While the aggressor Russia is threatened with embargoes, there is speculation about the extent to which Africa has what it takes to become an oil and gas supplier. The continent is already positioning itself.
Somalia is considered a dangerous place and a failed state: shaped by tribal feuds, drought and the terror of the Islamist militia al-Shabaab. An unstable government is nevertheless trying to return to normality and wants to lure companies to the Horn of Africa – recently again to develop fossil resources.
Oil Minister Abdirashid Mohamed Ahmed says there are rich oil and gas reserves in the Ogaden Basin and off the Somali coast. At the next major industry meeting, the African Energy Week in Cape Town in October, he wants to “meet global investors to give the high potency sector decisive impetus”.
The legal framework has been created, the Somalia Petroleum Law, an oil authority and a Somali National Oil Company – everything to make the location attractive to international oil companies. A few years ago, in a first round of licensing, oil reserves were estimated at up to 30 billion barrels and natural gas reserves at 5.7 billion cubic meters. Shell and ExxonMobile had secured blocks but are not exploiting them due to “force majeure.”
Between hype and exaggerated expectations
Somalia is special – but the country is not an isolated case in Africa at the moment. There is speculation across the continent as to whether Africa can become Europe’s new energy hub, while the aggressor Russia is threatened with embargoes – or whether Western customers simply do not want to buy oil and gas from suspected war criminals. Some fuel the hype, others warn against exaggerated expectations. However, oil and gas states are certainly interested in expanding their fossil fuel infrastructure before the green transition begins – especially since large parts of the population are still energy-poor.
Africa’s population is increasing rapidly. Today, one sixth of the world’s population on the continent accounts for only six percent of global energy consumption and up to three percent of all climate-damaging emissions. A good 600 million Africans are still without electricity, and it is likely that as many residents – once all of Europe – will flock to the cities in the next 20 years. The continent faces the dual challenge of producing more energy without damaging the climate. That’s why it’s not just climate protectors who are looking forward to Africa.
“The energy path Africa takes is of global importance,” says the head of the International Energy Agency IEA, Fatih Berol. “Africa can play a leading role in the transition of the world’s energy systems into the renewable age,” emphasizes the IEA. It is “heartbreaking” to see, says Birol, that in all of sub-Saharan Africa, just a third of all solar energy is produced by Britain, despite the high demand.
Nigeria and Angola only play a minor role
Industrialized countries are therefore primarily promoting Africa’s great potential for renewable energies – for wind and solar power and most recently also for green hydrogen. Various initiatives by development banks, states and also the IEA, including “Desert to Power”, are trying to get financial aid, technology transfer and investors, because capital costs seven times more on the continent than in Europe or North Africa, and the perception of risk remains high. But Africa’s basic needs – and essential government revenues – will initially continue to draw from coal, oil, gas and hydropower.
Today, Africa accounts for about 8 percent of world oil production, compared to 12.4 percent from Russia and 31 percent from the Middle East, according to the IEA. The oil states Nigeria with 99 million tons and Angola with 63 million tons in 2019 play only a minor role as net exporters compared to the world market leaders Saudi Arabia (352 million) and Russia (269 million). Other oil producers are Libya, Algeria, Egypt and Sudan, while there are smaller wells and deposits in Ghana, Congo, Uganda, Gabon and Chad. Most recently, Namibia celebrated the discovery of significant oil and gas fields by Total and Shell, which promise three billion barrels of oil.
In the African gas sector, too, some serious players now account for six percent of global gas production, above all Algeria with 2.3 percent – compared to a Russian world share of 18 percent (USA 23.6, Middle East 16, OECD 38). However, with net exports of 41 billion cubic meters from Algeria and 27 billion cubic meters from Nigeria (2020), Africa does not come remotely close to US (77 billion) or Russian (230 billion) net exports.
How quickly can producing countries increase capacities?
In view of the plentiful deposits, these quantities can always be expanded. Natural gas reserves of almost 13 trillion cubic meters are attributed to the continent. In 2021, proven oil reserves totaled 125 billion barrels. The question, however, is under what conditions and at what speed they can be developed. “Africa certainly has great potential to become a powerful energy hub,” says economist Thomas Scurfield of the Natural Resource Governance Institute in London. “But it has no mature projects that would enable a rapid start of production. In one study, Scurfield had calculated that since the 1960s, the average development time from discovery of deposits to actual production in Africa was 12 years.
In order to make Europe’s energy supply more independent of Russia, the EU has already announced in its REPowerEU plan that it wants to involve Africa more closely. Egypt, Algeria and Nigeria are very reliable suppliers, says EU Energy Commissioner Kadri Simson. “We want to increase trade.”
However, it is uncertain to what extent oil and gas will come into play here – and above all to what extent leading producing countries will be able to increase their capacities quickly. Market observers point out, especially in the case of oil, that neither Nigeria nor Angola are pumping enough today to even come close to reaching their OPEC quotas. According to market reports, investments to increase capacity have remained rather low in a politically unstable environment plagued by corruption in recent years.
In terms of rapid availability of natural gas, the NRGI’s commodities experts believe Europe would be better off looking to North America or elsewhere to replace supply gaps. Larger export volumes would require huge investments in LNG terminals or pipelines, which are scarce. “These are long-term investments, and they need a lot more collateral for banks than is foreseeable today in order to promise a profit,” warns Scurfield. After all, the global North is heading towards the age of renewable energies.
Mozambique has big plans to build LNG terminals
Nevertheless, the BP group expects gas production in Africa to increase by 80 percent by 2035. In its outlook, the African Energy Chamber also assumes that in the next ten years more than 60 percent of the fossil resources will be developed in gas fields. Nigeria has the most gas reserves, but the West African country produces only half as much as Algeria and less than Egypt. According to Scurfield, a recently politically revived plan to pump 30 billion cubic meters per year to Europe via a “Trans-Sahara” pipeline via Niger and Algeria had “been in the drawer for years.”
Algeria is geographically the closest to Europe and aims to double gas field development and production over the next five years. Italy and Spain in particular are focusing on making greater use of existing pipeline connections or adding to them. But the government in Algiers has deep diplomatic rifts with Spain over Western Sahara’s disputed status. Rome could therefore have better cards. A 2,000-kilometer Transmed tube is planned for Italy, which should be completed in 2027.
In the south-east of the continent, Mozambique boasts greater gas reserves than Egypt and Libya and has had big plans to build an LNG terminal for years. But unrest in the country has not even allowed the production to get past the initial stage, with real progress not expected until 2025 at the earliest. On the other hand, Tanzania, which borders to the north and where deposits have also been discovered recently, along with Senegal and Mauritania, wants to get off to a quicker start.
Tanzania is one of the countries that, according to the optimistic US institute Brookings, “have recognized the long-term growth opportunities arising from the conflict between Russia and Ukraine” – and want to contribute to Europe’s independence from Moscow. President Samia Suluhu Hassan says he holds the hand over the continent’s sixth-biggest gas reserves at 1.6 trillion cubic meters. Previous disputes with energy companies should be a thing of the past, and offshore projects should be revived by 2023.
Hype or reality?
There is a certain excitement on the African side, says energy expert Silas Olang from the Resource Governance Institute. But it does not fit the risk assessment that companies make in a long-term perspective. The perspectives are not congruent In his view, a possible increase in energy supplies from Africa is years away – and the fundamental question also arises as to whether Europe, in view of its planned transition from fossil fuels to renewable sources, will at all accept new long-term obligations for oil and gas in want to let Africa in.
But if Europe really wants to upgrade the continent as an energy supplier, then it should also push for better governance, warns Olang: so that accountability can also be introduced in the presidential palaces, and at the same time the energy poverty of the population can be combated – and in the medium term a path to a sustainable energy supply can also be found in Africa will be struck. “Then it could be a win-win situation.”
Otherwise, his colleague Scurfield warns, “the current hype could end in disappointment and dire consequences” – namely when governments promise their citizens lavish wealth but take on new debts to build infrastructure and utility networks, and cannot pay them when there are problems. It was similar in Ghana in recent years.
This text is first at capital published.