It is well-known that Sub-Saharan Africa suffers from a lack of access to electricity. There are 22 African countries with proven gas reserves which suggests that gas should play an increasing role in meeting Sub-Saharan Africa’s demand for power: but is it that straightforward? There are 13 countries in Sub-Saharan Africa currently consuming gas for power generation and ten of those countries generate power from their own domestic gas production, two rely on pipeline imports (Togo and Benin) and one uses a combination of domestic supply and pipeline imports (Ghana). At the moment there are no LNG imports in the region, but that could soon change.
There is an opportunity to expand gas-fired power generation from domestic gas production in Sub-Saharan Africa and the demand will arise not only from the need for more power in Sub-Saharan Africa, but also from the opportunity to displace oil-fired power generation with cheaper and cleaner gas. Angola and Tanzania are all examples of countries with significant gas reserves currently using oil to generate power. Until recently, Angola was an outlier among gas producing states in Sub-Saharan Africa as it had no gas-fired power generation. In the short to medium term that project will consume a large part of currently available domestic gas resources. Further expansion in gas-fired power generation in Angola is likely to require the development of additional domestic gas resources or LNG imports.
In Ghana, gas is already a central part of the power generation mix (accounting for nearly 40% of power generation) and its role is likely to increase as oil is displaced. Anticipated demand for gas-fired power generation is such that increasing domestic gas production, pipeline imports and LNG imports may all be required. In Senegal, BP took a positive final investment decision on the Tortue-Ahmeyim gas development project in December 2018. A construction contract has been awarded for a floating production storage and offloading (FPSO) unit to be used alongside a floating LNG facility (a converted LNG carrier) being provided by Golar LNG. As part of that development, a pipeline to supply natural gas to both Senegal and Mauritania is planned. There have also been recent moves to expand gas-fired power generation in Mozambique: a 400 MW gas-fired power project is being developed at Temane in Inhambane province.
In May 2018 Great Lakes Africa Energy (GLAE) announced that it had signed a memorandum of understanding with the Mozambique government to build and operate a 250 MW gas-powered plant at Nacala District in the north of the country using gas from the Rovuma basin, but even that project will require gas to be transported approximately 600 km. GLAE has said it believes that mini-LNG might offer a solution. Nigeria does not use oil for power generation. There is, however, enormous unfulfilled demand for power domestically and gas is central to plans for expansion of the country’s power sector. That expansion has been constrained by structural problems and a chain of debt (from gas sellers to power generation companies to the Nigerian Bulk Energy Trading Company to distribution companies to end customers) not helped by the manner of the privatization of the Power Holding Company of Nigeria in November 2013.
In terms of prospects for new cross-border pipelines in Sub-Saharan Africa, the only operational cross-border gas pipelines in Sub-Saharan Africa are the 678 km West African Gas Pipeline (which takes gas from the Escravos-Lagos pipeline at the Nigeria Gas Company’s Itoki Natural Gas Export Terminal to Benin, Togo and Ghana) and the 865 km ROMPCO Mozambique to Secunda pipeline (which takes gas from the onshore Pande and Temane fields in Mozambique to Sasol’s operations in South Africa). In 2009 Nigeria signed an intergovernmental agreement with Niger and Algeria for the development of the 4,400 km Trans-Sahara Gas Pipeline (1,037 km in Nigeria, 853 km in Niger, 2,310 km in Algeria and 220 km connecting Algeria to Spain). The Nigerian National Petroleum Corporation (NNPC) currently describes that project as “under consideration”.
The Tanzania Petroleum Development Corporation has mooted supplying natural gas to Uganda and Kenya from the Tanzanian Rovuma basin reserves. As with the expansion of gas-fired power generation in Tanzania, the development of that project will require the LNG export project to proceed, and even then the commercial viability of a gas pipeline project from southern Tanzania is uncertain. Even where there is the political will, new cross-border pipeline projects are only likely to be developed if they can be commercially justified as a way to monetize gas reserves. In the absence of equity participation from stakeholders in upstream gas projects, governments will face an uphill battle to fund the necessary equity contribution for a new pipeline project.
Could power generated from gas be exported to regional markets?
There are four existing power pools in Sub-Saharan Africa, within which countries have interconnected power systems: the Southern African Power Pool (SAPP), the East African Power Pool (EAPP), the West African Power Pool (WAPP) and the Central African Power Pool (CAPP). In order to expand gas-by-wire imports, transmission and distribution infrastructure will require significant development to improve capacity and efficiency. In the medium-term, expansion of gas-by-wire seems most likely in West Africa, where land-locked countries or coastal countries with relatively small markets could take advantage of upstream gas projects (or even LNG import projects) in neighboring countries.
Prospects for LNG import projects in Sub-Saharan Africa
A number of members of the WAPP have proposed LNG import projects, perhaps reasoning that any shortfall in domestic demand for power generated from gas could be exported around the power pool. Ghana seems closest to realizing this goal, having granted a concession to Tema LNG Terminal Company Limited (Tema LNG), a joint venture between Helios Investment Partners and the Ghana National Petroleum Company (GNPC), to construct an LNG import terminal. Tema LNG has entered into a construction contract with China Harbour Engineering Company to build onshore facilities and Jiangnan Shipyard for a floating storage and regasification unit (FSRU).
South Africa continues to explore options for a LNG imports12 and an LNG terminal has also been proposed at Walvis Bay in Namibia. Other LNG import projects in the region have either previously been considered and put on hold (such as in Kenya)14 or are currently under consideration (such as in Mauritius and the Seychelles). Given that a delivered gas price of around USD8/MMBtu is competitive with oil-fired power at an oil price as low as USD50/barrel;17 it is more than possible that the economics will support LNG imports to displace oil-fired power generation and to increase power generation capacity in Sub-Saharan Africa, particularly where funding can be obtained from multilateral lending agencies or development finance institutions.
Although the World Bank has announced that it will no longer finance upstream oil and gas projects (apart from in “exceptional circumstances”),18 it is expected to continue to finance midstream and downstream natural gas projects. In countries with domestic reserves, gas can undoubtedly play a major role in the development of power generation capacity. LNG import projects are also foreseeable as countries seek to move away from oil as a power generation fuel. New cross-border gas pipelines may be less likely, but LNG imports or increases in domestic production could well result in an increase in gas-by-wire exports, particularly to land-locked countries in the WAPP.
*Simon Collier is a Senior Associate at DLA Piper