By Donna Liedemann, Corporate Communication Officer for Frost & Sullivan, Middle East & Africa
The use of gas for power generation, while meeting domestic energy demands for industrial, commercial and residential end users, will drive investment in natural gas infrastructure across economies in sub-Saharan Africa, making it a hub for natural gas production and export.
Africa’s economies are known to be some of the fastest growing in the world with countries like Kenya and Tanzania registering GDP growths of 5.7% and 7.1%, respectively, in 2018. Over the past decade, new participants such as Mozambique and Tanzania entered the market with immense potential for gas as a source of power and fuel. As of 2018, total gas discovered within Mozambique and Tanzania stood at 104.7 tcf and 30.8 tcf, respectively, with a combined power generation potential of over 68GW for a period of 30 years.
With its huge offshore gas discoveries, sub-Saharan Africa (SSA) is set to play a major role in the supply of gas across the continent and globally. The five major nations, Nigeria, Mozambique, Tanzania, Angola and Equatorial Guinea, represent 93.3% of the volume of total gas in the region (refer to Table 1) while the minor 10 nations only represent 6.7% (refer to Table 2).
The key drivers for natural gas exploration and associated infrastructure development in SSA include a growing need for energy adequacy and energy security, rising power demand associated with increasing levels of urbanisation, and the export potential in the form of LNG for broader economic and social development. Furthermore, this region has witnessed strong economic growth over the past decade.
In all, based on annual GDP growth, five of the 10 fastest growing global economies in 2017 were African, including Ethiopia (10.2%), Mozambique (3.7%), Zambia (3.4%), Ghana (8.1%) and Tanzania (7.1%). The global average GDP growth was 3.0% during the same period. This economic development in the region needs to be matched by energy investments. Africa’s population is anticipated to grow to over 1.6 billion by 2030 from its existing base of 1.2 billion in 2017. This will be the highest growth rate when compared to the growth across other continents and approximately three times the projected global population growth rate of 1.0%.
While Africa now has the fastest growing middle class, it is also witnessing rapid urbanisation with estimates projecting that over 50% of Africa‘s population will dwell in cities by 2030. As of 2018, an estimated 40% of the continent’s total population currently resides in urban areas. Future opportunities in the value chain for the Southern Africa hub lie in resource development and delivery across industrial, commercial and residential consumers.
The development of port infrastructure to receive natural gas, storage and transportation through pipelines, roads and railways to inland locations provides for future opportunities in the value chain. With a total of 168.6 tcf of gas that is capable of development and commercialisation, the total opportunity for investment in the natural gas sector in SSA is over $212 billion across the entire value chain. Within the East African hub, Mozambique’s domestic energy demand is expected to increase steadily as industrialisation picks up pace there.
Neighbouring countries in the Southern African Development Community (SADC) have large power deficits that could be filled with Mozambican power exports or through power generation facilities operating on imported Mozambican gas. Collectively, SADC member countries currently have a power deficit of over 9,000MW coupled with low rates of electrification (30 to 32%) and lower per capita electricity consumption. The West African hub is strategically positioned to develop as a hub for gas supply not only in the West African region but also to meet the demand from European nations. There is a growing need to diversify the local economy, which will result in incremental demand for natural gas domestically, especially from fertilizer production and gasbased power generation. Regasification facilities would need to be developed across countries to provide gas-based power to the local population.
The lack of suitable infrastructure, uncertain regulatory policies and the lack of long-term gas monetisation plans in the SSA region remain a challenge. Consultant at Frost & Sullivan, Neeraj Sanjay Mense, believes these challenges can be overcome by international collaboration and implementation of industry best practices. Natural gas economies across SSA are yet to realise the complete potential of their gas reserves. While local governments could modify regulatory and fiscal policies to boost investor confidence, the growing demand for energy diversification within the region is anticipated to drive investments.
Mense believes opportunities will arise through gas-to-power projects and energy demands for residential and industrial consumption. While residential consumption constitutes a small percentage of the total natural gas demand, it would be imperative to develop industrial and commercial entities as anchor consumers that would be instrumental in adoption of natural gas as an energy source across residential consumers.
Although SSA’s chronic power generation deficit forms a major obstacle to economic growth and human development across the continent, Nigeria, Mozambique, Tanzania, Angola, and Equatorial Guinea will continue to lead the region in terms of natural gas reserves and exploration potential. Notably, poor infrastructure, regulatory and policy uncertainty, and lack of skilled resources will continue to remain a restraint in expanding the natural gas market in SSA.
The deep-sea Brulpadda discovery by Total is a major incentive for players like Exxon Mobil and Eni Spa, which have stakes in fields close to Total’s discovery. This is expected to result in heightened exploration activity in the region, providing economic and employment opportunities for South Africa. While monetisation of the discovered wet gas reserves will take a few years, there is an opportunity for converting the gas to meet South Africa’s oil demand or even contribute to the overall power generation mix.
Reduced import dependency for crude oil coupled with tax revenues from Brulpadda will not only strengthen the Rand but also provide the government with vital financial reserves for implementing social and economic development schemes across different levels of the South African society. Across Africa, there is an urgent need to develop long-term gas monetisation strategies with focus on local consumption and export to Asian demand centres like India that have policies to increase the contribution of natural gas in the overall energy mix. “The pace of regulatory policy, natural gas resource and associated infrastructure development across competing economies like Tanzania and Mozambique would be a key highlight as these regions vie for a share in the global LNG market,” concludes Mense. ESI