- Africa is rich in oil and gas, with some of the world’s greatest natural gas reserves
- Africa must quickly move to become an essential supplier to Europe as it attempts to diversify away from Russia
- The concern for Africa is how rapidly gas can flow north to Europe after years of underinvestment in the industry due to fluctuations in price and demand
Russia’s invasion of Ukraine and Europe’s quest for alternative energy
Russia’s invasion of Ukraine has disrupted global energy markets and flipped the energy debate on its head. As a result, the effects of this war on the energy industry are now worldwide. The move reflects Europe’s shifting geopolitical situation, with global ramifications.
To accomplish climate targets, the E.U. has a clear goal of diversifying gas supply in the medium term while focusing on increasing renewables and phasing out fossil fuels. However, the shift in global energy markets raises concerns about how countries will reach their carbon targets under the United Nations Framework Convention on Climate Change.
The European Union has imposed restrictions, including a partial oil embargo on Russia. The sanctions will see the E.U. ban seaborne imports of Russian crude oil by the end of 2022. Additionally, petroleum product imports would stand prohibited by early 2023. European Commission President Ursula von der Leyen reiterates the E.U. plans to reduce reliance on Russian fossil resources by 2027.
Because of the European Union’s political determination to minimize its reliance on Russia in response to Moscow’s invasion of Ukraine, the E.U. is now searching for alternative suppliers. The search implies that suppliers such as Africa’s underdeveloped frontier energy markets may discover new energy markets in Europe. Optimism remains high since it is clear the E.U. no longer rely on Russian gas. Russia has for years remained a primary gas supplier in Europe.
The European Commission said in March that the E.U. might import 50 billion cubic meters more of liquified natural gas (LNG) annually. In May, the E.U. increased its intention to incorporate 10 billion cubic metres of pipeline gas. The Commission stated its desire to turn to Africa for gas supplies in the REPowerEU plan, mainly citing Egypt and West Africa as prospective suppliers.
Market timing is key in Africa’s quest to replace Russian gas supplies in Europe
According to Massimo Di Odoardo, vice-president of global gas and LNG research at Wood Mackenzie, African oil and gas producers will face severe competition. Given its proximity to Europe, Africa is in a good position. However, European demand may not last forever. Other oil and gas producers, notably those in the United States and the Middle East, are attempting to capitalize on the opportunity.
The timing of entry into the market will be critical for Africa. The continent must quickly move to become an essential supplier to Europe as it attempts to diversify away from Russia. Africa’s governments must demonstrate intent and work hastily to capitalize on the newly discovered potential.
When the European Union hits the crisis-level panic button, member countries may begin to stockpile their last supply of refined petroleum, dealing a severe blow to the African continent, which relies on E.U. refineries to transport people, cars, and machinery.
Some of the other providers have already begun to increase their output. In late March, the United States pledged to “engage with international partners to provide increased LNG quantities for the E.U. market of at least 15 billion cubic meters in 2022.
The move would replace around 4% of the E.U.’s total gas imports this year, with increasing amounts expected over the next decade. However, there is still a considerable gap to be filled. As a result, the question of whether African nations can increase supplies to the E.U. in the short future arises.
Europe’s vulnerability, along with America’s determination to assist the Europeans in dealing with it, has created a more conducive atmosphere for discussing sensible investment in fossil fuels, both for Europe’s security of supply and for Africa’s energy transition.
An outlook into Africa’s gas reserves
Africa is rich in oil and gas, with some of the world’s greatest natural gas reserves. According to reports, Africa had 148.6 trillion cubic meters of proven gas reserves in 2017, more than 7% of world reserves.
According to Khadi Camara of the German-African Business Association, African producers have more reserves than they need for their local market and are hence viable for export. In 2019, the European Union bought over 108 billion cubic meters of LNG from Africa, with Nigeria accounting for more than 12 billion.
Nigeria dominated crude oil exports in Africa in 2019, with more than 2 million barrels of oil sold daily on the international market. Africa’s total oil and gas output in the same year was 327.3 million metric tons. By 2020, Africa’s contribution to global oil exports would have reached about 9%.
Niger has the potential to become a gas exporter. With Europe strengthening energy relations with Africa, the transformation might herald a new age of greater regional cooperation in Africa. The new era would improve gas monetization and exports while scaling up Niger exports to Europe via Algeria.
Tanzania has the sixth-largest gas reserves in Africa, estimated at 1.6 billion cubic meters, and the development of a $30 billion liquefied natural gas plant is set to begin in 2023.
African manufacturers with established links to European clients have the best chance of meeting the E.U.’s rising demand. According to Capital Economics, Italy has already reached agreements with Algeria, Egypt, Angola, and the Republic of Congo to compensate for about two-thirds of the gas it was buying from Russia.
Germany, the economic powerhouse of the E.U., is scrambling to establish gas shipments from the U.S and West Africa. According to a draft European Union strategy for replacing Russian gas, Senegal, Nigeria, and Angola are prospective partners in addressing the growing shortages.
Prevailing challenges in Africa’s bid to replace Russian gas in Europe
The concern for Africa is how rapidly gas can flow to Europe after years of underinvestment in the energy industry. The fluctuations in price and gas demand make the situation worse. The continent’s unwillingness to commit to exploiting additional gas possibly stems from a lack of pipeline capacity to deliver energy to Europe swiftly.
However, European governments have indicated that they want to sustain the current energy infrastructure rather than develop costly new pipelines. Nigeria, Angola, Senegal, Mauritania, and Mozambique are among the countries that might gain.
Still, constructing projects like the Saharan pipeline from Nigeria has security risks. Indeed, political instability and violence hamper Europe’s transition to African energy. West Africa has also had five coups since 2020 and quickly growing Islamist insurgencies. Investors are concerned about these difficulties.
Nigeria, Niger, and Algeria are among the least secure countries in the region. The active terrorist operations disrupt all technological processes and the development of gas pipelines across Africa.
One such planned pipeline would extend from Nigeria to Niger. Both countries are fighting Islamists. Militant groups in Nigeria’s oil-producing Niger Delta area have vowed to relaunch assaults due to differences in oil income distribution. Kidnappings for ransom and deadly Islamist insurgencies have also plagued the country.
The pipeline’s yearly capacity, formerly estimated at $10 billion, would be up to 30 billion cubic meters of natural gas. The channel was supposed to be operational by 2015. The project is still at the prospecting stage in 2019. It is unclear what will happen next, as there are safety worries regarding the project and future practical operations.
Similar security concerns have been raised regarding a Mozambique project containing roughly 2.8 trillion cubic meters of natural gas reserves. The reserves make up 1% of the world’s total resources. In April, a multibillion-dollar LNG project by France’s TotalEnergies was halted after a rebellion by Islamic State-linked terrorists in the northern Cabo Delgado region.
Overcoming the challenges is critical for Africa to replace Russian gas
According to figures from PwC’s South Africa unit, issues have resulted in a 19% decline in African oil output in 2019 compared to the previous year. The decline represents 7.8 per cent in worldwide production. Furthermore, gas output fell by 5% compared to the previous year.
To attract investment, African producers must considerably strengthen the financial incentives for oil companies to invest. Strengthening makes it much simpler for them to conduct business in the country by resolving political and security issues.
For a short-term solution, Africa must change the fiscal regimes that allow oil multinationals to profit more from their investments. Furthermore, Africa must address concerns such as corruption and crude oil theft and cut as much red tape as feasible. Countries that consume a lot of oil, such as Germany and China, should establish specific bilateral agreements with Africa. The agreements allow the consumption countries to participate in the production countries’ energy sectors.
Africa has ample reserves to replace Russian gas in Europe, but the continent’s energy industry needs urgent changes and assistance. If the difficulties are overcome, oil firms will get considerably more advantageous financing conditions. Furthermore, the firms get better-operating environments to engage in new oil production in Africa.