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Africa pushes domestic gas role in transition

  • Market: Natural gas
  • 25/10/24

Gas could complement renewable power build-out, but guaranteeing supply will require risky investment in infrastructure, writes Elaine Mills

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.


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08/11/24

Hungary’s Mol cuts forecast for 2024 refinery runs

Hungary’s Mol cuts forecast for 2024 refinery runs

Budapest, 8 November (Argus) — Hungarian integrated oil firm Mol has revised down its 2024 forecast for crude runs at its two landlocked refineries after a "turnaround-heavy" third quarter, it said today. The company expects to refine around 11.5mn t of crude combined at the 161,000 b/d Szazhalombatta plant in Hungary and the 115,000 b/d Bratislava complex in Slovakia this year, down from its previous guidance of about 12mn t. The two refineries processed 8.25mn t of crude in January-September, down from 9.09mn t a year earlier. Their combined crude throughput was down by 11pc on the year at 2.81mn t in the third quarter. Mol carried out scheduled maintenance at Szazhalombatta between 26 July and 19 September and expects to complete maintenance work on petrochemical units at Bratislava in the first half of November. Crude intake at Mol's third refinery, the 90,000 b/d Rijeka plant on Croatia's Adriatic coast, rose by 2.6pc on the year to 802,000t in the third quarter and was largely unchanged year-on-year at 1.26mn t in January-September. The company's crude throughput forecast only includes the Hungarian and Slovakian refineries. Mol cut the share of imported crude in its overall slate to 3.35mn t, or 93pc, in the third quarter from 3.8mn t, or 97pc, a year earlier, while it almost doubled intake from its own crude production to 255,000t in July-September from 129,000t in the same period last year. Szazhalombatta and Bratislava mostly process Russian crude received through the Druzhba pipeline system under an EU oil ban waiver, while Rijeka mainly takes non-Russian seaborne crude. The profitability of Mol's refining business was hit by a 71pc year-on-year fall in its refinery margin indicator — calculated based on the Dated Brent crude benchmark — to just $3.70/bl in July-September. Its oil product sales fell by 4.2pc from a year earlier to 4.88mn t in the third quarter. This included 1.52mn t of products Mol had to buy from third parties to complement its own output and satisfy demand, a significant rise from 1.25mn t of third-party oil products it sold a year earlier. The firm's upstream oil and gas production rose by 11pc on the year to 96,100 b/d of oil equivalent (boe/d) in the July-September quarter. It has raised its full-year forecast to about 92,000-94,000 boe/d from previous guidance of around 90,000 boe/d. Mol's profit fell to 111.5bn forint ($295mn) in the third quarter from Ft175.8bn a year earlier. By Béla Fincziczki Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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German energy-intensive industry reduces output


07/11/24
News
07/11/24

German energy-intensive industry reduces output

London, 7 November (Argus) — Production from Germany's energy-intensive industrial sectors was lower in September than a year earlier for the first time in seven months, driven by lower generation from the chemicals sector. Energy-intensive industrial production fell by about 3.3pc in September from August, according to data from German statistical office Destatis ( see data and download ). This was driven largely by a 4.3pc fall in output from the chemicals industry. And overall industrial output was about 1.8pc lower than in September 2023, falling year on year for the first time since February this year. The chemicals industry has warned of lower business confidence in the sector since the summer . Energy-intensive industrial branches previously showed signs of a slow recovery, but general manufacturing output across Germany has been on a consistent downward trajectory in recent months ( see manufacturing index graph ). Manufacturing output across all industrial sectors fell on the month by about 2.5pc, having risen on the month by 2.6pc in August. Third-quarter output as a whole was about 2pc lower than in the second quarter. Industrial economic activity has remained "very weak" recently, German economy and climate ministry BMWK said. But it expects a bottom to form in about the new year. BMWK has predicted that Germany will be in a technical recession in 2024 , before a return to 1.1pc GDP growth in 2025. The German economy started on a downward trajectory in 2022 , triggered by higher energy prices on the back of a halt to Russian gas deliveries to the country. And it has since been hampered by other structural factors such as labour shortages and a high bureaucratic burden. Higher gas prices could drive output lower A steady rise in gas prices in recent months could lead industrial firms to curtail domestic industrial production or use LPG instead of gas for some industrial processes. Argus assessed the German THE everyday price at an average of €40.68/MWh in October, about 56pc higher than the €25.98/MWh in February, the index's lowest point this year. Much higher gas prices since 2022 have driven a drop in Germany's industrial gas demand. Gas use in German industry of 256.5TWh in 2023 was about 22pc lower than the pre-crisis 2018-21 average of 327.6TWh, according to Destatis data released earlier this week ( see sector demand graph ). Firms either curtailed production in reaction to higher prices or switched to LPG in some processes in which gas is used as an energy carrier. But some processes, such as the production of ammonia through the Haber-Bosch-synthesis, use methane as a feedstock, which means they cannot shift to LPG as easily. Gas used as a feedstock reacted more strongly to the energy crisis than the gas used for energy. Gas use as a feedstock in the chemicals industry fell by 36pc in 2023 from 2021, while gas use for energy fell by only a quarter. Many fertiliser producers curtailed capacity in 2023, and Europe's largest fertiliser producer, Yara, expects its European gas costs to rise on the year this winter . The producer has already indicated it will shift its focus towards cheaper ammonia production in the US and away from Europe. Industrial gas use on track to rise in 2024 German industrial gas demand is on course to be higher this year than in 2023, based on daily data ending at the end of October. Industrial gas use for production processes other than space heating was 746 GWh/d in January-October, about 8pc higher than a year earlier, according to Argus estimates. But if September's industrial output drops extend to a multi-month trend, this would pull down the average for this year as a whole. Industrial demand typically falls in December when the holiday period limits economic activity, which could push down the average further. And the collapsed German governing coalition is unlikely to send strong recovery signals to the German economy. German market area manager THE publishes a combined dataset for gas demand by industry and the power sector. Argus splits out power-sector gas demand data by assuming operational efficiencies of 39-42pc, in line with fuel use data from Destatis, and factors out seasonal demand swings linked to space heating by looking at analogue trends in the residential and commercial sector ( see demand split graph ). Argus' estimates diverge from Destatis' annual demand data by only about 1-3pc, except for a 6pc gap in 2021 ( see Destatis vs Argus estimates graph ). By Till Stehr German manufacturing index index, 2021=100 German industrial gas demand by sector TWh German industry and power demand split GWh/d Destatis data vs Argus estimates GWh/d Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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German government collapse could delay energy policies


07/11/24
News
07/11/24

German government collapse could delay energy policies

London, 7 November (Argus) — The collapse of the German coalition government may delay critical energy security policies currently under discussion, with industry and power associations expressing concerns about potential political standstill on such issues in the coming months. Asked in Berlin on Thursday, energy minister Robert Habeck said he does not expect a general agreement between the remaining red-green government and the conservative Union, which would ensure all further projects in this parliamentary period. And "it remains to be seen" if some decisions could be made together with the opposition on a case-by-case basis where the interests of government and CDU align, Habeck said, although energy security could be one topic where bills could be passed during the minority government phase before the end of this year. CDU politicians including on the state level had "constantly" written him letters to ask when some laws would "finally" be passed, he said, highlighting that while he does not expect "a great deal of helpfulness" he hopes the opposition will work with the government on the basis of how beneficial planning security would be for Germany as a whole. Among the energy security laws waiting to be passed is the draft law that abolishes the German gas storage levy on cross-border interconnection points , while the government has not yet passed its power plant strategy nor submitted the second of its two planned "solar packages". Chancellor Olaf Scholz on Wednesday said that among the legislative projects he was trying to pass before the end of the year were "immediate measures for our industry" on which he was currently deliberating with "companies, unions and associations". He said he would quickly try to begin speaking to opposition leader Friedrich Merz around the questions of defence and economic stability, since the economic stabilisation "cannot wait until elections have taken place". The coalition government collapsed after Scholz sacked finance minister Christian Linder , leading the latter to withdraw his party from the ruling coalition. An election looks likely in early 2025. Industry and renewables associations in particular voiced concerns about the timing of the collapse and potential political stagnation, with general leader of chemicals association VCI calling for elections at "the earliest possible time" to avoid "stalemate and political standstill", while the federation of German industries BDI said the country needs a "new, effective government" with a parliamentary majority "as quickly as possible". VCI stressed that Germany needs low energy prices, faster permitting and less bureaucracy, while BDI highlighted that existing market uncertainty is likely to rise with the arrival of the new US administration at the beginning of 2025, when Scholz plans to hold a vote of confidence. And wind association BWE stated that the country "cannot afford to stand still", while solar power association BSW appealed to members of the Bundestag to "make decisions and compromise" on important energy policy issues across party lines. Renewables association BEE called for laws and budget funds already in process for the continuity of energy measures to be adopted by December, stating that "even in a political crisis" the country "cannot afford" stagnation and stalemates. Conservative opposition sister parties CDU and CSU have been polling well ahead across 2024 at around 30-33pc of the vote. While the parties agree with the ruling coalition on several aspects of energy policy — including supporting hydrogen-fired and climate-neutral gas-fired generation — they notably diverge on the topic of nuclear generation. Germany completed its long-awaited nuclear phase-out in April 2023, but the CDU/CSU this week announced it would conduct an investigation into whether the last plants to be decommissioned could feasibly be reactivated. The CDU/CSU also reiterated its support for the development of fourth and fifth-generation nuclear reactors. Nuclear plants are notorious for lengthy construction times, meaning a single parliamentary term may not be enough to see projects through without cross-party support, and the ruling Greens and SPD remain anti-nuclear. The country has also not yet decided on a final storage location for its existing nuclear waste, which will need to be stored there for "one million years", according to the final report from the commission for the storage of highly radioactive waste. But the CDU and SPD have both voiced support for the introduction of a national green gas sales quota , with the CDU/CSU this week highlighting green gas quotas in the gas grid as a way to leverage the market to reach climate goals. By Till Stehr and Helen Senior Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Europe gas market shows muted reaction to US Trump win


06/11/24
News
06/11/24

Europe gas market shows muted reaction to US Trump win

London, 6 November (Argus) — The European gas market showed only a limited downward reaction this morning to the US election result, and while some market participants expect a second Donald Trump presidency to ease geopolitical tensions, others see the potential for destabilising effects in the medium term. While vote counting was still ongoing at the time of publication and vice-president Kamala Harris has yet to concede defeat, the Associated Press and major US television networks have concluded that Trump secured enough votes in the Electoral College to win the presidency. European gas prices fell during morning trading, despite the US dollar strengthening by about two basis points against the euro. European gas prices typically move higher in euro terms when the US dollar strengthens to offset the higher cost of dollar-denominated LNG supply. Some market participants attributed the small price fall during morning trading to the expectation that a second Trump administration would seek de-escalation on several geopolitical fronts — such as in Ukraine and the Middle East — which, they say, had supported gas prices in recent weeks. But European gas prices reversed their limited gains by the 16:30 GMT market close. And the European gas price reaction was notably muted relative to the considerable volatility of less than a week ago when a media report had raised the prospect of an imminent deal between European buyers and Azerbaijan for gas transit through Ukraine. These European buyers later denied that a contract would soon be signed . Few market participants foresee a material effect on the gas market stemming from the US election result. "The impact is too vague to really price in," a trading firm said. "Given the tight global supply-demand balance, any setback will be short-lived," another market participant said. The result may fuel speculation that the war between Russia and Ukraine could come to an end sooner, but with the new president set to take office in late January, the change in presidency will have no effect on the possibility of reaching a deal that would allow Russian gas flows through Ukraine to continue beyond the expiry of the transit contract and interconnection agreements between the two countries at the end of this year. If a normalisation of relations with Russia leads a Trump administration to unblock sanctions preventing the use of the Novatek-led 19.8mn t/yr Arctic LNG 2 export terminal, this might bring more LNG supply to the market in 2025 than previously envisaged. Looking further ahead, Trump's pledge to reverse incumbent president Joe Biden administration's LNG licensing pause and speed up the approval of new liquefaction projects may have boosted expectations of global LNG supply towards the end of this decade. But other market participants expressed concern about a potential threat to US LNG exports to Europe in the medium term if the new administration opts not to co-operate with the EU on establishing a framework for monitoring, reporting and verifying methane emissions, which may hamper US-EU LNG trade flows once the EU methane emissions regulation is fully implemented. This, coupled with a "drill, baby, drill" policy in the US domestic market, may lead to a deeper gulf between the two markets, some said. Trump's pledge to impose tariffs on imports into the US, particularly against China, may trigger the risk of retaliation that could affect LNG flows from existing facilities — as was the case in 2019, when deliveries of US LNG to China fell to zero as a result of the trade war between the two countries, before rebounding sharply in 2021 after the two countries agreed on a preliminary trade deal. Only one Chinese buyer had US offtake at the time, but many more subsequently signed on for US LNG, totalling about 22mn t/yr from existing and planned liquefaction projects. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Q&A: French state auction for biomethane RGGOs


06/11/24
News
06/11/24

Q&A: French state auction for biomethane RGGOs

London, 6 November (Argus) — France's first auction for state-owned biomethane renewable gas guarantees of origin (RGGOs) is due to take place on 4 December. It will be run by European Energy Exchange (EEX), which also manages the French biogas registry. Argus spoke to Aude Filippi, director of business development gas and sustainability markets at EEX, about biomethane RGGOs in France and the new auctions. Edited highlights follow: How are RGGOs currently traded in France? All RGGOs for biomethane injected into the French gas grid are currently exchanged via the over-the-counter (OTC) market, and the transfer of ownership is done via the French biogas registry. The RGGOs are tradeable for 12 months and usable for 18 months, and are issued in monthly intervals. The market has been growing quite significantly. Between January and September 2024, 8.5TWh of RGGOs were issued and 7.2TWh cancelled, while in 2023 there were 9.6TWh issued. Almost all of the issued RGGOs are cancelled, with very few expiring after 18 months. Why are the biomethane RGGO auctions being launched now? The French state owns all the RGGOs from biomethane produced from subsidised plants where the contract was signed after 9 November 2020, and now the French state wants to sell them. Even though the contracts were signed in 2020, it takes time to put biomethane into production, so very few of the RGGOs have expired so far. But the volume being produced is growing so it is important that we now have the auctions. What size volumes are you expecting to be in the new biomethane GOO auctions? We expect over 80,000MWh in the first upcoming auction, with volumes likely to increase in the following sessions. What buyers are you expecting to participate in the auctions? Essentially it will be the members of the French biogas registry that we have connected today. And some members connected to the French power GOO auctions at EEX might participate, so we expect that it will be a similar target group, but for gas. Will buyers be able to export the biomethane GOOs for use in other countries? Today we are not yet connected to a hub for the international trade of RGGOs. At the moment, we are working with the hubs to get connected. Why do the auctions have a mechanism for certain buyers to reserve volumes in the auction? The idea is that the operator of a production device will have the ability to buy the RGGOs produced from this particular device from the French state. They are then committing for one year at least to buy these RGGOs at the auction price plus a 30pc premium. By Emma Tribe Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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