Africa’s growing interest in developing a vibrant gas sector is taking shape, yet the region’s gas infrastructure projects will struggle to gain sufficient funding over the decade (2021-2030), according to Fitch Solutions.
SSA’s gas consumption is expected to grow by an average of 4.2% year-on-year over the decade, to reach 54.7 billion cubic metres (bcm) in 2030, from an estimated 35.2bcm in 2020.
Although growing, regional demand remains limited, particularly on a global scale. In UK for instance, gas demand alone averaged 76.2bcm in 2020.
“While various projects have been proposed, many markets across SSA either suffer from a lack of domestic gas supply to meet potential demand, or an absence of import infrastructure needed to build a gas economy.”
Fitch Solutions
Without the guarantee of sufficient offtake, investors are cautious of committing to building large-scale import and transport infrastructure. Hence, many proposed gas projects in SSA are integrated gas-to-power developments.
Constraints delay progress of gas projects
Given the high costs and demand constraints, “we have seen many of these projects struggle to get off the ground in recent years… due to the history of repeated delays and cancellations.”
One of SSA’s key gas projects, Fitch noted, is Ghana’s Tema LNG import terminal, which is expected online imminently, by end-2021 having faced severe delays. Once online, the 2.0 million tonnes per annum (mtpa) terminal will provide feedstock for Ghana’s existing gas power plants, as well as to the flagship 400MW Bridge Power project currently under construction.
In South Africa, studies to build an integrated gas-to-power project by state-owned Transnet alongside the International Finance Corporation have been ongoing for several years. However, due to the lack of progress in launching a project tender, both the proposed LNG import terminal and associated gas-to-power plant remains excluded from our gas forecasts.
Environmental concerns in particular pose significant risk for new gas projects in the region. The growing trend of decarbonisation across the global oil and gas industry means risk-averse investors will be cautious to invest in gas projects which might prove unsustainable in the long run.
LNG has been touted as a transition fuel that can help pave the way for countries to reduce their reliance on other energy sources such as coal. However, while gas is often seen as a cleaner energy source than other heavy polluting fossil fuels such as coal or oil, it remains a key emitter of carbon.
Uncertainty of Environmental Policies raise concerns
The uncertainty of environmental policies over the long term poses an additional concern, as governments might choose to introduce new regulations to reduce carbon emissions that may require costly upgrades of infrastructure and power plant machinery.
Gas demand in SSA is already primarily driven by the power sector, however, it is not a fundamental part of the region’s energy mix and its share is expected to remain small.
According to Fitch’s estimates, hydropower and coal accounted for approximately 26.1% and 50.2% of SSA’s total electricity generation in 2020 respectively, while natural gas made up just 11.8%.
Coal’s share of the power mix is expected to taper off slightly by 2030, however, SSA’s reliance on hydropower is expected to grow, meaning both will account for a combined share of 74.8% in 2030. Meanwhile, the share of gas is forecast to grow only marginally, to reach 12.3% in 2030.
Highlighting these risks to investment into gas projects suggests that policies governments in SSA outline will be crucial over the decade. Governments should not only focus on the prospects of gas in the ground but also focus on how to boost investor confidence for these projects to come alive.
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