A new report from Think Research and Advisory – ‘COP27 and beyond: Africa’s gas dilemma’ – suggests that a successful energy transition in Africa is under threat from risks posed to it by short-term European demand for African gas imports in the wake of the Russia-Ukraine conflict.
The report’s analysis spans the current state of play in global gas markets, including Europe’s efforts to supplement its short-term gas supplies while accelerating its energy transition; Africa’s significant gas reserves and the downsides of long-term gas infrastructure development on the continent; and the impact that increased gas production would have on Africa by contributing towards climate change while also stymieing the renewable and clean energy sector’s potential to help Africa achieve both economic and energy resilience.
While the African continent holds approximately nine per cent of global gas reserves, these remain largely unexplored and currently the continent accounts for just six per cent of the world’s total natural gas production. As a result, there are clear near-term economic benefits that gas project development would provide. However, Africa is faced with a choice: 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, and global climate goals in mind.
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. For example, in 2022, Egypt made plans to divert 15 per cent 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 100bcm per year of Russian gas by 2030 in order to meet the targets of its ‘Fit for 55’ legislation package designed to cut the bloc’s greenhouse gas emissions 55 per cent by 2030, and its ‘REpowerEU’ blueprint for cutting Russian fossil fuel dependence by 2027. As a result, the bloc is increasingly turning its attention to Africa. This is evidenced by the fact that ‘REPowerEU’ specifically mentions untapped potential in sub-Saharan Africa.
Moreover, Germany is in discussions with Senegal about future supplies, the EU signed an MoU with Egypt and Israel regarding future imports, and the European Commission dispatched its Deputy Director-General for Energy to Nigeria for talks on increasing gas provision from the West African country.
Similarly, Italy has held exploratory discussions with Congo and Angola and is seeking to ramp up imports from Egypt, while Italian energy group ENI hopes to expedite LNG production at its floating gas facility in Mozambique before the end of 2022.
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. Therefore, 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.
With global investors reducing their long-term exposure to oil projects in favour of low-carbon
technologies, clean energy projects could attract much-needed financing to Africa. By encouraging Africa to focus on hydrocarbon sector development, 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.
While Africa’s emissions constitute the smallest share of global emissions the continent is the most
vulnerable to climate change in all scenarios where global warming exceeds 1.5 degrees celsius providing a key impetus for why the focus on renewables is crucial for the continent.
Haifa Al-Jedea, managing director, Think Research and Advisory, said: “Think is pleased to launch this
report at a time when questions surrounding climate action are more pressing than ever and ensuring
cooperation towards sustainable solutions between more developed and developing nations through
climate diplomacy is key. The future of Africa’s clean transition is decisive not just for global emissions
targets but also for the geopolitics and economic prosperity of the region. Think is delighted to help
international and regional stakeholders to navigate these complex issues with unique insights.”
Neil Quilliam, research and energy director, Think Research and Advisory, 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. In the African context, geopolitics and international collaboration are central to driving positive outcomes for renewables. 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.”