FID is concluded, however, and the project kicks off, carriers can and do commit assets as the volumes are then on hand.”

Prestele, like Bonnett, believed that project cargo operators are best advised to be ready. “In North Africa, if natural gas can be produced and exported at market-competitive prices to Europe, then the European market will buy it. It’s a different picture in Sub-Saharan Africa. Several developed nations, including the U.S. and Europe, have decided to stop funding energy infrastructure projects in poor countries that depend on coal, gas and oil. These nations rely heavily on foreign direct investment for new infrastructure projects and will struggle to find the funds to develop the natural gas economy independently,” he said.

Bonnett added: “Developing gas infrastructure on the continent will require investment into transport infrastructure meaning more project work. Roads, railways, pipelines and ports will have to be upgraded. Projects in Africa do take longer and so when we talk about US$245 billion of planned infrastructure and the possibility of it being stranded then yes, the skepticism is understandable.

“On the other hand, if we just look at the east coast of Mozambique up to Kenya and Uganda, then there is US$140 billion in potential projects right there and at least half of that is already underway. We might only be tiptoeing towards the line, but we are moving in the right direction.”

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