Anastasia Walsh — International Energy Consultant
Understanding The Role Of Natural Gas In Sub-Saharan Africa’s Future Energy Mix
Sub-Saharan Africa’s energy landscape is changing but not in a uniform direction. New and significant natural gas discoveries are accompanying the expansion of renewable energy technology deployment. The unique dilemma faced by many sub-Saharan African nations is ensuring their energy mix is sustainable, cost-effective, and supports social development.
The energy industry more than others is facing unprecedented pressure to prove its business model is capable of leading the way toward a successful energy transition. The energy transition can best be defined as a gradual shift from a system based on fossil resources to a system based on renewable energy sources. This transition process will encompass many phases and contrary to what seems to be the popular view, an instant transition is not feasible nor desirable for sub-Saharan Africa. LNG is often touted as a ‘transition fuel’ — a fuel to be used as a stepping-stone between traditional fuel sources and systems based on renewable fuels. This term fails to recognize the true potential role of the LNG as a key contributor to energy security and social development in the region.
Why LNG?
Financial institutions are on the edge of a fundamental reallocation of capital since climate risk is perceived as an investment risk. On the political level, environmental concerns are rising in the priorities of institution agendas. At present LNG plays a fundamental role in bridging the gap towards a low carbon economy — due to the competitiveness of gas resources and environmental compatibility. However, to view LNG only from the vantage point of a stepping-stone fuel is to undermine the potency of the fuel as a catalyst for coal development and energy security.
Integration — Access & Infrastructure
In the diversification of energy sources, the value of natural gas infrastructure is key. Gas-fired power plants contribute to optimized energy systems when they are designed to operate flexibly — responding to demand and supply patterns of other fuel sources.
Access to natural gas has been an issue. Until recently most sub-Saharan African countries only had access to domestic reserved that came to market via pipelines. The advent of FSRU’s changed this, allowing counties to import natural gas to provide back up to hydroelectricity or make up for declining domestic gas reserves.
Many sub-Saharan African countries could potentially use natural gas for power generation — be it domestic gas or imported LNG. However, LNG exports are currently mostly sent outside the region. The LNG market in Angola and Equatorial Guinea largely exists to export LNG and only Nigeria has a relatively well-developed market that both consumes and exports LNG hence trade in the region is limited.
Creating Demand & Mitigating Risk
Creating demand as well as the appropriate institutional and infrastructural frameworks to support its usage is the essential precedent for LNG to reach its fullest potential in the region. If this can be achieved then LNG could serve not only as a generation fuel but also promote economic growth in key areas such as petrochemicals, refining, and manufacturing.
The current challenges are the availability of gas relatively small size of current markets and large distances between markets, the financial position of the off-takers, lack of adequate downstream infrastructure, and the relative size of markets into which gas might be delivered due to the markets ability to take it.
More generally a challenging operating environment coupled with a lack of transparency, regulatory uncertainty, and policy instability have all deterred investment. Overcoming these challenges will be critical to the development of sub-Saharan African gas to power projects. Mitigating the risks will require a combination of the following:
· Contractual frameworks that protect the host state and ensure compliance with Local Content regulations.
· Contractual frameworks that protect the Project Company as it relates to commodity and currency risks, changes in the law, and Force Majeure.
· Cost-effective tariff structures.
· A vigorous financial framework.
· Fuel management techniques which reduce fuel supply risk and allow for effective storage management.
Conclusion
Sub-Saharan Africa is not a monolith in its energy patterns. The trend however is that power demand is increasing across the region as a result of two main factors; population growth and rapid urbanization. Renewable energy sources do not currently have the capacity to keep up with the necessary current or predicted energy demand — nor is it likely to in the near future. The seasonality of these resources also means that without storage — the reliability of energy production during peak demand times is not certain. Natural gas is currently the most viable option to ensure energy security, economic development whilst simultaneously considering environmental concerns.
The shift in focus to LNG is not to rule out the still very relevant role of traditional fuels such as oil and gas which remain essential to the development of the region.
