Europe’s Energy Crisis : An Opportunity for Africa?
Near-Record Fuel Prices Add to Spiraling Cost-of-living Squeeze
Source: gettyimages. https://www.gettyimages.com/detail/news-photo/fuel-price-sign-at-an-esso-gas-station-operated-by-exxon-news-photo/1239028332?adppopup=true
Energy crisis in Europe
The Russia-Ukraine War, the European Union’s sanctions and embargoes, and subsequent retaliatory actions by Russia indicate Europe’s phase-out of Russian energy, also pushing the EU to look for solutions to the energy crisis. On June 26, Germany and Austria restarted the coal power stations. The next day, the Netherlands lifted all restrictions on power stations that use fossil fuels. Meanwhile, other EU countries such as Italy are also expected to restart coal power plants in order to tackle this energy crisis.
Russia, the third-largest oil producer and the largest oil exporter in the world, “consumes about 3.45 million barrels a day while exporting more than 7 million barrels of crude oil and other petroleum products a day”. In 2021, Russia exported the second-highest dollar value worth of crude oil after Saudi Arabia, which is $82 billion and accounts for 8.3% of globally exported crude oil. Also, in 2021, Russia exported 40 bcm of liquefied natural gas (LNG), accounting for 8% of the global LNG supply. However, according to the Statistical Review of World Energy 2021 published by BP, 77.7% of Russia’s natural gas was exported to Europe in 2020. And, in 2021, the amount of natural gas that the European Union imported from Russia reached 144 billion cubic meters, accounting for 45% of EU gas imports and nearly 40% of its total gas consumption. There is no doubt that Europe heavily relies on Russian energy. Germany imported 56.3 billion cubic meters of Natural Gas from Russia in 2020; and according to the IEA, its dependence on Russian natural gas reached 65%.
As a region without enough natural Gas and Oil reserves, halting purchases of Russian energy has not been easy for Europe. In March, EU leaders announced that they will break the bloc’s dependence on Russian oil and gas by 2027 and agreed to import more LNG from the United States. Germany is focusing on the construction of LNG terminals and initiated a three-stage emergency plan regarding gas rationing. Henning Gloystein, director of energy, climate, and resources at Eurasia Group said, “[Germany and Italy] need to try to structurally reduce gas consumption by replacing household boilers with alternative systems like water heat pumps and asking households to use less gas for heating or cooling”. Although developing renewable sources such as hydropower, wind, and solar is a critical way to mitigate the current energy crisis and the EU is a green power leader, it is still hard for the EU to address the energy gap due to the baseload and on-demand power needs of EU countries and consumers.
However, looking for new markets to import Oil and Gas might be a better solution given the EU’s current challenges. In April, Mario Draghi - Italian Prime Minister - signed a deal to increase gas imports from Algeria. Also, NJ Ayuk, executive chairman of the African Energy Chamber, said:: "We've been invited to Berlin, to Paris, to Brussels. We have had various communications and various bilateral discussions with energy ministers from at least nine European countries, where we've had really fruitful conversations. This has never happened in the past.” This indicates that “there has been a big, big mindset change”. Importantly, this change would not only help European countries diversify their sources of Natural Gas imports, which is part of the Ten-Point Plan to the European Union for reducing reliance on Russian supplies, but also mean an opportunity for African countries to develop their energy (export) markets while also investing in renewable energy production. A balanced approach is critical.
Opportunity for Africa
The African continent is a resource giant: Africa is home to about 30 percent of the world's mineral reserves, 12 percent of the world's oil and 8 percent of the world's natural gas reserves.
With the EU’s partial embargo on Russian oil, there is an opportunity for African oil and natural gas-producing countries. Libya, Nigeria, Algeria, Angola, and Sudan together have the majority of oil reserves in Africa, accounting for more than 90% of the continent’s reserves. To be specific, Algeria, the tenth-largest proven natural gas reserves and the sixteenth proven oil reserves in the world, exports 540,000 b/d of its total production of about 1.1 million b/d. Libya produced 1.65 million barrels per day in 2010. Nigeria with around 37 million barrels of crude oil and 5.5 trillion cubic meters of gas is one of the largest oil producers in Africa. In addition, Mozambique is expected to become a major exporter by 2023 because of the discovery of over 180 tcf of natural gas reserves. For these oil exporters, the fact - Europe is looking for new markets to diversify its energy resources - and high fuel prices may provide some gains. This also reflects growth projections for sub-Saharan Africa. According to the IMF, growth in sub-Saharan Africa is expected at 3.8 percent in 2022, which is higher than non-oil-exporters in Africa.
However, lack of investment, insufficient governance, and political instability limit the capacity of African exporters to quickly ramp up their supply of oil and gas. First, it takes time to increase supply. Due to the security challenges in Mozambique, the investment decisions on liquefied natural gas (LNG) projects are not likely until at least 2024. Also, LNG projects in Tanzania are still at the negotiation and project design stage, which means significant production is unlikely before 2030. Besides, the process from exploration of new natural gas reserves to production would take several years.
Second, there are ongoing security issues/instability in most of the oil and gas-producing countries. In Nigeria and Libya, oil and gas facilities have long been targets for anti-government militants. Also, in Chadian oil fields and Mozambique’s gas industry, security concerns are emerging. The oil conflict in Africa impedes the development of oil production, which is also one reason for the limited investments from foreign companies.
If African countries can create a favorable commercial environment for oil and gas, they might benefit from increased gas exports to Europe, which would also create more jobs, raise living standards, reduce the poverty rate, and support the development of other industries. Of course, given the current Climate Change challenge, this must also be balanced against critical investments in renewable energy sources (particularly solar, hydropower and biogas) throughout the continent. As noted by AfDB, “Africa has an almost unlimited potential of solar capacity (10 TW), abundant hydro (350 GW), wind (110 GW), and geothermal energy sources.”
References:
1. Algeria - Oil and Gas - Hydrocarbons. https://www.privacyshield.gov/article?id=Algeria-Oil-and-Gas-Hydrocarbons
2. All the European countries returning to ‘dirty’ coal as Russia threatens to turn off the gas tap. https://www.euronews.com/green/2022/06/24/all-the-european-countries-returning-to-dirty-coal-as-russia-threatens-to-turn-off-the-gas
3. Can African Oil and Gas Benefit From Europe’s Energy Crisis?
4. Europe’s phase-out of Russia energy over the Ukraine crisis could mean opportunity for African countries. https://www.washingtonpost.com/world/2022/03/20/europe-russia-africa-energy/
5. Exploring key implications of the Russia-Ukraine War on Africa’s energy policy. https://afripoli.org/exploring-key-implications-of-the-russia-ukraine-war-on-africas-energy-policy
6. Here’s where Russian oil flow. https://www.washingtonpost.com/business/2022/03/08/russia-oil-imports-ban/
7. How Europe can cut natural gas imports from Russia significantly within a year. https://www.iea.org/news/how-europe-can-cut-natural-gas-imports-from-russia-significantly-within-a-year
8. https://resourcegovernance.org/blog/can-african-oil-gas-benefit-europe-energy-crisis
9. Insecurity haunts Africa’s key oil producers. https://african.business/2021/11/energy-resources/security-problems-haunt-africas-key-oil-producers/
10. Not all negative: Opportunities for African Countries. https://www.usip.org/publications/2022/04/what-russias-invasion-ukraine-means-african-governments
11. Why Europe is so dependent on Russia for natural gas. https://www.cnbc.com/2022/02/24/why-europe-depends-on-russia-for-natural-gas.html
EDITOR’S NOTE: TBG provides global solutions focused on Sustainability, Innovation and Impact. We leverage a Global Network comprised of more than 1000 experts in over 150 countries. Through TBG Consulting, TBG Global Advisors, TBG Purpose and TBG Capital, we undertake global projects — from Kenya to Kazakhstan — and transform challenges into opportunities.