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In 2022, the start of the war between Russia and Ukraine sparked a surge of interest in Africa’s gas resources. Two years on, we examine the progress made by African gas projects, and the continent’s prospects as a gas supplier in the coming years.
- Political and security challenges have delayed the ramp-up of Africa’s largest gas projects. Greenfield gas capacity from the region will remain limited until the late 2020s, with capacity expansion mostly driven by existing producers such as Algeria and Nigeria.
- Europe’s interest in diversifying gas imports away from Russia will still spur growing interest in liquefied natural gas (LNG) exports from New African markets, but volumes will remain small amid competition from the US, Qatar and other LNG exporters.
- African governments will increasingly support gas infrastructure investments for domestic consumption to meet rapidly rising energy demand and support industrialisation objectives.
- There will be pockets of opportunities where a cluster of industrial users and gas power plants could provide enough reliable gas demand to make a project economical. This is most likely in Angola, Nigeria, Ghana and Egypt, but will require government support to structure bankable projects.
Scramble for non-Russian gas
As European countries scrambled to diversify their energy sources away from Russian supplies in light of the conflict, the spotlight turned to Africa's untapped potential. European leaders rushed to the capitals of old and new gas producers, from Algeria to Senegal and Mozambique; Italy signed gas supply deals with Angola, Congo-Brazzaville and Algeria between April and July 2022, while old schemes for West African gas pipelines crossing the Sahara found themselves back on the table. Many on the continent heralded a golden opportunity for Africa’s gas.
Two years on from the start of the conflict, and the geography of Europe’s gas supplies has profoundly changed. Europe has already halved its share of Russian supplies to about 15% of total gas imports and opened new routes with more distant suppliers. Some African countries have benefited from this enthusiasm for non-Russian gas, but only marginally: Africa’s gas boom has been slow to take shape.
Africa’s gas potential
Africa’s gas output is currently concentrated in four main countries, which together accounted for over 80% of its total production of 265 billion cubic metres (bcm) in 2023: Algeria, Egypt, Nigeria and Libya. Of this volume, about 115 bcm is exported, 60% of it in the form of LNG.
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These gas resources – many of them predating the start of the Russia-Ukraine war – sparked hopes for a major boom in Africa’s gas output (especially LNG exports): the region accounts for 40% of global gas discoveries made since the mid-2010s, mainly in new gas frontiers such as Mozambique, Senegal, Mauritania, Tanzania and more recently Namibia. In total, the various LNG projects in development have the potential to add about 90 bcm of annual capacity.
Missing the LNG boat
However, much of this capacity remains uncommitted, with investment decisions weighed down by various challenges. Of the greenfield gas projects under development, only two have come online since 2022: the Coral South project developed by Eni in Mozambique (3.4m tons of LNG per year, or 4.7 bcm), and the fast-tracked first phase of Eni’s floating Congo LNG project in Congo-Brazzaville, with an initial capacity of about 1 bcm. Other projects under construction include the first phase of the Greater Tortue Ahmeyim (GTA) project across Mauritania and Senegal, due to start by the end of 2024, and the NLNG Train 7 expansion in Nigeria. Together, they should increase Africa’s total production by a modest 15 bcm by 2026 – meaning Africa’s share of global gas production will stay flat.
Much higher-capacity projects in Mozambique, Mauritania-Senegal and Tanzania are still awaiting final investment decisions (FIDs) or have been suspended, partly due to security concerns and slow engagements with host governments:
- In Mozambique, the large-scale Mozambique LNG and Rovuma LNG projects have been halted since 2021 due to the threat posed by Islamic State (IS) affiliate al-Sunnah in Cabo Delgado province. The main operator TotalEnergies said in May that it was ready to resume operations but still appears to be facing challenges around financing, likely due to persistent security concerns.
- In Senegal and Mauritania, pressures by both governments, including a new administration in Senegal that took office in April, to review GTA’s development costs, revisit oil and gas contracts and tighten local content requirements are likely to slow down future project developments.
- In Tanzania, key agreements between the government and the developers of the Tanzania LNG project have been held back, more than a year after negotiations concluded in May 2023. A change of energy minister in September 2023 has reportedly complicated discussions over various sticking points, especially local content obligations, likely delaying FIDs until 2026 at the earliest.
- In Nigeria, the NLNG Train 7 expansion, which was 67% complete as of June 2024, risks being held back by gas feed shortages due to delays in developing deepwater gas projects, as well as disputes with local community groups.
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Large volumes of LNG capacity come on stream in the US and in Qatar around 2027-28, with each country projected to bring an additional 70-80 bcm in the next five years. Export-oriented African projects will therefore compete with more established markets that have a lower perception of risk and inability to offer more flexible contracts. Uncertainty about the level of European gas demand in the 2030s, as decarbonisation continues to progress, is also likely to dampen appetite to finance African gas projects.
Instead, production growth for Africa over the coming years will be driven by capacity expansions carried out by existing producers. Algeria, in particular, is expected to see a 10% production increase on 2022 levels by 2026, according to the International Energy Agency (IEA). This forecast figure will see significant upside after Algeria in March announced plans to invest as much as USD 50bn in hydrocarbon projects over the coming four years. Significant upside will also exist in Libya, where Italian company Eni revealed a USD 8bn gas deal in January 2023. Meanwhile, Egypt will seek to overturn a continuing decrease in production with a USD 200m investment in exploration and partnerships, such as a February USD 1.5bn development and exploration investment from British major BP.
North African producers’ capacity expansions will be made viable by already significant production and export infrastructure. In particular, pipeline connections to Spain and Italy from Algeria and Libya make them natural energy partners amid European efforts to diversify supply. Recognising this, France’s TotalEnergies in July 2023 signed agreements with Algeria’s national oil company Sonatrach to increase cooperation, including concerning the delivery of LNG. Meanwhile, Egypt’s existing liquefaction capacity and growing domestic consumption base will guarantee offtake options for any new production coming online in the coming years.
In contrast, two cross-border pipeline schemes to export Nigeria’s gas to Europe are unlikely to materialise soon amid political and security constraints. The Trans-Saharan pipeline linking Nigeria to Algeria via Niger will stall due to insecurity in the Sahel and poor relations between Niger and Nigeria since a coup in the former in 2023. An alternative coastal pipeline route to Morocco requires crossing 13 countries, making any rapid progress unrealistic.
Europe’s interest in retaining diverse sources of gas imports means there is still some room for African countries to moderately increase their share of exports. North African countries will undoubtedly be the main beneficiaries thanks to their pipeline infrastructure, but marginal increases in volumes are still likely south of the Sahara. Germany in December 2023 signed a deal with Nigeria to import 1.65 bcm of gas starting from 2026, while Italy is betting on growing LNG imports from Congo and Angola.
Projects located closer to European markets on the Atlantic coast are best-placed to reap benefits, especially after insecurity in the Red Sea has highlighted the threat of persistent supply disruption associated with imports from Qatar, and/or if a US administration led by former president (2017-21) and Republican nominee for the November presidential-election Donald Trump starts using US gas exports as leverage in future trade disputes. However, volumes will remain small and will not amount to a revolution.
Export and domestic markets
Instead, the progress of Africa’s gas sector will increasingly be shaped by another market, Asia, and by domestic consumption. Beyond 2030, Asian markets will play an increasingly critical role in absorbing the volumes of new gas capacity. East African projects in Mozambique and Tanzania are geographically well-positioned to service that demand and are increasingly likely to attract interest from potential off-takers and export credit agencies in Japan, South Korea or South-East Asia. For example, the bulk (82%) of Mozambique’s first LNG exports from the Coral South project in 2023 was exported to Asian buyers, mainly China, Thailand, and South Korea.
Africa’s largest gas projects are mostly oriented towards overseas exports and will likely remain so for the foreseeable future, given the small size of domestic markets and the high capital requirements they entail. However, Africa’s energy demand from power and industry is projected to increase rapidly, especially south of the Sahara: the IEA estimates that it will grow at 3% per year across the region and could reach 187-246 bcm by 2030 and up to 437 bcm by 2050.
This could result in a situation where the domestic demand will outstrip supply in the next 10-15 years, leaving a gap that smaller gas projects could fill, with the growing help of African lenders. For example, the African Export-Import Bank (Afreximbank) in June 2023 provided financing to support the preparation of Nigeria’s first Indigenous FLNG project, with a capacity of 1.2 million tonnes per annum (mtpa) (1.65 bcm) destined for the local market. Afreximbank is also in the process of establishing an African Energy Bank, which would finance energy projects on the continent and counter the declining appetite of Western lenders for fossil fuel projects.
The gas monetisation challenge
Policymakers in several African gas producers will increasingly support these domestic-oriented schemes in the coming years. This is especially the case in Nigeria and Angola, where governments have clearly laid out ambitions to use gas to support electrification and industry. New gas producers, such as Senegal, are also increasingly demanding that the domestic gas market be allocated priority over exports. Historically, these plans have run into several challenges, including the lack of creditworthy utilities as gas off-takers; non-payment risks from subsidised retail prices (according to the International Gas Union’s latest gas price survey, 58% of Africa’s natural gas consumed is priced below the cost of supply), and small-scale and fragmented markets, making it more difficult to aggregate demand for large projects.
These challenges in turn have led to underinvestment in gas processing facilities and transportation infrastructure, creating a vicious cycle that is unlikely to go away in the next few years. Developing gas reserves for domestic use will remain a tough sell for investors across much of Africa but select opportunities will likely arise. In Egypt, for instance, a fast-growing population will provide off-take opportunities in the power generation sector. In addition, large-scale capital influxes – triggered by an initial February 2024 Emirati investment deal worth USD 35bn – will likely drive further investment across the economy, including in energy intensive industrial sectors or sectors that rely on gas feedstocks – including Egypt’s fertiliser sector.
However, some governments are increasingly keen on developing industrial capacity in areas that require intensive energy use such as fertilisers (for food security), cement (for urban construction) or the transformation of minerals. This may create some pockets of opportunities where investors will be able to anchor gas infrastructure on a cluster of industrial users and gas power plants that will provide enough reliable gas demand to make a project economical. We see some potential in countries that have access to gas reserves and an industrial base that is geographically concentrated enough. Nigeria, Ghana and Angola meet these criteria on paper, though in each case significant reforms will be needed before a functioning gas-powered economy can emerge.