Africa’s gas dilemma as Europe offers ‘get rich quick’ opportunity

Reuters

• Egypt’s LNG exports to Europe are up 14.3% on last year
• Senegal in talks with Germany; Congo and Angola with Italy
• Short-term contributions should not be at long-term growth expense

Africa is facing a dilemma: provide gas for Europe now with short-term economic gain or focus funding on the development of renewable energy sources, with long-term energy security, economic growth and stability.

Driven by the opportunity to take advantage of soaring prices, gas-exporting African countries are adjusting their energy development plans to meet demand, particularly from Europe, said Saudi-based Think Research and Advisory.

Think highlighted the dilemma posed by short-term European demand for African gas imports in the wake of the Russia-Ukraine conflict.

• Egypt aims to overcome obstacles to supplying more gas to the EU
• Algeria’s gas in demand as Europe looks beyond Russia
• ‘Encouraging’ signs for UK firm’s $206m Moroccan gas deal

For example, Egypt has exported eight million tonnes of liquefied natural gas worth over $5 billion to European markets in the first eight months of 2022, up 14.3 percent year-on-year.

According to Tarek Al-Mulla, minister of petroleum and mineral resources, the country has exported a million tonnes more than last year.

“European energy policy has the potential to deprive the continent of benefiting from the industries of the future that will be increasingly led by renewables,” Think analysts noted.

“On the surface, exploiting Africa’s natural gas potential would appear to provide quick wins for both Europe and Africa,” they said.

They added it would fail to help deliver long-term energy security, economic prosperity and stability for Africa.

“The European Union’s need to make up for lost Russian gas supplies has pushed it to engage with African governments, but the bloc’s objectives are short term and conflict with African project timelines and development goals,” they said.

Christopher Vandome, senior research fellow at Chatham House, said that African leaders are intent on advancing their own strategies for energy generation and adaptation that deliver on national priorities of job creation, sustainable growth and environmental protection.

“Many countries’ strategies involve exploiting gas reserves. But with mounting global pressures against further hydrocarbon extraction, African leaders need to demonstrate to international partners that these operations are part of a long-term transition away from other fossil fuels and that they contribute towards poverty alleviation,” he said.

Vandome stressed that Africa’s contribution to the global energy transition cannot be at the expense of its own industrialisation.

The Think report pointed out that in the long term, gas development efforts could also leave African producers with stranded assets as European countries speed up their transition to clean energies.

Think’s research energy director Neil Quilliam said: “If Africa focuses resources on gas infrastructure development this will divert bandwidth from the crucial renewables projects that enable a pathway to energy transition for the continent. 

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“In the African context, geopolitics and international collaboration are central to driving positive outcomes for renewables,” he said.

“Therefore, Europe which on one hand pushes for an accelerated energy transition globally, must align its energy policy with its long-term climate goals, lest it risk encouraging Africa to become locked into long-term hydrocarbon infrastructure commitments that would imperil climate targets, and deprive Africa of the long-term economic benefits of renewable development.”

While the African continent holds approximately 9 percent of global gas reserves, these remain largely unexplored and currently the continent accounts for just 6 percent of the world’s total natural gas production. 

Think said that as a result, there are clear near-term economic benefits that gas project development would provide.

It added that, with gas prices soaring, the prospect of securing higher revenues over the long term is already causing exporting countries in Africa to adjust their priorities. 

Egypt has made plans to divert 15 percent of gas used for domestic electricity generation to exports to boost its struggling economy.

Following Russia’s invasion of Ukraine, Europe needs to replace just over 100 billion cubic metres per year of Russian gas by 2030 to meet targets to cut the bloc’s greenhouse gas emissions 55 percent by the end of the decade. 

That is why the bloc is increasingly turning its attention to Africa. Germany is in discussions with Senegal about future supplies and the EU signed a deal with Egypt and Israel regarding future imports.

Italy has held exploratory discussions with Congo and Angola and is seeking to ramp up imports from Egypt.

Last month AGBI reported how the UK is working with Morocco on a $20 billion plan to build vast solar panel and wind farms in the desert that could power more than seven million British homes by 2030.

Think’s report said: “Notwithstanding that Africa’s gas reserves look appealing to EU leaders in the short term, Europe may not actually need significant new volumes of African gas, especially if the US delivers previously agreed contractual obligations to deliver hydrocarbons. 

“As a result, while investment in Africa’s natural gas sector could benefit Africa initially, it could also carry considerable risk if resources are developed solely with the goal of meeting European demand – which is likely to be short to medium term as EU customers are unwilling to sign typical 15 to 25-year contracts, given that EU energy policy limits the role of natural gas in the energy mix.” 

It added: “European investment in African gas development carries the twin risk of firstly, leaving African producers with stranded assets and, secondly, by undermining advances in developing and expanding clean energy supplies throughout Africa by locking economies into long-term gas infrastructure and contracts.”