Decarbonisation push offers West Africa Gas the needed investment incentive

As global demand for gas is projected to increase over the coming decades and the industry asserts its claim as a cleaner, cheaper alternative to oil, there are indications that several gas-rich West African countries are ready to establish flourishing gas export industries.

From all indications, there is an increase in demand generally and a decarbonisation push that is going to be solved by greater reliance on gas as a cleaner fossil fuel. BP projected that production of natural gas on the Africa continent will expand by 80 percent with a 95 percent expansion in natural gas by 2035.

Industry closer watchers are of the opinions that while it may be difficult to really predict demand growth, it is inevitable that in certain geographical areas there will be increased energy demand including in China, India and Africa.

They opine that in some West African countries there are already sizeable government-led programmes and detailed plans for making gas a more central part of power generation.

According to them, “There is a good story for gas and the signs are generally promising but the real challenge is just to convince the market generally that gas has to be the fuel for the next 30 years”.

Reports show that the industry’s big players are showing few signs of waning interest. In May, oil major BP and New York-listed Kosmos announced a large gas discovery off the coast of Senegal just five months after BP invested $1bn to develop a “world class basin” spanning the maritime areas of Senegal.

In September, Shell signed a $300m agreement with Nigeria’s Shoreline Energy to develop and distribute gas around the commercial hub of Lagos. Given significant uncertainty over global prices particularly as vast US shale gas fields await development.

Industry analysts opine that West African producers should focus on forging a compelling commercial environment in the hope that the market recovers.

According to them, “There are reasons for optimism and significant reasons for pessimism. In some ways because of the uncertainty, it gives parties time to find out what the best approach is in terms of regulation, the structure of the projects and where cost efficiencies can be made.”

Yet while some West Africa government seek ways to get the best possible terms from their gas resources, movements in the global gas market are clouding the industry’s future.

Analysts observe that investment is still very uncertain adding that under current conditions and expectations, certain gas projects are not likely to go ahead as a result of bureaucracy of certain West Africa government.

According to industry experts, “Given the already precarious financial nature of the project, well-meaning government efforts to extract additional value from the sector in the form of local content jobs and investments that benefit from the projects could make or break the realisation of such gas projects”.

Despite the difficulties, industry operators believe that long-term trends not least the increasing demand for energy across the continent could support an African industry.

KELECHI EWUZIE