Increased gas monetisation forecast for Africa

The African Energy Chamber has forecast increased gas monetisation across the continent on the back of a decarbonisation and industrialisation drive in its latest Africa energy outlook.

The report finds that while not insulated from the effects of COVID-19, gas markets have been less exposed than that of oil to the shocks of 2020, notably because the transport industry has been the most affected by the COVID-19 pandemic as it is more oil-demanding than gas. The global gas market was nevertheless already facing a glut of LNG before COVID-19, resulting in even more depressed prices as the pandemic’s impact on demand started to manifest in the spring of 2020. As a result, key reference prices in Europe, North America and Asia all have experienced negative pressure since the start of 2020, suggests the study.

Looking forward, the African Energy Chamber’s expectations for the global gas market fundamentals are to remain loose through 2021 on the back of weak COVID-19 induced demand and continued high supply of LNG before prices tighten significantly as LNG demand growth will outpace liquefaction capacity due to more delays in project sanctioning.

The forecast notably points to a tight LNG balance between 2023 and 2025, and along with it, a price spike. Following this period, there is a downside risk in prices for 2026 and 2027 driven by the potential of seeing a new wave of sanctioning activity during 2021 and 2022. Such future projects are expected to include ExxonMobil and Eni’s 15.2mn t/y Rovuma LNG terminal in Mozambique and expansion of BP and Kosmos Energy’s Greater Tortue Ahmeyim (GTA) FLNG project in Mauritania and Senegal.

Given the gas glut on global markets with corresponding depressed prices, the Chamber notes that there may now be an opportunity to stimulate more domestic gas consumption in Africa. Expanding infrastructure to displace diesel, and increased use of gas in the power mix and gas for industrial purposes are all initiatives that would benefit from the current low cost of gas. The report also notes that African officials and regulators have increasingly seized on the importance of natural gas and pushed for its adoption across industries, especially in key hydrocarbon markets in West, Central and Southern Africa. Nigeria for instance has declared 2020 the ‘Year of Gas’ and adopted a new gas transportation network code this year, and Senegal has embarked on a gas pipeline network project to construct a 155 km national gas grid.

Monetising gas makes even more sense in Africa given the continent’s very high flaring intensities. While Africa benefits from conventional and easy to extract hydrocarbons, the inability to prevent gas flaring nevertheless catapults the continent to the overall least carbon efficient continent at about 31 kg of CO₂ emitted per boe produced, according to the report.

While 2018 is the last year with high quality data, projections towards 2025 nevertheless points to Africa overall not improving its position with emissions remaining above 30 kg of CO₂ per boe. Only stronger monetisation of gas at home could justify using Africa’s gas reserves for industrial and power generation purposes instead of burning and wasting them, comments the African Energy Chamber. In doing so, Africa would not only reduce its carbon intensity, but also become more attractive to global investors seeking to allocate capital to the least carbon intensive projects possible.

Photo: African Energy Chamber