Oil and gas for Europe: will Africa become the new energy hub?

As the Russian aggressor faces embargoes, there is speculation about the extent to which Africa has what it takes to become an oil and gas supplier. The continent is already positioning itself.

Somalia is considered a dangerous place and a failed state: shaped by tribal feuds, drought and the terror of the Islamist al-Shabaab militia. An unstable government, however, is trying to get back to normal and wants to attract companies to the Horn of Africa – until recently to develop fossil resources.

Oil Minister Abdirashid Mohamed Ahmed says there are rich oil and gas reserves in the Ogaden basin and off the coast of Somalia. At the next major industry event, African Energy Week in Cape Town in October, he wants to “meet with global investors to give the high-power sector a decisive boost”.

The legal framework was created, the Somalia Petroleum Law, an oil authority and a Somali National Oil Company – all to make the location attractive to international oil companies. A few years ago, in a first round of licensing, oil reserves were estimated at 30 billion barrels and natural gas reserves at 5.7 billion cubic meters. Shell and ExxonMobile had secured blocks but are not mining them due to “force majeure”.

Between hype and exaggerated expectations

Somalia is special – but the country is not an isolated case in Africa at the moment. There is speculation across the continent as to whether Africa can become Europe’s new energy hub as the Russian aggressor faces embargoes – or whether Western customers simply won’t buy oil and gas to suspected war criminals. Some fuel the hype, others warn against inflated expectations. However, oil and gas states are certainly interested in expanding their fossil fuel infrastructure before the green transition begins – especially since a large part of the population is still energy poor.

Africa’s population is growing rapidly. Today, one-sixth of the world’s population on the continent accounts for just 6% of global energy consumption and up to 3% of all climate-damaging emissions. A good 600 million Africans are still without electricity, and it is likely that as many people – once all of Europe – will flock to cities in the next 20 years. The continent faces the double challenge of producing more energy without degrading the climate. That’s why it’s not just climate protectors who are looking forward to Africa.

“The energy path that Africa is taking is of global importance,” said International Energy Agency (IEA) Director Fatih Berol. “Africa can play a leading role in the transition of global energy systems to the era of renewable energy”, underlines the IEA. It is “heartbreaking” to see, says Birol, that in all of sub-Saharan Africa only a third of all solar power is produced by Britain, despite high demand.

Nigeria and Angola only play a minor role

Industrialized countries are therefore primarily promoting Africa’s great renewable energy potential – for wind and solar power and, more recently, also for green hydrogen. Various initiatives from development banks, States or the IEA, including “Desert to Power”, are trying to obtain financial aid, technology transfers and investors, because capital costs seven times more on the continent than in Europe or North Africa, and the perception of risk remains high. But Africa’s basic needs – and essential government revenues – will continue to come primarily from coal, oil, gas and hydropower.

Today, Africa accounts for around 8% of global oil production, compared to 12.4% for Russia and 31% for the Middle East, according to the IEA. The oil states of Nigeria with 99 million tonnes and Angola with 63 million tonnes in 2019 play only a minor role as net exporters compared to world market leaders Saudi Arabia (352 million) and Russia (269 million). Other oil producers are Libya, Algeria, Egypt and Sudan, while there are smaller wells and deposits in Ghana, Congo, Uganda, Gabon and Chad. More recently, Namibia celebrated the discovery of major oil and gas deposits by Total and Shell, which promise three billion barrels of oil.

In the African gas sector too, some serious players now represent 6% of world gas production, especially Algeria with 2.3% – against a Russian world share of 18% (USA 23.6, Middle East 16, OECD 38). However, with net exports of 41 billion cubic meters from Algeria and 27 billion cubic meters from Nigeria (2020), Africa does not come close to net exports from the United States (77 billion) or from Russia (230 billion).

How fast can producing countries increase their capacities?

Given the abundant deposits, these quantities can always be increased. Natural gas reserves of nearly 13 trillion cubic meters are attributed to the continent. In 2021, proven oil reserves stood at 125 billion barrels. The question, however, is under what conditions and how quickly they can develop. “Africa certainly has great potential to become a powerful energy hub,” says economist Thomas Scurfield of the Natural Resource Governance Institute in London. “But it has no mature projects that would allow a quick start of production. In a study, Scurfield had calculated that since the 1960s, the average development time between discovery of deposits and actual production in Africa was 12 years.

In order to make Europe’s energy supply more independent of Russia, the EU has already announced in its REPowerEU plan that it wants to involve Africa more. Egypt, Algeria and Nigeria are very reliable suppliers, says EU Energy Commissioner Kadri Simson. “We want to increase trade.”

However, it is unclear to what extent oil and gas will come into play here – and especially to what extent the main producing countries will be able to rapidly increase their capacities. Market watchers point out, particularly in the case of oil, that neither Nigeria nor Angola are pumping enough today to even come close to meeting their OPEC quotas. According to market reports, investments to increase capacity have remained rather low in a politically unstable environment plagued by corruption in recent years.

In terms of the rapid availability of natural gas, commodity experts at NRGI believe that Europe would be better off looking to North America or elsewhere to fill supply gaps. Larger export volumes would require huge investments in LNG terminals or pipelines, which are scarce. “These are long-term investments, and they need a lot more collateral for the banks than is foreseeable today in order to promise a profit,” warns Scurfield. After all, the Global North is heading into the era of renewable energy.

Mozambique has big plans to build LNG terminals

Nevertheless, the BP Group expects gas production in Africa to increase by 80% by 2035. In its outlook, the African Energy Chamber also assumes that over the next ten years, more than 60% of fossil resources will be exploited in gas fields. Nigeria has the most gas reserves, but this West African country only produces half of Algeria and less than Egypt. According to Scurfield, a recently politically revived plan to pump 30 billion cubic meters a year to Europe via a “Trans-Sahara” pipeline via Niger and Algeria had been “in the drawer for years”.

Algeria is geographically the closest to Europe and aims to double the development and production of its gas fields over the next five years. Italy and Spain, in particular, are keen to make greater use of existing gas pipeline connections or to complete them. But the government in Algiers has deep diplomatic disagreements with Spain over the disputed status of Western Sahara. So Rome might have better maps. A 2,000 kilometer Transmed tube is planned for Italy, which should be completed in 2027.

In the southeast of the continent, Mozambique has larger gas reserves than Egypt and Libya and has for years had big plans to build an LNG terminal. But the unrest in the country has not even allowed production to go beyond the initial stage, with real progress expected in 2025 at the earliest. In contrast, Tanzania, which borders to the north and where deposits have also been discovered recently, as well as Senegal and Mauritania, wants to leave more quickly.

Tanzania is one of the countries which, according to the optimistic American Brookings Institute, “has recognized the long-term growth opportunities arising from the conflict between Russia and Ukraine” – and wants to contribute to the independence of the Europe vis-à-vis Moscow. President Samia Suluhu Hassan says he holds the continent’s sixth largest gas reserve at 1.6 trillion cubic meters. Previous disputes with energy companies should be a thing of the past and offshore projects should be revived by 2023.

Hype or reality?

There is a certain buzz on the African side, says energy expert Silas Olang of the Resource Governance Institute. But this does not correspond to the risk assessment that companies make in a long-term perspective. Prospects are not congruent According to him, a possible increase in energy supplies from Africa is years away – and the fundamental question also arises as to whether Europe, given its planned transition from fossil fuels to renewable sources, will accept any new long-term obligations for oil and gas in order to let Africa in.

But if Europe is serious about upgrading the continent as an energy provider, it must also push for better governance, warns Olang: so that accountability can also be brought into presidential palaces, and at the same time energy poverty of the population can be combated – and in the medium term a path to a sustainable energy supply can also be found in Africa will be charted. “So it could be a win-win situation.”

Otherwise, warns his colleague Scurfield, “the current hype could end in disappointment and disastrous consequences” – namely when governments promise their citizens lavish wealth but take on new debt to build infrastructure and service networks. public, and cannot pay them in case of problems. The same has been the case in Ghana in recent years.

This text was first published by Capital.

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