Over the last 30 years, the demand for gas as a substitute for coal and oil as an energy source has increased. There has been a particular increase in the demand for liquefied natural gas (LNG) from Asian countries, which accounts for 75% of global demand. Sub-Saharan Africa is set to benefit from the ongoing developments in this field.
In 2016, global LNG production capacity was 340-million tonnes per annum (MTPA) and is projected to increase to 450 MTPA by 2019 (noting the US and Australian plants under construction).
This is expected to lead to a global surplus of LNG until around 2022 or 2023, creating intense competition for markets and an increasing percentage of spot or short-term contract LNG sales (which is likely to impact upon the ease of closing new greenfield LNG developments in Africa).
Looking ahead, two factors look positive for longer-term LNG demand: lower import prices (due to an increase in global LNG supply, which should boost long-term demand) and key Asian economies’ desire to achieve growth while limiting pollution (e.g. emissions of CO2, SOx, and NOx).
What are the impacts of LNG trends on sub-Saharan Africa? At present, we see around 20 African countries involved in LNG export or import projects.
From an export project perspective, Floating LNG (FLNG) continues to make progress. After the 2015 Final Investment Decision (FID) of Cameroon FLNG; two FLNG projects are under advanced development: 3,4 MTPA Coral FLNG in Mozambique (ENI led) and about 2,2 MTPA Fortuna LNG in Equatorial Guinea (Ophir-led). Both are envisaged to achieve FID within the next couple of months.
From a land-based terminal perspective, each of Golfinho LNG (Anadarko-led) and Tanzania LNG (Multiple) have made slow progress. However, the recent farm-in by ExxonMobil into Mozambique’s Area 4 is envisaged to lead to a fast-track development of Mamba LNG.
From an import perspective, we envisage that LNG will make in-roads through the development of gas-to-power projects, alongside an increasing use of renewables (such that the two in combination can facilitate a more balanced and environmentally friendly generation profile).
Within this, we generically see two different types of sub-Saharan import projects. First, is the utility-scale import project. Egypt leads the way in this regard (helped by having its own gas grid), with South Africa and Morocco developing major gas-to-power schemes, in the order of 3000 MW over time.
It is possible that Kenya and Ghana may also fall into this category in time, with Cote D’Ivoire also a strong contender. As well as developing new greenfield power capacity, fuel switching (from diesel and fuel oil to natural gas) is also envisaged in many cases, as is the development of indigenous demand (e.g. from industry).
A second category is the smaller markets. Around the world, precedent is developing in markets such as the Caribbean and Malta. Here, volumes are relatively small but a security of supply benefit is high. Examples of these countries could include Mauritius, Namibia, West Africa’s smaller markets or southern Mozambique.
Noting that many sub-Saharan markets have immature legal systems (in terms of suitability to immediately handle greenfield gas-to-power value chains), we envisage that individual markets will need to have strong political support in order to bring gas into the market, with a high possibility of project specific legislation being required (especially around the key issues of gas importation and transportation to power plants).
Within 24 months, it is possible that up to six sub-Saharan export and/or import projects may achieve FID which would show the potential growth of the market.
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