With discussions on climate financing at the forefront of the recent COP27 agenda, so are the seemingly contradictory policies of Western governments, and Europe in particular. As the developed world reiterates commitments to climate goals over the medium to long-term, it is simultaneously grappling with the immediate crisis of meeting its energy demand following Russia’s invasion of Ukraine. Africa’s gas potential, as highlighted in the report, is in Europe’s sights – even as the bloc’s leaders push for an accelerated energy transition.

European leaders have urged their African counterparts to accelerate their transition to clean energy, although financing costs remain prohibitive as green projects carry high risks. Wealthy nations have failed to deliver on a long-held pledge to provide poorer countries with annual climate financing of $100bn/y by 2020, albeit COP27 offered positive momentum towards future ‘loss and damage’ reparation initiatives.

Countries including resource-rich African nations are now more likely to find financing for the development of hydrocarbon resources than in the past, as Europe seeks to fulfil its natural gas demand.

While investment in Africa’s hydrocarbons – and the natural gas sector in particular – could be beneficial in the near term, it could also carry considerable risk if resources are developed solely with the goal of meeting European demand. European demand is likely to be short to medium-term as European Union (EU) customers are unwilling to sign typical 15–25-year contracts, given that EU energy policy limits the role of natural gas in the energy mix. Gas and renewables projects are also likely to compete for the same pools of finance.

While there might be compelling motivation for gas-rich African countries to develop and export natural gas to Europe, doing so will likely be accompanied with time-sensitive risks that could leave states with stranded assets as the world moves to greener forms of energy. It also carries the risk of undermining development of clean energy supplies throughout Africa by locking economies into long-term gas infrastructure and contracts.

African nations like Namibia are more likely to find financing for development of hydrocarbon resources than in the past as Europe seeks to fulfil its natural gas demand
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Africa’s vast gas reserves and potential  
With 17.55tn m³ in gas reserves, Africa holds about 9% of global gas reserves and accounts for 6% of global natural gas production. Nigeria, Algeria and Egypt constitute 85% of the continent’s gas production. However, many African reserves remain largely unexplored, despite significant discoveries in Senegal, Mauritania and Mozambique, as well as Tanzania, accounting for almost 40% of global new gas discoveries in the last decade.

The continent’s potential remains unrealised due to multiple inhibiting factors, including governance issues, high costs and risks related to the political, security and legislative environment.

While African governments may view gas as a fuel for meeting domestic power generation demand to enable security and socio-economic growth, population growth and industrialisation will also boost domestic demand across the continent.

At the same time, Europe’s desire for African gas has increased following Russia’s invasion of Ukraine. Italy has held exploratory discussions with Congo and Angola, and is seeking to ramp up imports from Egypt. Italian energy group Eni hopes to expedite LNG production at its floating gas facility in Mozambique. Germany is in discussion with Senegal about future supplies. The EU signed a memorandum of understanding (MoU) with Egypt and Israel regarding future imports. And the European Commission (EC) held recent talks with Nigeria to increase gas provision.

With gas prices soaring, the prospect of securing higher revenues over the long-term is already causing exporting countries in Africa to adjust their priorities. For example, in 2022, Egypt made plans to divert 15% of gas used for domestic electricity generation to exports to boost its struggling economy.

Loss of Russian gas from European markets presents Africa with an opportunity. The EC’s REPowerEU package outlines plans to wean Europe off Russian gas before 2030. Measures include diversifying suppliers as well as boosting renewables. Africa’s gas potential, therefore, looks appealing to EU leaders. Europe needs to replace just over 100bn m³/y of Russian gas by 2030 to meet its ‘Fit for 55’ and REPowerEU objectives. However, projects typically require several years’ lead time before production can begin, and a lifespan of at least 20–25 years to achieve economic viability.

While there might be compelling motivation for gas-rich African countries to develop and export natural gas to Europe, doing so will likely be accompanied with time-sensitive risks that could leave states with stranded assets as the world moves to greener forms of energy.

Production trends and challenges  
Existing suppliers such as Nigeria, Angola and Algeria, or those on the cusp of beginning production, could increase output in the near-term, provided they receive sufficient financing. But short-term contracts may not benefit African states, which would need to invest substantial financial resources to de-risk projects.

Despite the REPowerEU package specifically mentioning untapped potential in sub-Saharan Africa, Europe may not actually need significant new volumes of African gas, especially if the US delivers on its contractual obligations and the EU implements its renewables strategy. Europe is working with a short-term fix mindset, whereas Africa needs long-term financial and energy sustainability, with significant risk of leaving African producers with stranded assets.

This uncertainty adds to the numerous challenges already facing Africa’s oil and gas industry, including political instability, security risks, high project costs and a lack of infrastructure. These factors may well deter major investors, as in the past.

Security challenges and instability 

Libya is an example of an African state whose gas potential has been held back by political instability, civil war, militia violence and foreign intervention for over a decade. In 2021, TotalEnergies halted construction of a $20bn Mozambique LNG project, citing that an Islamist insurgency resulted in delay of 12.9mn t/y of gas coming onto global markets, along with plans for a further 10mn t/y phase. TotalEnergies’ force majeure declaration has also had an impact on Eni’s Rovuma LNG project, where postponement of the final investment decision puts on hold another 15.2mn t/y of LNG.

African oil and gas assets are 15–20% more expensive to develop and operate than in other parts of the world. Political and security challenges have harmed project development, slowed infrastructure construction and added a premium to project financials. As a result, Africa suffers from limited national and regional pipeline infrastructure and has limited connectivity with Europe.

The planned $13bn Trans-Sahara Gas Pipeline (TSGP), which is scheduled to run over 4,000 km from Nigeria to Algeria and Morocco, has been hampered by long-running security issues, including intercommunal conflict, the threat of Boko Haram in Nigeria, and extremist activity in Niger and Algeria. Similar challenges have prevented progress on an offshore Nigeria-Morocco gas pipeline. Designed to cross 13 African countries over 5,600 km with an estimated cost of about $25bn, the Nigeria-Morocco gas link would be the world’s longest offshore pipeline. However, Europe may not have a need for new Middle East Gas Pipeline (MEGP) gas by the time it comes onstream.

Compounding such challenges is the fact that African gas reserves are estimated to be 70–80% more carbon-intensive than other assets around the world. As investors reduce their exposure to hydrocarbon projects, African projects are expected to become even more costly and less competitive, raising the risk of stranded assets.

Africa’s current greenhouse gas (GHG) emissions comprise only 3% of global emissions. The International Energy Agency (IEA) claims that Africa could achieve universal energy access by 2030 with $25bn/y investment – equivalent to just 1% of funds that pour into the global energy sector annually.

While Africa’s emissions constitute the smallest share of global GHG emissions, the continent is also the most vulnerable to climate change. The total cost of climate adaptation and mitigation, including losses and damages, is estimated at $2.8tn within this decade.

Africa’s path to renewables 
Renewable energy is critical to help mitigate the impact of climate change and could transform Africa with a just and secure energy provision.

There are large disparities in the pace and pattern of electrification. North Africa is fully electrified, but the share of electrification in Sub-Saharan Africa was only 46% in 2021. Despite Africa’s urban communities enjoying widespread access to electricity, 35% of households in rural areas remain without supply.

In the electricity sector, the dominant model is utility-scale, centralised and heavily reliant on fossil fuel-powered plants, with provision favouring urban populations and large industrial consumers. Renewable energy can be deployed through numerous models, including community solar photovoltaic (PV) and mini-grid models. Whereas gas production and supply are vulnerable to conflict, criminality, insurgency or logistical disruption.

In the past decade, investments in renewable energy in Africa comprised only 2.4% of global renewable energy investment. There were large disparities between countries, with Egypt and Morocco recording more investment than other African nations.

Hydropower and geothermal power could help meet baseload demand, but these renewables sources are not available at large-scale in all African countries. Ethiopia has 660 MW of hydropower in its Gilgel Gibe III plant, and Uganda is home to the 183 MW Isimba hydropower plant. In West Africa, Ghana has the 400 MW Bui plant, Guinea hosts the 240 MW Kaléta plant and Cote D’Ivoire has the 275 MW Soubré plant. In Central Africa, hydropower constitutes 65% of power generation capacity.

East Africa also has geothermal power. Kenya has achieved over 80% of power generation through renewables, and possesses 558 MW of geothermal capacity and Africa’s largest wind power plant of 310 MW in Lake Turkana. However, the region is highly dependent on biomass due to low electricity and clean cooking access.

North African countries make up the continent’s biggest energy market. But they also hold Africa’s lowest share of renewable energy, with natural gas being the dominant source of power generation. Regional power demand is increasing at an unsustainable rate, prompting a focus on alternatives, especially among hydrocarbon producers seeking to free up gas for export. Solar and wind farms dominate renewable energy projects in the region. Morocco has a major focus on concentrated solar power (CSP) in the Ouarzazate farms, which benefit from molten salt storage. Egypt is increasing focus on solar PV, with the 1.5 GW Benban megaproject.

In Nigeria, Africa’s largest economy and a major oil and gas producer, only 55% of the population has basic access to electricity. In 2019, only 15% of West Africa’s population had access to modern clean cooking fuels, even though gas is produced in the region and is the dominant source of power generation. Most of the population still relies on traditional biomass for cooking. Central Africa has the continent’s lowest access to energy, with 32% access to electricity and 17% access to clean cooking fuels. The Democratic Republic of Congo is second to Nigeria in hosting the largest population without electricity access.

In conclusion 
Exploiting Africa’s natural gas potential appears to provide quick wins for both Europe and Africa. But it would fail to help deliver long-term energy security, economic prosperity and stability for Africa. The EU’s need to make up for lost Russian gas supplies has pushed it to engage with African governments. But the bloc’s objectives are short-term and conflict with African project timelines and development goals. Africa also faces the risk of having stranded assets and locking itself into long-term infrastructure financing commitments that would undermine advances in developing clean energy provision across the continent.

One way to remedy such risks is to further invest in clean energy as it presents an opportunity to provide Africa with a just and secure energy provision. Emphasising clean technologies would allow African states to attract investment, create much-needed employment and grow their economies.