Commercial interest in Africa’s gas sector has shifted markedly over the last decade, owing to the associated natural gas developments from the oil boom in the Gulf of Guinea.

Investor interest has, therefore, shifted slightly away from traditional gas-producing countries in North Africa, such as Algeria, Egypt and Libya, advisory company africapractice analyst Manji Cheto tells Engineering News.

She adds that growing concerns over the security of future supplies from North Africa, given the increasing political instability in the region, partially accounted for investors’ keenness to seek gas supplies elsewhere, for example, in previously underexplored countries in West Africa such as Ghana, Côte d’Ivoire and Gabon.
“These developments have been followed by shifts in focus to hydrocarbon explorations in East Africa and Southern Africa, which resulted in significant discoveries of natural gas reserves in Tanzania and Mozambique – in addition to major oil finds in Kenya and Uganda,” says Cheto.

The East African gas sector has featured heavily in the international press in the last few years, africapractice analyst Tom Savory points out.

“The excitement is rightfully high among many stakeholders, as discoveries in Tanzania are increasing and a viable gas export industry in the country looks highly likely in the next decade,” he says.

However, Savory cautions that the downside risks still weigh heavily on potential operators in the country.
“There has been violent political unrest over a gas pipeline in Tanzania and regulatory and legislative regimes in the country remain uncertain. Oversupply on global markets after 2020 is also a concern,” he adds.

Savory explains that in broader Tanzanian society, expectations of the gas industry are gathering momentum too quickly and gas companies are urging stakeholders to show caution when discussing the industry.

He acknowledges that the gas industry could radically change the economy of Tanzania; however, he does not believe that this will become a reality for at least eight to ten years, if at all.

“The fact that there will be at least one general election in the country before commercial gas exports occur will heighten political risks and increase the possibility of an escalation in national discord,” warns Savory.

However, overall, he believes that there is much to be upbeat about in Tanzania.
“It is highly likely that the country will eventually have a gas export industry. If this occurs, the tax payments generated will be substantial and Tanzania’s government will be newly empowered. In the long term, the capacity and political will of its government to spend this revenue wisely will be a critical factor in the socioeconomic success of the gas industry in Tanzania,” he says.

Meanwhile, Cheto notes that recent estimates put Tanzania’s recoverable natural gas reserves at about 40-trillion cubic feet (tcf).

She points out that there is an estimated 150 tcf in Mozambique, about 35 tcf below the 185 tcf estimated for Nigeria, which is Africa’s largest holder of gas reserves.

Cheto says these discoveries, coupled with promising prospects for shale gas development in South Africa – which is estimated to have about 390 tcf of technically (but not economically) recoverable shale gas – could significantly alter the landscape of Africa’s gas industry.

Assumptions and Challenges

Cheto says some degree of caution must be used when assessing the economic implications of Africa’s various promising gas prospects.
“Currently, the key assumptions driving optimism about the transformative impact of gas discoveries in Africa include China’s high demand for natural gas, the increased global use of natural gas in transportation and the declining popularity of nuclear power as an energy source,” she explains.

Cheto cautions, however, that while these assumptions hold true for now, they are subject to change, as there are already growing concerns about a decline, or at least a stagnation, in China’s growth.
Further, she notes that even if China continues to grow at the remarkable pace at which it has been developing over the past decades, its ability to continue driving global demand for commodities cannot be sufficiently relied on in the medium to long term.
Cheto points out that the declining popula- rity of nuclear power as an energy source – mainly owing to perceptions about the negative impact of nuclear plants, following the 2011 earthquake and tsunami, which struck the Fukushima Daiichi nuclear power plant, in the Fukushima prefecture of the Tõhoku region on the island of Honshu, in Japan – may be a short-term sentiment, which may quickly dissipate in the near future.
Cheto notes that, subsequently, as more gas discoveries are made, not only in Africa but also worldwide, the expected spike in supply could drive prices down and, counterintuitively, undermine Africa’s gas development prospects.
“The infrastructure investments needed to develop the recently discovered gas reserves are substantial and with perceptions of risk in Africa being high, investors are likely to take a more cautious and, perhaps, slower than desired approach to developing these resources,” she warns.
Ghana’s government’s struggle to finalise funding arrangements to develop its gas infrastructure and make the country a major gas exporter, already points to possible challenges that lie ahead for other countries in Africa wanting to develop their gas resources.

“Ghana, with its proven gas reserves from 1.5 tcf to 1.7 tcf and comparatively lower operational risk profile, has struggled to get many gas projects off the ground. Therefore, Tanzania and Mozambique, with significantly more gas reserves and comparatively higher operational risk profiles, may find it even more challenging,” notes Cheto. She says despite the risks and caveats, there are other promising prospects for the development of gas in Africa.

“Besides the current estimated demand from China, which many analysts believe is key to driving the development of Africa’s gas sector, the one key internal factor that could drive rapid development of the gas industry on the continent is its dire need for additional and secure electricity supplies,” highlights Cheto.

She believes that, if the local gas prices were truly market reflective, many investors would be less likely to feel concerned about investing billions of dollars in the development of the African gas industry. “They would be confident in relying on the certainty of a high domestic demand with guaranteed returns.

“This development is under way in Nigeria, where a major restructuring and privatisation of its electricity industry is taking place, the consequence of which could result in the country’s substantial gas reserves being diverted for power generation,” Cheto concludes.