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.
