Economics Of Providing Natural Gas Infrastructure In Africa: Obstacles And Opportunities

Global natural gas demand is expected to increase significantly, surpassing other fossil fuels. Global demand is aided by the economic growth of emerging countries and the concern of air quality, among heavy consumers like China and some extent India. Africa needs this resource to propel rapid industrialization and creates shared prosperity for all. Before Africans can maximize the benefits of this abundant resource on the continent, the right infrastructure must be put in place.

The importance of the resource is evident by the fact that countries that do not have the resource forge relationships with countries that have the resource to mutually benefit from it.

Natural Gas is a very important fuel and considers as the bridge fuel. It contributes significantly to power generation mix on the continent. It is relatively cheaper to generate power from it than using fossil fuels. There has been a significant discovery of the resource on the continent along the eastern part of the continent to the north as well as the west. Natural gas’s transportation is quite complex and costly to transport, unlike solid fuel

The key to extensive international trade in natural gas lies in developing of key infrastructure such a global integrated/substantial pipeline grid, and increasing Liquefied Natural Gas (LNG) fleet, where navigable water access is available. There is no existence of integrated pipelines currently being built in the world. Many are rapidly being built. As at 1991, International gas trade focused on the European Union, Europe and The former Soviet Union (FSU)

By 1997, around 54% of world's natural gas production was exported to world markets in the form of LNG, whereas only 19% of the world's natural gas production was exported across any international border.

However, there are new pipelines that are operating and some under construction in South-East Asia, South America and Africa. Also, there is a growing list of potential new transportation projects using natural gas

Natural gas is poised to play a significant role in energy transition in the future. This is due to the low level of CO2 emission. This is because gas-fired plants emit much less CO2 and nitrogen oxide than coal-fired plants (as much as 80% less) and almost no particulates. This is evident in my own country where the West Africa gas line carries Natural gas from Nigeria to Ghana to power our thermal plants. This is cheaper and cleaner.

Gas should also play a major role in decarbonizing the transportation sector, which is responsible for 23% of global CO2 emissions. While the sector uses oil-derived fuels to meet 95% of its need, there are mature alternative fuels that pollute much less. Replacing oil with compressed natural gas (CNG), which is used for fleets of buses, taxis, and trucks, and liquefied natural gas (LNG), which is used for international road transportation and maritime fleets, would quickly and significantly reduce emissions of CO2 (-25%), nitrogen oxides (-60% to -90%), particulates (-95%), and sulfur oxides (-100%).

Currently, the International gas market is made up of three grid and seven isolated markets; The three grids are found in the NAFTA Zone (North American Free Trade Agreement) made up of US, Canada, and Mexico; Western Europe; and the FSU / Central Europe.

It was established in 2001, 65% of pipelines were intended for gas transportation and 23% for crude and the rest of the products. Africa has now started constructing pipelines to either send products to gas markets in Africa or European markets. Work on the $3.5billion Chad to Cameroun oil pipeline aimed at transporting crude from Doha was scheduled to begin operations in 2001.It was to build 665mile, 30Ich pipeline to transport crude from the Doha fields in chad to terminals at Cameroon coast. A May 2002 completion was planned to be executed by Exxon Mobile, Petronas and Chevron.

Africa is striving to build the necessary infrastructure in this respect. The governments of South Africa and Mozambique have signed an agreement that facilitates the construction of $580 million pipelines. The project involves building 540mile, a 23-inch pipeline to deliver gas from Mozambique’s Pande and Temamne gas fields in the northern province to Ressano Garcia.

Ghana last year signed a memorandum of understanding with Equatorial Guniea to supply 150 million cubic standard feet of natural gas per day to Ghana. This is a 15 year deal to be reviewed every five years. Ghana has had erratic power supply in the past and this deal would supply gas for the generation of electricity in the country. It is cheaper to generate electricity from natural gas and healthier since it does not produce CO2 which causes global warming. A gas pipe could have been built from Equatorial Guinea to Ghana, instead of building a regasification plant at Takoradi to store the gas.

In March 2018, Mauritania and Senegal signed an agreement to enable the development of BP-operated Tortue/Ahmeyin gas, an integrated value chain and nearshore development, which is set to export LNG to global markets as well as supplying gas to Senegal and Mauritania. If the continent is able to build an integrated natural gas infrastructure in the form of pipelines across the entire continent, it would spur economic growth and create shared prosperity for all.

African countries need to pull their resources together and build the needed infrastructure to make use of this resources which is abundant on the continent. .Egypt has one of the largest gas producing fields in the world, the Zohr Field, which contains about 30 cubic trillion standards feet of gas is one of the biggest in the world. Many African countries such, Nigeria, Libya, Equatoria Guniea, Angola, Senegal, Mauritania, Cameroun, Gambia, Kenya, Mozambique, Congo Republic, Botswana, Uganda, Namibia, South Africa and Tanzania have natural gas in commercial quantities and others still exploring around the continent. More than fourteen countries in Africa have natural gas in commercial quantities.

In the long-term, we could develop a natural gas market on the continent to meet the demands of our growing economies. In Africa, natural gas would make up more than 40%of power generation 2040 onwards, and hydro continues to play a significant role, according to a report by McKinsey and Company.

This could be increased when we develop the right infrastructures in the form of LNG and pipelines to make the resource readily available on the continent.

The obstacle to developing this key infrastructure boils down to finances. A recent study by the World Bank on infrastructure highlighted challenges in this regard for the continent’s economic growth. The poor state of infrastructure development in sub-Saharan Africa, in terms of electricity and others, reduced national economic growth by two percentage growth points every year and cut business productivity by 40%.

It is estimated, according to the world bank that $93 billion is needed annually over ten years period to fix the sub-Saharan African infrastructures. Two thirds of $60 billion of that is needed for a wholly new infrastructure and $30billion for the maintenance of existing infrastructure. African countries need to forge relationships with the private sector in the form of Private Public partnership (PPP) to access capital to provide these infrastructures that would supply natural gas to African countries, to promote economic growth. As the World Bank is withdrawing its financial support for new exploration and the development of oil and gas sector projects in developing countries, the African development bank could be of help in this regard on the continent. The bank has already supported energy sector projects on the continent and should continue to do so. The African Union (AU) could help in providing the right infrastructure across the continent. It should ensure cooperation along energy lines among member countries, not only political cooperation.

David A Alemzero - MSC ECONOMICS (Energy and Natural resources economics).BSC MARKETING