Will gas transform Africa?
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.