War in Ukraine is Driving Demand for Africa’s Natural Gas

SEATTLE (Oil Monster): As Europe scrambles to replace the Russian natural gas that funds Moscow's war effort, fossil fuel companies are using this moment to push for new gas projects all over the world. Much of the industry lobbying centers on almost a dozen countries in sub-Saharan Africa.

The European Union's new blueprint for getting the bloc off Russian gas highlights sub-Saharan Africa for "untapped LNG potential," referring to liquified natural gas which is imported by ship. This spring the Italian foreign minister visited Angola and the Congo to sign new LNG deals, and the German Chancellor traveled to Senegal for gas talks last month.

American and European energy executives have been landing in private jets across Africa, to persuade governments to accelerate projects they say would feed Europe's desperate demand for gas.

One of those energy companies is Italy's ENI, which is fast-tracking plans for LNG in Congo, and has signed new gas contracts there and in Angola since Russia invaded Ukraine.

"We have of course accelerated deals there in the last month," says Guido Brusco, ENI's chief operating officer natural resources. "Clearly the crisis gave a priority lane."

But there are growing questions over whether many of the emerging multibillion-dollar LNG investments make sense for African nations, says Silas Olan'g, Africa co-director of the Natural Resources Governance Institute, an organization focused on extractive industries.

While some projects will come online in the next few years, several will take closer to a decade, says Roderick Bruce, associate director at S&P Global Commodity Insights. And they are being pushed forward at a time when climate science says most fossil fuel reserves must remain in the ground, unused, so the world can rein in greenhouse gas emissions and avoid the worst catastrophes of climate change. Sub-Saharan Africa is already highly vulnerable to extreme weather.

Olan'g says the gas industry is seeing windfalls now during the Ukraine war. But given the need to address the climate crisis and growth of renewable energy, he worries many fossil fuel companies might be giving African governments hope for future demand that may not exist.

"It's difficult to predict how long this opportunity will be there, especially in the context of the energy transition, the world moving away from the fossil fuels," Olan'g says, "I think they are kind of misleading most of the governments."

Can gas bring about a "just transition" for Africa?

As many countries moved away from coal to generate electricity, they have turned to natural gas, which emits less carbon dioxide, as a so-called "bridge fuel" to the eventual use of renewables. But gas is mostly methane, a potent planet-warming pollutant, and a large body of research shows that it, too, is driving climate change.

In its latest report, the United Nations Intergovernmental Panel on Climate Change said that extracting new fossil fuels - including gas - is incompatible with the goal of limiting global warming to 1.5 degrees Celsius. At the United Nations climate summit in November, dozens of countries, including the US, agreed to stop new public financing for international fossil fuel projects by the end of this year.

But for some African countries, exploiting their huge gas reserves is part of the "just transition", says Olatunde Okeowo, senior associate at energy consultancy RMI. He says that means using hydrocarbon revenues to fuel economic development and an eventual switch to renewable energy.

"Currently, the United States is one of the largest gas producers globally," Okeowo says, "So if there's still going to be some gas demand, should it be a country that has made the most significant contribution to climate change that's producing that gas? Or should it be another country that hasn't had as much of an impact on the climate?"

The "just transition" is something that Mike Anderson, senior vice president at Dallas-based Kosmos Energy, has been talking about a lot lately with African leaders. He recently traveled to Senegal and Mauritania to talk with their respective presidents about offshore LNG projects that could serve Europe as early as next year, and continue producing through the late 2040s.

"If I was an African president in many of these countries being lectured to, 'you're not allowed to use your hydrocarbon resources in any way.' We have! And we in the North have made fabulous amounts of money," Anderson says, "That's just not just."

Last month the German Chancellor came to Senegal to talk with the Senegalese president about new gas deals. The European Union's new blueprint for getting off Russian gas highlights sub-Saharan Africa for "untapped LNG potential".

But pinning hopes on new LNG development can have serious flaws, says Daniel Kammen, senior advisor for energy at U.S. Agency for International Development. Onshore gas projects in countries like Mozambique and Tanzania likely won't come online until the late 2020s at the earliest, and yet Mozambique has already taken on significant debt in anticipation of future gas profits.

While natural gas prices are high today, that could change as these projects mature, says Laura Page, senior LNG analyst at Kpler, a data analytics firm. She says renewables are getting cheaper and more reliable. Plus countries are considering hydrogen and reconsidering nuclear. "It's very unclear what the trajectory of gas demand is over the next 20 to 30 years," Page says.

If gas prices fall, these new African LNG players might not be able to compete against established producers like the US and Qatar which have lower production costs, Kammen says. "If the demand for gas drops the way it should – if our climate goals mean anything – it's going to be harder and harder for them to recover that investment," he says. "They're going to get crowded out in the waning days of gas."

Courtesy: www.knkx.org