Europe’s ‘Gas Rush’ in Africa: Risks and Opportunities (for Both)

Written by | Sunday, June 12th, 2022

Italy has perhaps been the swiftest country in the European Union to look southwards toward Africa in its efforts to wean itself from Russian gas. Western nations are indeed imposing economic and political sanctions on Russia after it invaded Ukraine in late February 2022. Italy is potentially among the hardest hit as it imports about 29 billion cubic metres (bcm) of natural gas from Moscow every year — a figure second only to Germany which accounts for over 40% of its gas demands. Replacing Russia as its main gas supplier will be no mean feat.

ALGERIA, EGYPT, AND BEYOND — In April 2022, Italian Prime Minister, Mario Draghi, signed an agreement with Abdelmadjid Tebboune, Algeria’s President to buy more natural gas. Sonatrach, the Algerian state-owned oil firm, which already sells about 21 billion cubic meters (bcm) of natural gas to Italy every year, will supply an additional 9 bcm of gas to Eni, Italy’s main energy company, from as early as September 2022. However, Rome would still have to source for at least 20 bcm of natural gas elsewhere, especially as Algeria will be hard-pressed to produce more so quickly. Egypt has already agreed to supply 3 bcm of liquefied natural gas (LNG) before the end of 2022. Luigi Di Maio, Italy’s foreign minister, Roberto Cingolani, his counterpart in the ecological transition ministry, and Claudio Descalzi, Eni’s Chief Executive, embarked on exploratory trips to Angola and the Republic of Congo in late April 2022 in an effort to fill the remaining gap. Italy’s Eni is also aiming to start LNG production from its floating plant in Mozambique before the end of 2022. For Congo, a new LNG project will be launched in 2023 to produce about 4.5 bcm a year of LNG. In sum, Italy already has new gas deals with at least five African countries, including Algeria, Egypt, Libya, Angola, Congo, and Mozambique.

A LIFELINE FOR AFRICAN OIL AND GAS PRODUCERS? —- Other European countries are on the prowl for African gas as well, visiting similar capitals as their Italian counterparts. Nigeria, which is Europe’s fourth largest supplier of LNG, providing nearly 13 bcm of LNG in 2021, is also taking centre stage. However, unlike its North African counterparts, Nigeria does not have a gas pipeline to Europe. In fact, given the global energy transition agenda before the Russia-Ukraine conflict, investors and financiers had been reducing their exposure to oil and gas transactions. Nonetheless, this may change in response to current trends. Globalisation has indeed been in a state of transition amid the Covid-19 pandemic and Russia’s invasion of Ukraine while China — the backbone of most global value chains — took on an aggressive zero Covid-19 policy that slowed down its economy as the West is attempting to rein in the Kremlin to stall its expansionism, hoping to deter Beijing from similarly invading Taiwan in the future. Against this backdrop, views on the energy transition have been revised as more urgent considerations — such as maintaining gas supplies for the winter season — have been moved to the front burner. As such, it appears African oil and gas producers, who had raised concerns about the negative consequences for their development prospects by an overly aggressive and rushed energy transition, have been offered a lifeline by fate.

NEW AFRICAN PIPELINES ARE NOT FREE OF RISKS —- To meet Europe’s increased demand, African LNG producers like Nigeria would need to expand capacity at existing LNG plants on top of building new ones. Meanwhile, much of the natural gas that international oil companies (IOCs) currently flare would need to be liquefied into LNG to be exported to an increasingly demanding Europe. That would be the case even for many African countries who, despite their ample natural gas reserves, do not yet meet their own domestic gas requirements for power generation, domestic cooking, or a myriad of other uses. Long-term contracts with EU member states will be key. Qatar is asking for 20-year contracts, for instance. African countries currently being courted should follow suit. Planned gas pipelines to Algeria and Morocco from Nigeria will depend upon that long a timeline even as each might have its own idiosyncratic risks. For instance, long-running insecurity issues in the Sahel represent a major constraint to the Nigeria-Algeria gas pipeline. Meanwhile, a relatively more expensive offshore Nigeria-Morocco gas pipeline faces a high threshold to fruition owing to more immediate and cost-effective alternatives.

LNG shipments are reliable and relatively cost-efficient in the absence of pipelines. Besides, investment in more LNG production capacity is a greater imperative. Even so, current time pressures are fuelling momentum. To exemplify, together with the Islamic Development Bank and the Nigerian and Moroccan governments, the OPEC Fund for International Development contributed USD 14.3m worth of financing to the second phase of the USD 90.1m Nigeria-Morocco gas pipeline front-end engineering study (FEED) project in March 2022. The USD 25bn 7,000km Nigeria-Morocco pipeline will be an extension of the West African gas pipeline project, which already enables the supply of Nigerian gas to Benin, Togo, and Ghana and will cross through about thirteen West African countries upon completion. Here has also been some progress on the USD 12bn 4,128km Nigeria-Algeria gas pipeline, which is expected to produce 30 bcm of gas every year upon completion, as Nigeria and the respective Sahelian governments re-affirmed their commitment to the project at a regional meeting in February 2022. Still, there is much skepticism around the extent to which progress may continue in light of the intractable security situation in the Sahel region.

AFRICA SHOULD NEGOTIATE ITS OWN GREEN TRANSITION —- Europe has been forced to reassess its energy transition agenda owing to the Russia-Ukraine crisis and the measures that have been adopted to prevent an escalation of the war. Global banks, which had already started to reduce their exposure to fossil fuel transactions as a result of the West’s aggressive, green energy drive, have now begun to revise their strategies. African countries had indeed warned that an excessively fast move to renewable energy would be disruptive to their development prospects, especially as external financing would be required to continue tapping their still abundant oil and gas reserves. Now, all of a sudden, Europe finds itself willing to finance new oil and gas projects. African countries and their Western counterparts must make the case for a more nuanced and accommodative arrangement on the global net-zero carbon emission agenda allowing Africa additional time to turn ‘green’ through ample financing to do so comfortably.

‘Europe’s “Gas Rush” in Africa: Risks and Opportunities (for Both)’ — Commentary by Rafiq Raji — Italian Institute for International Political Studies / ISPI.

The Commentary can be downloaded here

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