Balancing Africa's Gas Export Ambitions with Regional Integration
FEATURED BLOG
Africa's Gas Export Ambitions with Regional Integration
—
By Gerald Kilimo
Oct, 2024
Africa's projected 25% increase in LNG production by 2026 presents promising economic opportunities, yet demands a balanced approach between export ambitions and regional energy security. While export infrastructure drives economic growth, it must integrate domestic and regional needs to ensure sustainable development.
European nations, seeking to diversify energy sources away from Russian supplies, have intensified their focus on Africa's untapped potential. In 2022, Italy secured gas supply agreements with Angola, Congo-Brazzaville, and Algeria, while previously abandoned West African gas pipeline projects across the Sahara gained renewed attention. All this points to the surge in export-focused LNG investments by countries like Nigeria, Senegal, and Mozambique.
Africa's current $245 billion infrastructure expansion heavily favors export capabilities, with 92% of LNG investments targeting international markets. Nearly two-thirds of proposed pipeline projects, including the Trans-Saharan LNG pipeline, are intended for European consumers. While this aligns with Europe's immediate gas demands, the long-term viability of these markets remains uncertain as Europe accelerates its renewable energy transition. African exporters risk being left with costly infrastructure and declining returns within the next decade. This mirrors Bolivia's case, where major gas pipeline investments linked to Brazil and Argentina became underutilized when both countries discovered their own reserves and shifted toward renewables. This export-centric approach is also concerning given that energy access remains limited across much of Africa – Nigeria and Mozambique, despite leading in planned export capacity, maintain domestic electricity access rates of just 51% and 33%, respectively.
The focus on exports has begun to undermine regional infrastructure projects. The West African Gas Pipeline (WAGP), connecting Nigeria, Benin, Togo, and Ghana, demonstrates this. Despite delivering a record of 215 million standard cubic feet of gas daily and providing significant portions of electricity to neighboring countries (72% for Benin, 47% for Togo, and 87% for Niger), the pipeline faces operational challenges. The project struggles with financing, as primary stakeholders like Nigeria (with 25% shareholding) and Ghana (with 20% shareholding) redirect investments toward export-oriented LNG infrastructure. For instance, Ghana's reported $104 million in unpaid invoices for gas deliveries, while simultaneously developing its LNG prospects, highlights the risk to regional projects like WAGP. This situation has led to consistent power shortages, prompting Togo and Benin to explore their own LNG investments.
While export-oriented LNG projects position Africa as a global energy supplier, nations must recognize the value of regional infrastructure in promoting continental integration and sustainability. However, regional projects face significant hurdles, including geopolitical tensions between neighboring states, security challenges in cross-border regions, substantial financing gaps, and complex regulatory frameworks across different jurisdictions.
To achieve a balanced approach in Africa's energy sector that addresses export ambitions while meeting regional integration and domestic energy needs, several key considerations must be made. Firstly, countries should develop flexible infrastructure designs that can serve both export and regional markets, allowing for adaptation as market conditions change – similar to how the West African Gas Pipeline could have been better integrated with new LNG facilities. Secondly, establishing dedicated regional infrastructure funds with mandatory contributions from export revenues could ensure sustainable financing for regional projects, preventing situations like Ghana's payment backlog while pursuing export investments. Thirdly, implementing standardized regulatory frameworks across regional economic communities would streamline cross-border energy trade and make regional projects more attractive to investors, while ensuring export projects contribute to broader regional development goals.
These strategies, while challenging to implement, provide a crucial framework for African nations to pursue global energy opportunities while strengthening regional needs. A careful balance between export ambitions and regional needs will create a sustainable energy sector that serves both international markets and domestic development for sustainable growth.
Gerald Kilimo is an Analyst at Botho Emerging Markets Group