An Assessment on Africa’s Gas Potential
“Are We Entering a Golden Age of Gas?” was the title of the Paris-based International Energy Agency (IEA)’s 2011 report. This year EY focused the question on Africa, publishing a report entitled “Natural Gas in Africa: The Frontier of the Golden Age”, discussing how much this “Golden Age’ might affect the African natural gas market.
Important natural gas potential in the North Africa
EY describes North Africa as the ‘Old Guard’ of Africa’s natural gas sector. Algeria, Egypt, Libya and Tunisia hold the continent’s four largest gas reserve. Algeria and Egypt are the two largest gas producers and consumers. The political instability in Libya and Egypt currently make them unreliable suppliers, at least in the short term. Therefore, Egypt’s natural gas sector is likely to be domestically focused. Conversely, Algeria is preparing to expand its exports and is investing in infrastructure in the southwest and northern parts of the country.
Underutilized West African Resources
West Africa’s natural gas has two important challenges when it comes to monetizing its resources; reducing gas flaring and capturing associated gas for export and domestic use. EY has analyzed how the World Bank’s Global Gas Flaring Reduction initiative has impacted the sub region, in part with the development of local infrastructure to support domestic gas use. Hence today, two critical components of gas development have become downstream gas infrastructure expansion and an increased focus on local content.
Shale boom in East Africa
Since the 1990s, East Africa has hosted only some small-scale exploration and production activities. In 2010, the US’ Anadarko penetrated the region and imported unconventional drilling methods. The massive Windjammer discovery in Area 1 of the Rovuma Basin in offshore northern Mozambique was decisive. Four subsequent discoveries in the area by Anadarko, along with major discoveries in nearby Area 4 by ENI in the Mamba prospect, have boosted recoverable reserve estimates for Mozambique to as high as 3 trillion cubic metres.
These shale gas discoveries made East Africa the flagship of Africa’s natural gas sector. In the short term, EY expects East African LNG to become competitive against Asian gas markets. Additionally, consultants at Wood Mackenzie estimate the existence of approximately US$ 7/million BTUs from East African LNG, in contrast to approximately US$ 10/million BTUs for Australian LNG.
Drawbacks of African natural gas boom
EY mentions also a number of drawbacks for the natural gas golden age in Africa.
- In the event of a global economic recession, African gas will be the first to be affected because of poor infrastructure and storage facilities
- A disruption in global energy demand growth in general, and in Asia in particular, could adversely impact trade flows, aid and investment flows to Africa
- A global commitment to renewable energies or nuclear power could limit demand for African natural gas internationally
- New unconventional gas discoveries in cheaper production fields
- Social opposition to unconventional gas productions because of environmental impacts on water (i.e., water supply, potential groundwater contamination and wastewater disposal) and/or a possible causal relationship to seismic activity.
- Domestic gas demand growth
- A technological revolution in production of alternative/renewable energy that will make their cost competitive with hydrocarbons
- Political instability and a failure by government to develop new fiscal and legal regimes for the oil and gas market
- Corruption and local business culture
- Gaps in infrastructure investment
- Gas contracting pressures –
- Potential supply chain issues with local content requirements, especially in human capital terms.