The deepening Russian-Ukraine crisis has sent energy markets scrambling. At stake is the European-Russian gas links that have existed since the early 1960s. The crisis is leading to shifting alliances which could very quickly have positive affects both for Africa and the USA as Europe continues to seek a greater diversity of gas supplies and draw down on Russian imports.
The Present Situation
In 2020 Europe consumed 379.9Billion cubic meters (Bcm) of gas, down from 469.6Bcm in 2019. Gazprom supplied Europe with 174.9Bcm in 2020, approximately 46% of Europe’s gas imports.
Prior the Russian-Ukraine crisis, natural gas, and therefore LNG, was gaining a new legitimacy as a green intermediate fuel. In November 2021, the European Commission signaled that the EU was considering a role for natural gas as part of its green taxonomy. Other Asian markets have indicated similar intentions, meaning gas or LNG would qualify for green bonds and loans under these taxonomies. In October 2021, the South Korean government added LNG to its near-final green taxonomy.
The German government will push the construction of what would be the country’s first two liquefied natural gas (LNG) import terminals as part of its efforts to secure energy supply in light of Russia’s war against Ukraine, said Chancellor Olaf Scholz. “We made the decision to quickly build two liquefied natural gas terminals, LNG terminals, in Brunsbüttel and Wilhelmshaven,”
In the meantime, the majors-including BP, Shell and Equinor, ExxonMobil, TOTALEnergies-have announced plans to abort their Russian assets or stop new investments.
BP’s stake in Rosneft was 19.75% stake, accounting for about half its booked reserves and a third of its overall oil and gas production.
Shell announced its intention to exit its joint ventures with Gazprom and related entities, including its 27.5% stake in the Sakhalin-II liquefied natural gas facility, its 50% stake in the Salym Petroleum Development and the Gydan energy venture. Shell also intends to end its involvement in the Nord Stream 2 pipeline project.
Equinor has decided to stop new investments into Russia, and to start the process of exiting Equinor’s Russian Joint Ventures.
ExxonMobil has stated that it will opt out of its Sakhalin-1 project and will not make new investments in Russia. Its Russian investments are valued at more than $4Billion.
TOTALEnergies has indicated that it will remain in Russia but make no new investments.
While most of these disinvestments are in the upstream sectors, little has been said of the mid-stream activities- natural gas storage and transport- the backbone of Europe’s gas delivery systems. Gazprom’s commercial and technical activities are interwoven with those of European gas companies, ensuring gas delivery to Europe. Gazprom owns and has access to a number of these natural gas storages to ensure gas delivery to Europe. How the future relationship between Gazprom and its European partners will develop remains difficult to predict.
Europe’s LNG Future
An important question: from where is the European Union sourcing its LNG? In 2021, according to CEDIGAZ almost 70% of Europe’s liquefied natural gas (LNG) originated in the United States, Qatar, and Russia. The United States became Europe’s largest source of LNG in 2021, accounting for 26% of all LNG imported by European Union member countries (EU-27) and the United Kingdom (UK), followed by Qatar with 24%, and Russia with 20%. In January 2022, the United States supplied more than half of all LNG imports into Europe for the month.
According to Wood Mackenzie, new US LNG projects with a total capacity of about 160Million tons per year (MMTPA) have permits for construction and export sales. This is more than the total US export capacity currently in operation and under construction, which totals about 110MMTPA.
The likelihood of new US LNG imports to Europe is based on bringing new LNG projects to final investment status in record time, according to Wood Mackenzie. Venture Global is cited as an example. Alex Munton, Wood Mackenzie’s principal analyst for Americas LNG says: “They (Venture Global) have used modular construction, which means a lot of the work can be done off-site, in factory conditions. And their contracting strategy, doing their own procurement, has helped hold costs down.” FID (final investment decision) was done in August 2019 and first LNG cargo is expected any day now. A record time of 30 months from FID to first cargo.
Wood Mackenzie also reports that there are six new US LNG projects that have all the permits required to start construction. An additional six more have approval from the US Department of Energy.
The African Connection
Africa’s gas imports to Europe include:
- The Maghreb-Europe Gas Pipeline (MEG)–linking the Hassi R’mel field in Algeria through Morocco with Spain.
- The Medgaz pipeline, directly linking Algeria to Spain and providing 10.5Bcm of natural gas per year.
- The Greenstream pipeline runs from Libya to Italy and transports 11bcm per year.
- Nigeria is planning the development of a trans-Sahara Gas Pipeline. The pipeline will link Nigeria with Algeria, connecting existing pipelines with Europe.
- Current African LNG exports are in part are exported to Europe. In 2020 exports of LNG to overseas markets were Nigeria 27.6Bcm, Angola 6.39bBcm, Equatorial Guinea 3.32Bcm, and Cameroon 1.63Bcm.
Future LNG projects to Europe could include Mozambique’s Rovuma and MozambiqueLNG projects, Senegal’s Greater Tortue Ahmeyim project; and Tanzania’s planned LNG project. Can these projects compete in terms of price and compete with US LNG projects which are being brought onstream in record time?
Renewables: The Joker in the Deck
Competition could also be provided from renewables in Africa. For example, what has been described as futuristic-studies for large production and transportation of hydrogen to Europe-may well be seen as practical and necessary.
For example, the Hyphen Hydrogen Project in Namibia will invest $9.4 billion over a period of 9 years. The project sponsors aim to produce 5GW of power by 2030, and 3GW of electrolysis capacity. A production of 300,000 metric tons of green hydrogen per year is anticipated once the project ramps up. Hyphen Hydrogen Energy has been chosen by the Namibian government to develop the country’s first large-scale green hydrogen manufacturing project.
Hyphen is a Windhoek-based joint venture between British Virgin Islands-registered investment holding company Nicholas Holdings and German renewables developer Enertrag. According to the Government of Namibia a large focus would be on exporting hydrogen to Europe and to sell some of the output to neighbouring countries to “take advantage of the vision that our leaders have for the African Continental Free Trade Area”.
“The first phase, which is expected to enter production in 2026, will see the creation of 2GW of renewable electricity generation capacity to produce green hydrogen for conversion into green ammonia, at an estimated capital cost of $4.4Billion,” said Hyphen CEO Marco Raffinetti.
“Further expansion phases in the late 2020s will push combined renewable generation capacity to 5GW and 3GW of electrolyser capacity, increasing the combined total investment to $9.4Billion.
“The Tsau Khaeb national park is among the top five locations in the world for low-cost hydrogen production, benefiting from a combination of co-located onshore wind and solar resources near the sea and land export routes to market.”
Germany signed the €40Million partnership deal with Namibia as part of a bid to secure supplies of green hydrogen, which it believes will be cheaper to import than produce itself, particularly due to the lack of space in Germany to build the giga-scale projects required to reach the necessary scale of green hydrogen production.
To date a Letter of Intent has been signed between the Governments of the Netherlands and Namibia to collaborate in the field of energy, in particular related to green hydrogen. The goal is to stimulate the development of export-import hydrogen supply chains between both countries.
Morocco-UK Power Project
A second project which has received much media attention is the Morocco-UK Power Project which will produce 10.5 GW of power. The solar and wind farm will be built in Morocco’s Guelmim-Oued Noun region, and it will supply the UK with clean energy via subsea cables. The twin 1.8 GW high voltage direct current (HVDC) subsea cables will be the world’s longest.
The Xlinks Morocco-UK Power Project will cover an area of around 1,500 square kilometres in Morocco and will be connected exclusively to the UK via 2,361 miles (3,800 km) of HVDC subsea cables.
The project will cost $21.9Billion. Xlinks will construct 7 GW of solar and 3.5 GW of wind, along with onsite 20GWh/5GW battery storage, in Morocco. The transmission cable will consist of four cables. The first cable will be active in early 2027, and the other three are slated to launch in 2029.
The Morocco-UK Power Project will be capable of powering a whopping 7 million UK homes by 2030. Once complete, the project will be capable of supplying 8% of Britain’s electricity needs.
While this energy divergence for Europe will be welcomed it sends a double message to Africa. Providing Europe with potential renewable energy is only part of the equation; it is also important that Africa’s energy transition is geared for its own domestic use.
Tony Attah, former CEO of NLNG (Nigerian Liquified Natural Gas) reflected in a significant speech at the recent SAIPEC ( Sub-Saharan International Petroleum Exhibition and Conference) on how Africa should position itself in the energy transition.
He stated “We need to promote Africa to become an energy market of its own by deploying the resources in Africa especially gas for the use of Africa essentially, creating dedicated gas hubs, storage and markets to take advantage of the opportunity to use oil and gas locally to develop and support domestic economic activities like gas to power, feedstock for petrochemicals, feedstock for fertilizer, gas to transport and as a catalyst for industrialization with LPG as a substitute for biomass.”
“While fossil fuels will continue to be relevant in the global energy mix renewables will achieve greater growth with gas as the transition fuel for a very long time. That said I personally believe that energy transition is a given and the global energy mix will change whether Africa is ready or not.”
Some Final Thoughts
Europe’s search for more natural gas divergence could in the short-term lead to energy disruptions, depending on how the armed conflict between Russia and the Ukraine develops.
In Europe’s search for energy diversification the use of King Coal and nuclear energy, in the short-term, cannot be ruled out.
Look for a sharp increase in US LNG imports to Europe. While the US Senate and Congress were quick to condemn the building of the Nordstream 2 Pipeline, connecting Russia to Germany, commercial interests also played an important role. The US will become Europe’s chief source of LNG!
Russian upstream assets which have been sold as distressed assets no doubt will be picked up by bargain hunters who could become the next generation of new oligarchs.
In mid-stream-gas storage and transport-the muddle will continue. Relationships that have developed for over 60 years of gas storage and transport have led to over-arching relationships between Gazprom and Europe’s gas companies.
While Africa will play a key role in helping Europe diversify its energy sources-both in terms of LNG and renewables-Europe should be conscious of ensuring that Africa also has a need to develop its own energy transition roadmap.
Africa should follow an independent ‘Energy for Africa strategy’ to ensure it can overcome energy poverty.
Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. Kreeft has Dutch and Canadian citizenship and resides in the Netherlands. He writes on a regular basis for Africa Oil + Gas Report, and contributes to IEEFA.