Russia’s invasion of Ukraine to trigger seismic shift to African gas

Russian President Vladimir Putin launched a full-scale invasion of Ukraine today. Resources to limit the impact on global oil and gas supply are “extremely limited”,  according to a note from Vanda Insights in Singapore.

OPEC+ has some spare capacity, but it is in oil, the research says. “Should the Kremlin decide to cut off gas exports to Europe, all the world’s gas producers put together do not have the spare capacity to plug the gap.”

Before the invasion, Germany had already said it was suspending the certification process of the Nord Stream 2 (NS2) pipeline, which runs under the Baltic Sea from Russia to Germany. That increases the chances that Russia will halt gas flows into Europe, says Sindre Knutsson, head of gas markets research at Rystad Energy in Oslo.

The pipeline bargaining chip which Europe hoped would prevent Russian military action has now been spent to no effect. Europe will need gas from somewhere. The member states of the Gas Exporting Countries Forum (GECF) have said that they do not have the capacity to enable Europe to replace 40% of its energy consumption if Russia cuts supply

Russia is playing the nice guy for now on gas supply even as it marches into Ukraine. State-owned Gazprom claims that the volume of gas transiting through Ukraine to Europe has risen by 38% today from yesterday. The message to Europe is that gas supplies are safe so long as Putin is allowed to do as he pleases.

Europe may have little choice but to accept that logic in the short term. Further out, energy supply cannot be left to the whim of the Kremlin. That opens the door for Africa.

Hostages

According to the new State of African Energy outlook published by the African Energy Chamber, global LNG demand will grow at a compound annual growth rate of 5% over the next two years. A supply deficit is in prospect from 2024, as ever increasing environmental pressure to end coal-fired generation leads to greater appetite for gas.

African gas has a better chance than oil of being accepted as a transition fuel.

• The chamber estimates that about 55% of the African resources which will be sanctioned for development over the next 10 years will be gas projects, with a further 13% being condensate and natural gas liquids. Crude oil will account for 38% of new African resources.
• Mozambique leads the way in terms of recoverable African natural gas with 52% of the total, Rystad’s figures show.
• Plans to developed Mozambique’s onshore LNG have been delayed by an extremist Islamic insurgency in the north of the country, with onshore production pushed back to at least 2025.
• Mauritania and Tanzania have 12% each, with Nigeria and Senegal each on 7%. Other countries make up the remaining 10%.

Algeria’s proximity to the European market makes it a potential gas supplier for Europe. The country is the largest gas producer in Africa, and the world’s sixth-largest gas exporter. It plans to double exploration and production in the next five years.

The time may also be ripe for Africa to attract investment into its gas infrastructure. This month, Niger, Algeria and Nigeria signed an agreement that will see development resume on the Trans-Saharan gas pipeline project.

• The planned $13bn pipeline will link Warri in Nigeria to Hassi R’Mel in Algeria via Niger. The aim is to transport 30 billion cubic meters of natural gas to Europe per year.

Bottom line

Whatever the outcome in Ukraine, European governments won’t want to be Putin’s hostages in future.