Africa needs Natural Gas Investment to meet its Growth in Energy Demand
The African continent saw a sharp economic decline after the COVID-19 pandemic, with the average rate of change decreasing by almost 2.5%, versus the projected almost 5% that was modelled out pre-pandemic. Although GDP rebounded in 2021 to just over +5% continent-wide (assisted by a record US$35B of development assistance in 2021), the felt effects for countries have been lasting. Specifically for the energy sector, investment in new projects has fallen from pre-pandemic levels, the continent has been hit with first massive inflationary pressures, then consequences of the 2022 invasion of Ukraine, which has pushed some governments to the point of default on large debt burdens. The result is a continent with the fastest growing population on the planet, debilitating debt amid aging infrastructure and outdated generation/networks, delays in launching new projects, and an overall lack of foreign investment. At the same time, the continent currently contributes the lowest to climate change out of any other continent on Earth while being the least developed continent on Earth, yet nearly every country has ambitious climate goals that dictate how they should grow and what should be invested in.
At the current rate, Africa will not be able to meet the energy demand of its own population by 2030. Current spending is about a fourth of what it needs to be. Although renewables (especially solar energy) hold a clear place in Africa’s energy grids of the future, the continent is in dire need of versatile, reliable, baseload and peaking power. Natural gas is one key way to help actually meet this demand.
The push for renewables is a good thing, but extremely challenging for already weakened power grids
Over 600 million people in sub-Saharan Africa currently remain without electricity access, where by 2030, the figure is projected to be around 500 million (still a ton). Investment into solar energy on the continent has gradually increased over the years, as photovoltaic (PV) cells are ideally suited for its climate. Although the public appeal of this is positive, renewables pose many challenges to power grids. In brief, a grid loses aspects of frequency control, some forms of energy storage (such as hydro) are not as easy to implement in Africa, and they can pose issues to supply and demand.
On solar: The sun is strongest at noon, but demand from the average consumer tends to peak in the morning and (especially) the evening - so solar power is completely dependent on good storage systems to be paired with in order to actually disperse electricity when it’s needed. With little opportunities for pumped hydro systems, solar power in Africa relies on innovations in battery storage. Without storage systems, solar doesn’t work (you can’t “turn on” the sun more). Underinvestment and lack of maintenance on African distribution networks contribute to an already weakened grid, which also be exacerbated by renewables that completely lack traditional forms of frequency/voltage control. Capacity factors for solar are also quite low, around 15%-25%, limiting total energy produced and discharged. The technology also has lots of trouble meeting industrial demands, such as production plants for goods or fuels. Typically, such sectors require generation technologies with larger ramp rates (the rate at which power plant output increases as a function of time) to account for surges and dips in demand to avoid under- or overproduction. Regulation is also lacking for this technology on the continent because of how it’s being used - a lot in micro- and decentralized grids.
Natural gas power complements renewables as a bridge source
An ideal choice of power generation source to help meet the demands of the continent is natural gas baseload and/or peaking power, in the form of Natural Gas Combined Cycle (NGCC, baseload) and Natural Gas Combined Turbine (NGCT, peaking) plants. As a more traditional, steam-generating technology, it adds inertia (control) to a system, NGCT plants have a relatively high ramp rate, and can help to offset points in the day where solar power cannot meet demand on its own.
The technology is also quite low in emissions when compared to the current dominating source of baseload power on the continent, coal, being about 50%-60% less emissions-intensive. This is why many people see natural gas technologies as “green” in the scheme of what was previously widely used. The technology is considered to be a bridge to a more, fully sustainable, grid of the future because it targets demands of now while drastically lowering emissions.
Developing continental natural gas exploration and infrastructure is one key aid to near-term demand
Africa is rich in resources - and that fact certainly holds true for natural gas reserves. Massive deposits exist in Mozambique, Tanzania, Nigeria, Senegal, Mauritania, Egypt, and other areas. Yet, for many of these countries, a significant lack of investment has posed challenges in actually extracting and using these reserves. Gas isn’t even just an extremely useful source of reliable power generation - but a key feedstock for petrochemicals and fertilizers, for example. Many establishments that have successfully extracted these natural gas reserves have faced extreme losses and shutdowns due to lack of maintenance and - again - lack of investment in their successful operation.
Underinvestment is due to many factors, including instability of governance relative to North America, geopolitical tensions, scalebacks of development finance into gas developments abroad, and continent-wide economic challenges. Focussing on the third factor, certain crucial development finance institutions have scaled back plans, or even capabilities, to invest in foreign oil and gas projects because it goes against their own mandate, often dictated by public view. This may make much sense for a developed economy (often referred to as the global North), but for economies that, in all fairness, have been at a disadvantage for years, different policy is required to see near-term change.
As for the argument that future investment in African natural gas would significantly increase emissions and offset tremendous global progress, not really. The IEA did an analysis on this showing that even if Africa underwent a higher-investment scenario into its oil and gas reserves, its emissions would actually still only be about 5%-6% of global emissions. Yes, that’s higher than it is today (2%-3%), but let’s be real - the United States alone accounts for 13%-15% of global emissions while having less than a third of Africa’s population. The USA also did not have to develop with this sustainability in mind - the Paris Accords were signed in 2015. So, really, financing policy decisions into the African continent should be made in an Africa-specific viewpoint.
All major development finance institutions have limits on oil and gas investment abroad, subjecting African economies to very strict due-diligence before financing can be released. This in the most part is a very good thing, but can sometimes impose unintended consequences on capital availability in economies suffering from an already high cost of capital. Note that every institution in Europe disallows coal project investment, which is a very good thing - because the technology is old and finally starting to be phased out in even the biggest of user countries (India, China).
European Investment Bank (EIB): Stopped financing unabated fossil fuel energy projects by the end of 2021
European Bank for Reconstruction and Development (EBRD): Imposes stringent conditions on oil and gas investments.
World Bank: Has ended all upstream oil and gas financing as of 2019
US International Development Finance Corporation (DFC): Limits investment into new financing for oil and gas projects in line with current US climate commitments.
British International Investment (BII): In 2020, BII placed strict conditions on oil and gas projects, subject to very strong due-diligence requirements.
KfW Group (Germany): Restricts upstream oil and gas financing.
Agence Francaise de Development (AFD): Gas projects undergo very strict climate and impact assessments.
FMO (Netherlands): Has a priority focus on renewables and transitionary oil and gas investment from sources like heavy fuel oil, diesel and coal.
Green Climate FUnd (GCF): The GCF does not ever fund fossil-fuel projects, according to its mandate. Instead, it supports low-emission and climate-resilient development.
Asian Development Bank (ADB): The ADB no longer funds coal and restricts fossil fuel projects - similar to FMO.
Arguing against the nuclear poweer generation case to fill demand
Nuclear energy is undergoing a full resurgence. It’s clean, powerful, and safer than ever now thanks to generation III reactors (like generation II reactors on steroids). So why can’t nuclear reactors be implemented to fill demand instead of natural gas-powered plants? Well, they could, but (1) it’s much more expensive (2+ times more), (2) it takes much more time to install nuclear reactors, (3) outside of South Africa, the continent is currently not well equipped to deal with the lifecycle implications of nuclear waste, (4) nuclear energy requires a very specialized engineering skillset, that may require more development and partnerships before large-scale projects can be implemented. Generally, what I’m saying is that nuclear energy in Africa is not a near-term fix to this surge in demand, but more of a long-term prospect.
Food for thought: Some near-term policy action that can help remedy this gap and get the continent on track to meeting energy demand
Development finance institutions could consider targeted exceptions for projects that take place on the African continent. This is already in the place of transitionary projects that alleviate dependency on heavy fuel oil or diesel, but certain new growth projects could also be considered that specifically target new demand driven by industrial and population growth.
G7 countries should define explicit guidelines for investment and support to African nations that promote natural gas power projects as a means to first satisfying demand, and then re-transitioning to even cleaner sources.
African nations could allow more private sector involvement in the bidding and tendering processes. This could help to expedite due-diligence processes demanded by foreign investment institutions. This could also help to reduce potential for corruption and increase confidence in foreign involvement.
Forward-looking policies could advocate for local and reshored gas projects, making coastlines hubs for LNG delivery and export, at the same time as increasing investment for plants themselves. Egypt, Mozambique, Tanzania, Nigeria and others that have immense gas reserves could implement policy to invite investment into gas infrastructure. Port countries like Senegal, Tanzania, Kenya and South Africa could be further developed as Liquified Natural Gas (LNG) export and delivery local economies. These actions go to lowering dependence on foreign gas producers and transporters.
Private-sector-driven incentives for engineer and leadership talent could be put into place to foster the local project maintenance workforce of the future. One of the biggest challenges impacting the continent is the lack of incentives currently in place. The priority should be return if workers are educated abroad (near-term) through incentives and maintenance of this local force through local education (long-term).