Economic Update

Published 04 Apr 2023

– The EU is looking to sign gas deals as a bloc in bid to limit imports from Russia

– Established suppliers like Algeria, Egypt and Nigeria ramp up exports to the EU

– Commercial gas diplomacy is kick-starting new projects and production

– Emerging LNG exporters Mauritania and Senegal to enter market in 2023

As the EU works to rebalance its gas supply away from Russia, African countries are expected to gain a larger share of the bloc’s liquefied natural gas (LNG) market in the coming years.

Last month the EU announced that it would launch the first tenders for joint gas purchases in April, with contracts expected to be signed by June. This novel approach seeks to leverage the bloc’s purchasing power to secure supplies at lower prices ahead of the summer when EU countries are expected to refill their underground gas storage.

Common purchases of gas are available to all EU member states, as well as Ukraine, Moldova, Georgia and the Western Balkans.

The EU’s joint gas purchases are expected to bring new supplies from the US, the Middle East and Africa, including established African suppliers like Algeria, Egypt and Nigeria. Other emerging LNG exporters on the continent, such as Mozambique, Senegal and Tanzania, could also benefit from this shift.

To enable additional LNG imports, the EU is undertaking significant capacity expansion. From January 2022 to February 2023 it commissioned 35.5bn cu metres of gas import capacity across eight LNG terminal projects.

The bloc is developing some 198.5bn cu metres per year of additional LNG import capacity in projects set to come on-line through to 2026.

Established European suppliers

African pipeline suppliers that are proximate to Europe and that already have gas-trading relationships with the EU are the most likely to see immediate gains from the shift in EU policy.

In 2021 Europe imported 37.2bn cu metres of pipeline gas from Algeria (34.1bn) and Libya (3.1bn), according to BP’s “Statistical Review of World Energy 2022”.

Already Africa’s largest gas producer, at 100.8bn cu metres in 2021, Algeria was forecast to increase its pipeline gas exports to Italy by 20% in 2022 − from 20.9bn to 25.2bn cu metres − thanks to a bilateral deal reached last April, making up for the slump in exports to Spain due to the blockade of pipeline flows through Morocco that began in late 2021.

European investment, particularly from the continent’s international hydrocarbons companies, will be integral to ramping up African exports.

French utility company Engie is working on a deal that could raise gas imports from Algeria by up to 50%, following an official visit to the country by France’s President Emmanuel Macron in August. As of early April a deal had yet to be inked.

Italy’s Prime Minister Giorgia Meloni, meanwhile, went to Libya in January to sign an $8bn agreement outlining a partnership between Italian energy major Eni and Libya’s National Oil Corporation to develop gas fields.

In Egypt − Africa’s second-largest producer, at 67.8bn cu metres in 2021 – energy giants such as Eni, the UK’s Shell and France’s TotalEnergies are accelerating exploration in offshore gas basins that could help rejuvenate the country’s project pipeline. In January Eni announced another significant discovery in the Egyptian Mediterranean, although the estimated size of the find has yet to be disclosed.

Egypt sent 2.5bn cu metres of LNG to Italy in 2021 and increased its overall gas exports from 7m tonnes in 2021 to 8m tonnes in 2022.

Emerging LNG exporters

In 2021 African countries exported 58.5bn cu metres of LNG around the world, of which 32.7bn cu metres went to Europe – Algeria sent 15.4bn cu metres and Nigeria 13bn cu metres – accounting for 30% of the continent’s total LNG imports. .

If Nigeria can overcome internal challenges such as energy theft and pipeline vandalism, as well as the flooding that derailed the gas industry last autumn, its 206.5trn cu feet of gas reserves – the largest in Africa – could permit it to increase its output from 23.3bn cu metres in 2021.

The country is in the midst of adding a seventh train to its LNG export facility that would raise its annual capacity from roughly 22.5m tonnes, or some 31bn cu metres, to 30m tonnes.

Nigeria, Niger and Algeria signed a memorandum of understanding last July to build the Trans-Saharan gas pipeline, a project that has been under discussion for decades. The pipeline is estimated to cost $13bn and would bring 30bn cu metres of gas to Europe per year, though further updates on the project have yet to be announced.

Emerging producers Mauritania and Senegal are also well positioned to find buyers for their offshore gas.

Production at the Greater Tortue Ahmeyin gas project, which straddles the two countries’ maritime border and is jointly owned, is expected to start in the third quarter of 2023, at 2.5m tonnes annually. The second phase of production will require $5bn of additional investment, and is expected to produce between 5m and 10m tonnes per year.

Both Germany and Poland have expressed interest in buying gas from Senegal. Germany’s Chancellor Olaf Scholz visited Senegal last May to develop bilateral energy cooperation, while Poland’s President Andrzej Duda visited the country in September. 

Mozambique exported its first LNG last November, sending gas to Europe from Eni’s Coral-Sul Floating LNG facility, which has the capacity to produce up to 3.4m tonnes per year. The platform is located in the Rovuma Basin, which has an estimated 180trn cu feet of reserves. However, an insurgency has slowed the full development of the country’s sizeable gas resources.

In November the US Export-Import Bank announced it would loan $4.7bn as part of a $24bn investment in Area 1 of the Rovuma Basin led by TotalEnergies in partnership with US energy major ExxonMobil. ExxonMobil is also partnering with Eni in Area 4 of the basin.

Other African gas producers such as Tanzania have longer timelines. Last June the country signed an LNG framework agreement with Norway’s Equinor and Shell that will increase the likelihood of a final investment decision by 2025 on the construction of a $30bn LNG export terminal.

Accelerating Africa’s gas sector

Africa accounted for 6.4% of global gas production and 11.4% of global LNG exports in 2021, prior to Russia’s invasion of Ukraine, figures that are certain to climb given the continent’s project pipeline and growing demand from Europe. Increased domestic production capacity can, in turn, ensure more reliable gas supply for local economies as well, helping to accelerate industrialisation.

Africa’s share of total gas production is projected to increase from 260bn cu metres in 2021 to 585bn cu metres in 2050, when the continent will account for over 11% of global supply, according to a February 2023 report from the Gas Exporting Countries Forum. Demand on the continent is projected to rise by 82% by 2050, with gas to make up 30% of the energy mix.

While climate-related concerns persist, gas is seen by many as critical to meeting UN Sustainable Development Goal 7 to “ensure access to affordable, reliable, sustainable and modern energy for all”. In sub-Saharan Africa, roughly 900m people had no access to cooking fuel and 589m did not have access to electricity as of 2019.

Notably, the number of people without electricity access rose by 20m globally in 2022 – the result of higher energy prices – marking the first such increase in over a decade. Domestic development of gas could go a long way towards addressing these inequalities and could help finance investment across many African economies, including in renewable energy resources.