Potential Benefits of Natural Gas Discoveries in Sub Saharan Africa through the Lens of the Energy Trilemma
Discoveries of natural gas have occurred in a number of sub-Saharan African (SSA) countries, bringing enthusiasm and hopes for economic growth that addresses the energy deficit and limited access to electricity while lowering costs and carbon emissions. Côte d’Ivoire, Ghana, Mauritania, Mozambique, Namibia, Senegal, South Africa and Tanzania are among those countries.
In the developed world, natural gas has proven to be a vital energy resource and increasingly gained traction as an energy transition fuel to reduce the carbon dioxide emissions and other gases that contribute to climate pollution.
Considering the recent global developments in the oil and gas sector, this article seeks to explore the potential benefits of natural gas exploitation in SSA countries under the three dimensions of the Energy Trilemma, i.e., Energy security, Economics and Environmental sustainability.
Recent developments in the political economy of the global gas sector
During the Covid pandemic crisis which started in early 2020, the world witnessed the lowest oil and gas prices and reduced levels of greenhouse gas (GHG) emissions due to the slowdown of economic activity. In November 2021, governments and civil society representatives geared up for the UN Climate Change Conference COP26 in Glasgow in the context of global recovery. Environmental advocacy groups pushed to end international financing for fossil fuels, including natural gas. On the other hand, African countries contributing a very low share of global GHG emissions argued for a suitable transition model for their development, one that includes natural gas. During the same period, the European Commission was drafting a plan to label natural gas power plants as “green” investments, signalling that the same could happen in other parts of the world.
A few weeks later, the war in Ukraine started, immediately impacting natural gas supply and raising prices in Europe and the rest of the world. This time, oil and gas prices reached record highs, bringing major economic disruptions. The ongoing turmoil and its geopolitical implications have reminded policy makers that energy supply, of natural gas in particular, is a high-priority strategic sector. “Energy security” and “Energy independence” have re-emerged in different policy spheres, especially in European countries, to protect domestic and regional energy supplies from external price shocks and geopolitical disturbances.
Sub-Saharan Africa has been affected both as an energy consumer and producer. Some countries are encountering high commodity prices due to increased fuel costs and/or facing fuel shortages due to government inability to afford increased subsidies or pay suppliers. On the other hand, incumbent African natural gas producers, such as Algeria with existing pipelines to Europe, have gained importance as suppliers and benefitted from the global rise of gas prices.
This dynamic situation emphasises the opportunity offered by natural gas discoveries in some SSA countries to power homes, support economic development, and supply the region and other continents. Natural gas is reliable, cheap, and cleaner than other thermal fuels such as coal, light fuel oil and heavy fuel oil.
The Energy Trilemma conceptual framework
The Energy Trilemma concept refers to the joint consideration and balancing of three key dimensions, (i) energy security, (ii) economics (and affordability), and (iii) environmental sustainability, in the design of energy laws and policies. It is also called “the Energy law and policy triangle”[i] as represented in the following figure.
Source: Heffron R. J. and Talus K. (2016).
Since 2010, the World Energy Council (WEC) has championed this conceptual framework, publishing an annual report assigning a grade and ranking to countries’ energy systems based on the balance between the three dimensions. For each dimension, indicators are defined and graded. The WEC Energy Trilemma Index aims to identify those areas of energy policy that are a priority for improvement and explore which options might be most appropriate. It states, “There can be no single path for a successful energy transition; instead, each country must determine its own best energy policy pathway with respect to its national situation and priorities”[ii].
Energy Security examines security of supply and is defined as the sum of effective management of primary energy supplies from domestic and external sources, the reliability of energy infrastructure, and the ability of participating energy companies to meet current and future demand.
Economics (and affordability) assesses the impact on Gross Domestic Product (GDP) growth and industrial growth, as well as access to affordable and fairly priced energy for domestic and commercial use. This is also called Energy equity.
Environmental sustainability refers to the transition to technologies that reduce or eliminate CO2 and other GHG and pollutants, as well as other factors that have a negative impact on climate change and biodiversity.
Overview of potential benefits of SSA gas using the Energy Trilemma
Africa has large reserves of natural gas, estimated at 620 trillion cubic feet in 2021[iii]. Sub-Saharan Africa made 33% of all global gas discoveries between 2011 and 2018[iv], mostly off the coasts of Mauritania, Mozambique, Senegal and Tanzania. With careful development, these discoveries could be leveraged to ensure energy security and play a big role in filling current gaps in the energy sector. The IEA Africa Energy Outlook 2019 reports that the share of gas in the energy mix is only 5% in SSA. Further, the region accounts for about 75% of the world’s people without energy access, and average energy consumption is around 0.4 tonnes of oil equivalent (toe) per capita, well below the world average of around 2 tonnes of oil equivalent per capita[v].
The SSA electricity sector is characterised by chronic deficits and unreliable power supply. Reserve margins are almost nonexistent in most SSA countries. Yet demand is expected to grow significantly, driven by population growth, increased urbanisation, and better incomes. Sources of power in the region include a high share of seasonally variable hydropower and a small but increasing share of renewable energy (geothermal, solar and wind) sources, altogether representing 50% of the capacity. Heavy and light fuel oil, natural gas (most of it in Nigeria), and coal (mainly in South Africa) make up the remainder.
In this scenario, natural gas can be the base electricity source (“Gas to Power”) in the transition to fully renewable energy sources that includes electricity storage. It could also help achieve an adequate and reliable supply of electricity as well as universal access. Some good reference cases already exist. Over last 10 to 15 years, natural gas has gradually fuelled power generation in Côte d'Ivoire, Ghana, Mozambique, Nigeria, and Tanzania. It has been very successfully implemented in North Africa.
Gas in different forms is also used in industry and for household needs. Liquefied Petroleum Gas (LPG) is already used for cooking in a number of regions. Some SSA countries that lack gas or are waiting for gas pipelines are considering LNG imports for power generation through coastal Floating Storage and Regasification Units (FSRU). They could in the future benefit from regional discoveries through existing Regional Economic Communities (RECs) and/or Power Pools. These would also enhance regional energy trade, energy security, and economic integration.
For the moment, Tanzania and Mozambique in southeast Africa, and Ghana, Côte d’Ivoire, Mauritania, and Senegal in West Africa as well as incumbent Nigeria could well play the role of natural gas exporters. In Southern Africa, Mozambique already exports natural gas to South Africa via an 865-km pipeline that carries about 6.4 billion cubic metres of gas per annum. Mozambican reserves in the Temane and Pande onshore gas fields are estimated at around 73.6 billion cubic metres[vi]. In West Africa, cross-border gas trade takes place under the aegis of the West African Gas Pipeline Authority. The pipeline runs from Nigeria through Benin and Togo to Ghana. It can readily be extended to other producing and consuming countries in the region. In East Africa, Tanzania can export its natural gas to neighbouring countries with which it has pipeline and railway projects. Where gas pipeline infrastructure have not been constructed, existing and ongoing transmission interconnections within the East, South and West Africa power pools will allow the trading of gas-generated electricity.
Discoveries of oil and gas usually reshape economic landscapes and catalyse the economic growth of resource countries, allowing governments to mobilise investment funds, increase revenues from exports, and develop industries and other sectors. In Mozambique, official forecasts expect real GDP growth to reach 8 to 10% annually from 2023, thereby mitigating its fiscal and debt challenges. Algeria is the largest gas producer in Africa and one of the most economically dependent on petroleum exports. It had been anticipated that the country would need an oil price of $90 a barrel to balance its budget[vii], something that was inconceivable few months ago. The current global price of around $100 will make it possible.
In the power sector, natural gas can play a significant role in improving electricity supply and access through bringing finance to new power infrastructure while reducing government subsidies. The high cost of power is often cited as a major constraint to economic growth in SSA countries. This is mainly due to costly thermal generation and, at the utility level, to both technical and non-technical losses.
Many SSA utilities are not financially viable and depend on government subsidies to operate. Quasi-fiscal deficits average 1.5% of gross domestic product and exceed 5% of GDP in several countries[viii]. According to a 2015 report by the Africa Progress Panel, Africa’s shortages of electricity together with system bottlenecks cost 2 to 4% of GDP annually. Businesses pay a high price to use oil-fired backup generators.
Resource-rich countries in the Middle East, North Africa, and Eurasia have typically provided gas to their domestic markets at regulated or subsidised prices, often as low as $1 to $2 US per MMBtu[ix] before the recent price spike. Replacing costly imported oil and diesel by low-cost indigenous gas helps to address the cost of generation, as measured by its Levelised Cost of Electricity (LCOE). In Tanzania, the 200 MW Songas gas Independent Power Producer (IPP) in Tanzania has an unsubsidised cost evaluated at $0.05 US/kWh[x], which is 3 to 8 times lower than for other IPPs in the region. A Tony Blair Institute (TBI) preliminary assessment under the Power Africa Programme estimates that the cumulative opportunity cost of failing to use more gas in electricity generation in the West Africa region could be around $265 US billion by 2030.
Other benefits of gas investments include employment and commercial/business opportunities for citizens and Small and Medium Enterprises (SMEs) in the resource countries, where the vast majority of the population is young. That would stir up inclusive economic growth.
Africa’s contribution to global CO2 emissions is very small, around 3%, of which just four (4) countries (Algeria, Egypt, Nigeria and South Africa) account for 2%[xi]. What is the role of gas in this context? There are potential reductions in polluting emissions to be realised by replacing existing coal and liquid fuels in electrical generation and industries, as well as kerosene, biomass, and paraffin in non-electrified homes. Natural gas burns up to 50-70% more cleanly than coal and oil[xii]. Calculations have found that even if Africa would triple its electricity with gas alone (although this is not planned in any country), its CO2 emissions would be equivalent to only 0.62% of annual global emissions[xiii].
Thus, the best path to a green transition remains a combination of renewable energies and gas to support needed economic development, while converting over time to solely green resources. It is encouraging news that some SSA countries, including those endowed with natural gas resources, have planned and/or deployed renewable energies at a rapid scale, with some reaching 20% to 50% of their power capacity. Renewable capacity is expected to increase by 76%, or almost 33 GW, in SSA between 2021 and 2026[xiv]. There has also been an increased uptake of bottled gas (LPG) for household cooking. This complements the efficient biomass cook stove technologies, introduced through government supported and/or subsidized programmes, which could be expanded.
Methane, the principal component of natural gas, is known to be a potent and persistent GHG. Methane leaks are often cited as warming the climate and are a target of emission reduction goals. However, there are great expectations from ongoing research and development in emission-reduction technologies and efficiency in gas extraction, transport, and storage. Technologies are also under development now to produce hydrogen from natural gas without releasing any CO2. Whether from gas or from solar power, the SSA region is well placed to become a producer of green hydrogen, which can be integrated into existing natural gas infrastructure to increase the proportion of renewable energy in the power mix or be exported to the energy-intensive economies beyond the continent. There are currently hydrogen projects in four (4) SSA countries (Kenya, Mauritania, Namibia and South Africa).
Quantifying potential benefits: Senegal Country Case
Senegal is among the top five (5) SSA countries in terms of natural gas reserves. The national oil company Petrosen estimates Senegal’s total gas resources at around 910 billion cubic metres. Large discoveries were made between 2014 and 2016, and the first gas is expected to be produced in 2023–2024. Since 2018, the government of Senegal has pursued a gas-to-power strategy that aims to convert existing oil and coal power plants to natural gas while building new gas power plants. For instance, the 125 MW coal facility in Sendou is to be turned into a natural gas plant. Construction also started in 2021 on a 300 MW gas-fired combined-cycle power plant (CCGT) that will add around 25 percent to the capacity of the national grid. At the same time, the Government has been actively implementing renewable energy projects that resulted in the country going from 0 to 20% of its power capacity in 5 years. Senegal’s Intended Nationally Determined Contributions (INDC) updated in 2019 set a target to reduce its GHGs by 21% by 2030.
The table below provides potential benefits of natural gas in Senegal through a set of nine (9) indicators grouped under the three dimensions of the Energy Trilemma. In the 2021 World Energy Trilemma Index Report, Senegal is ranked 94 out of 128 countries analyzed, an improvement from position 118 in 2019.
Source: Various (Compilation by Author)
The table shows how natural gas along with renewable energies can make a real-world impact in Senegal on all three dimensions (i.e., energy security, economics and environmental sustainability).
Implications for reform
Although the current international context and increase in global oil prices are favourable for the development of sub-Saharan natural gas, this also depends heavily on the business environment. Reforms in the policy, institutional, legal and regulatory framework will be needed to attract and boost investments for gas development. The financial standing of power utilities and other local and regional actors along the value chain are critical. Governments will also have to improve market transparency and contracting practices, as well as equip the local workforce with necessary skills, while acquiring high-quality legal and financial advisory capacity.
A more efficient and equitable governance of the gas sector and management of export revenues, involving economic diversification, will play a major role in achieving inclusive growth. Similarly, domestic investments need to be well evaluated in terms of local ownership and procurement. Failing to implement such measures can create an unstable environment and challenge the achievement of the expected benefits, as is observed in some gas-producing countries.
At the regional level, the ongoing efforts to remove barriers to trade between countries should be accelerated and implemented. The African Continental Free Trade Area (AfCFTA), signed in Kigali (Rwanda) in March 2018, provides a strong foundation.
Natural gas, along with renewable energies, offers an appropriate energy transition to realise the aspirations in sub-Saharan Africa (SSA) for both economic development and climate change mitigation goals. Given the recent and ongoing discoveries, the above review shows that by investing in natural gas infrastructure, SSA countries can achieve, from a low baseline, a very good Energy Trilemma balance (energy security, equity, and environmental sustainability) on their path to economic and industrial growth.
Policy and regulatory reforms have to be put in place to initiate, facilitate and incentivise the new energy landscape in order to achieve the potential rewards. Lessons will have to be learned from the failures of some incumbent gas-producing countries to set up and/or implement adequate reforms and governance.
The paramount benefits for the SSA population will be to enjoy sufficient and reliable energy supply together with economic growth, while addressing socio-economic challenges through the effective management of natural gas revenues.
About the Author
Yves Muyange is a Senior Advisor, Strategy and Regulation at Tetra Tech and Graduate of ESCP Business School’s Executive Master in Energy Management.
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