Will gas trans­form Africa?

Financial Nigeria Magazine - - Contents - A gas fa­cil­ity Heleen Gous­sard is the Head of In­de­pen­dent Val­u­a­tions at RisCura.

In re­cent years, ma­jor dis­cov­er­ies of gas re­serves by sev­eral African na­tions seemed to her­ald an era of cheap elec­tric­ity, and the prospect of an ad­di­tional ex­port prod­uct to boost for­eign cur­rency in­come. Cur­rently the pic­ture is very dif­fer­ent hav­ing been stalled by Africa's gen­eral in­fra­struc­ture chal­lenges, but the un­der­ly­ing cat­a­lyst for change re­mains.

In the last five years, Africa's re­serves in­creased by al­most 40%, and over the last 10 years the pic­ture is even rosier, with a 145% in­crease. The ques­tion that re­mains is how Africa will use this op­por­tu­nity. Nige­ria, Egypt, Mozam­bique and Tan­za­nia col­lec­tively ac­count for 75% of all the known gas re­serves on the con­ti­nent, and each are at dif­fer­ent stages of de­vel­op­ing the in­dus­try.

Nige­ria is home to over a quar­ter of the con­ti­nent's gas re­serves. This gives it the po­ten­tial to pro­duce abun­dant cheap en­ergy, and drive an in­dus­trial revo­lu­tion, while also solv­ing the en­vi­ron­men­tal prob­lem of ex­ces­sive gas flar­ing from the oil in­dus­try. Al­though gas is not a ze­ro­car­bon-pro­duc­ing re­new­able en­ergy source, it pro­duces sig­nif­i­cantly less car­bon than diesel and heat­ing fuel, widely-used in Nige­ria. To en­able in­vest­ment into this in­dus­try, the gov­ern­ment cre­ated Pub­lic Pri­vate Part­ner­ship (PPP) leg­is­la­tion, a PPP reg­u­la­tor, and ini­ti­ated the Nige­rian Na­tional In­te­grated Power Project (NIPP). This gave some (but ar­guably not suf­fi­cient) clar­ity in terms of leg­is­la­tion, pol­icy and reg­u­la­tions.

Pri­vate in­vestors and the Nige­rian gov­ern­ment be­came in­volved with the gas field ex­plo­ration, build­ing of pipe­lines and fi­nally the con­struc­tion of power sta­tions. So, how did we ar­rive at a sit­u­a­tion where, ac­cord­ing to BMI's 2017 re­search, Nige­ria's ma­jor struc­tural prob­lems across its gas and elec­tric­ity sup­ply chain could re­sult in an in­ad­e­quate elec­tric­ity sup­ply over the next 10 years?

Al­though there are other struc­tural prob­lems that need to be ad­dressed, the an­swer seems to be the fickle na­ture of risk. The risk posed by the volatil­ity of com­mod­ity prices (height­ened by the gov­ern­ment's reliance on oil in­come) and the risk of ter­ror­ism, has large im­pacts and are dif­fi­cult to pre­dict in terms of tim­ing. The dou­ble blow of re­al­is­ing both these risks at the same time, made the im­pact dev­as­tat­ing. The slow up­ward creep of the oil price and the sta­bil­i­sa­tion of the cur­rency, seems to be slowly reviving in­ter­est in this pro­gramme. Should this pro­gramme bear fruit and the Dan­gote oil re­fin­ery come on­line in 2019, it could have a sig­nif­i­cant and last­ing im­pact on the Nige­rian econ­omy in the longer term.

On 30 Au­gust, 2015, multi­na­tional oil and gas com­pany, ENI an­nounced the dis­cov­ery of the Zhor gas field off the coast of Egypt. It is not the only re­cent find of gas in Egypt, but is by far the big­gest. The field was es­ti­mated to con­tain 30 tril­lion cu­bic feet of gas, which trans­lates to 5.5 bil­lion bar­rels of oil, al­most dou­bling Egypt's gas re­serves. Egypt has long made use of gas for do­mes­tic and in­dus­trial con­sump­tion, with a large de­mand dur­ing the sum­mer months.

To sup­port pri­vate in­vest­ment into this in­dus­try, Egypt's Pres­i­dent Ab­del-Fat­tah elSisi set up a nat­u­ral gas reg­u­la­tory author­ity to move away from the pre­vi­ous state mo­nop­oly and open com­pe­ti­tion in the in­dus­try. The Zhor dis­cov­ery, along with pri­vate in­vest­ment, will mean that the na­tion may well be­come a net ex­porter of gas dur­ing cer­tain pe­ri­ods of the year. It could also re­sult in Egypt at­tain­ing en­ergy self-suf­fi­ciency, in­creas­ing its re­gional se­cu­rity.

In all the markets across the con­ti­nent, the gas in­dus­try faces the same is­sues re­lated to Africa's gen­eral in­fra­struc­ture. Wide-spread pri­vate in­vest­ment into the gas in­dus­try is cur­rently in the early stages. The de­vel­op­ment of this in­dus­try re­quires time, ef­fort and en­gage­ment with all stake­hold­ers to cre­ate the eco-sys­tem that is truly con­ducive for pri­vate in­vest­ment. As with many things in Africa, there is slow but en­cour­ag­ing, steady de­vel­op­ment.

There is no doubt that the com­bi­na­tion of pri­vate in­vest­ment and re­cent dis­cov­er­ies of gas re­serves on the con­ti­nent can trans­form economies and strengthen na­tions. With much of the con­ti­nent still un­ex­plored, there may well be more undis­cov­ered re­sources that will fur­ther drive its de­vel­op­ment.

Nige­ria, Egypt, Mozam­bique and Tan­za­nia col­lec­tively ac­count for 75% of all the known gas re­serves on the con­ti­nent.

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