DATELINE: LAGOS, NIGERIA, JULY 2014
Did African states, through short sighted energy strategies, inclement investment climate, project delays and resource nationalism, shut themselves out of the opportunity created by the Europe-Russia gas supply crisis?
Below we re-publish TOYIN AKINOSHO’s perspective on the EU-Russian gas crisis of 2014, produced from an African lens…
“A crisis is a terrible thing to waste”, Stanford economist, Paul Romer, declared 10 years ago.
A decade before the current face-off between Russia and Ukraine over the latter’s choice to be part of the European Union’s sphere of influence, European countries had wished they didn’t have to rely so much on Russia for their gas supplies.
EU’s idea of energy diversity has largely meant diversification away from Russia.
Although Europe’s challenges with Russia as an energy supplier are multifaceted, the one issue that consistently meets headline news has been Ukraine’s involvement in part of the supply. Arguments between Russia and Ukraine always threatened to disrupt a significant flow of gas to Europe. Russia cut supplies to its neighbour in January 2006, causing serious disruptions. The same happened in 2009; this time Ukraine drew on gas destined for customers in Europe and Russia responded by cutting off all supplies.
On a break from meetings at the PEN Congress in Berlin in May 2006, I invited myself to an EU-Russia Conference on gas, sponsored by Gazprom, the Russian gas behemoth. It was holding on the same street in Berlin’s Mitte (centre of the city), where the PEN Congress was taking place. Speaker after speaker from Europe spoke of “security of supply”. Speaker after speaker from Russia insisted on “security of demand”. These were relatively new terms to me, at the time, but I knew clearly that Africa could supply more gas to Europe than it was then doing. Africa could help Europe lessen its reliance on Russia. There were quite a number of projects, already several years on the drawing board as of then, meant to boost the supply of gas from Africa to Europe. One was the 4,128km long, multibillion dollar pipeline, aimed at evacuating Nigerian gas through Niger Republic to Algeria to Europe.
The African continent, with over 400Trillion Cubic feet of natural gas reserves, mostly unexploited as of 2004, had been a possibly strong alternative supplier of gas to Europe. If there was a pan continental economic zone in Africa, the way it has been in Europe for 30 years, with strong commitment to-and implementation of- cross border regional infrastructure projects, we would be a formidable force, able to snatch and eat a lot of what Russia considers her lunch.
As of 2002 Algeria in North Africa accounted for 25% of gas imports into the European Union. Algeria’s neighbours Libya and Egypt were also looking for a stake in the European market. Immediate opportunities for expansion were provided by the liberalization of the gas markets in Spain and Italy. With proposed pipelines to Italy, Spain and France in sight, Algeria planned to increase her overall gas export from 65Billion cubic metres (2.3 Trillion cubic feet) per year to 85Billion cubic metres (3Trillion cubic feet) per year by 2008. A Memorandum of Understanding was in place for a 1,000km Algeria-Sardinia-France gas pipeline, transporting eight (8)Billion cubic metres of gas (282 Billion cubic feet) per year.
Algerian share of European import has since declined to less than 20% as Norway’s production grew in size (now 27%), becoming the second largest gas supplier to Europe after Russia (29%). Algeria’s much hyped plan to boost export to 85Bcm/y never materialized. Indeed, the gas export has declined. Total Algerian gas export in 2013 amounted to 54Bcm ( 1.9 Trillion cubic feet), not because Algeria was busy growing domestic gas demand like Egypt and Nigeria, nor because the country couldn’t find the gas volumes to assign for export like Angola and Equatorial Guinea, but simply that the strategy to grow the production was inadequate.
While Norway and Russia invested furiously in gas production and supply infrastructure, Algeria slacked. Many of the field development projects have been delayed by several years by government’s lack of urgency in approval, the country’s difficulties attracting investment partners, infrastructure gaps, and technical problems. 13 years after the MoU was signed for the Algeria-Sardinia-France pipeline, the project still hasn’t taken off. Investment decision has been held up by wrangling over long-term supply contracts for gas. The drawn-out process has witnessed reduced demand in gas in those parts of Europe that the project was aimed at, as other suppliers have muscled in. The volumes to be exported to Italy, for example, have been curtailed.
With 56Tcf of gas and a population of just seven million, Libya is in as much a favourable geographic position to supply gas to Europe. This was the third country in the world, after Algeria and the United States (Alaska), to begin exporting liquefied natural gas (LNG). But Libya’s gas export last year was 6Bcm (212Billion cubic feet), according to OPEC Bulletin, a publication of the Oil Producing and Exporting Countries. It’s not likely to grow further in the near term. With western sanctions on the country for most of the 90s and early noughties, Libya wasn’t in a comfortable position to draw up, let alone implement a strategy, to be a robust gas supplier to its neighbours across the Mediterranean. The fact that the Western Libyan Gas Project (WLGP), a 50-50 joint venture between the Libyan National Oil Corporation (NOC) and the Italian operator ENI, came online in October 2004, after sanctions were lifted, is symbolic of what could be possible under a favourable investment climate. By July 2007, 280Billion cubic feet (7.9Billion cubic metres) per year of natural gas was being exported from a processing facility at Melitah, on the Libyan coast, through the Greenstream pipeline to southeastern Sicily, in Italy.
Even though there are other gas export projects on Libya’s drawing board, the country, now in a perennial state of war, is clearly not in a position to take advantage of Europe’s dire need to diversify its sources of natural gas supplies.
Egypt is no longer a candidate for gas export. In the last two years, it has been steadily diverting gas meant for export to domestic use and as it struggles to satiate its citizens’ voracious appetite, the options of LNG and piped gas exports make less business sense.
Nigeria has not had a coherent gas policy from day one, either for domestic gas development or for export. Now that the gas business is steadily opening up, Militant activity and pipeline vandalism, both of them projected as variations of resource nationalism, affect the flow of the resource, even for domestic supply. The Trans Saharan Gas Pipeline (TSGP) was proposed as far back as the 1970s. By 2002, Sonatrach, the Algerian state hydrocarbon company and its Nigerian counterpart NNPC signed an MoU for preparations of the project. In June 2005, the two parties signed a contract with Penspen Limited for a feasibility study which was completed in September 2006. Three years later, energy bureaucrats from the two companies were still talking of proceeding with the MoU signed in 2005. In 2014, nine years after that MoU, the appetite for large scale export projects from Nigeria is considerably reduced. The latest of three stalled Liquefield Natural Gas projects in Nigeria has been on the drawing board for at least five years. So projects that had been lined up to supply Europe, America and South Asia with gas from Africa had become non-starters, long before the opportunity grew this large.
Angela Merkel visited Nigeria and Angola in 2011, in part to assess the possibility of German access to gas in West Africa. Germany wanted a dedicated LNG project that would deliver gas directly from Nigeria to its receiving terminals, but the Nigerian environment, in which two Greenfield LNG projects had suffered setbacks in the four years prior to Ms. Merkel’s visit, wasn’t ready to take advantage of the opportunity. The Europe-Russian gas crisis is an opportunity that Africa had wasted long before it even came up.
Reproduced from our archive. The article was published -exactly as it is-in the July 2014 edition of Africa Oil+Gas Report, the trade journal which marked its 20th anniversary in November 2021.
As they say: The more things change, the more they remain the same…
Timely republishing. Sets you apart as a strategic African oil & gas journal