Egypt Stands Out in IEA's Africa Gas Outlook

Both supply and demand average growth rates for African gas will exceed world average growth of 1.5%/yr between 2015 and 2021, forecast the IEA’s 2016 world Medium Term Gas Market Report (MTGMR), released last week.

Front cover of the IEA's Medium Term Gas Market Report 2016 (Photo credit: IEA/Statoil)

The continent’s gas production and supply is expected to grow by 2.2%/yr on average during that period, driven by Egypt where new discoveries will come on line. But the medium-term outlook for Algeria and Nigeria is weak, due to low prices, tough financing conditions and lack of investor interest. African supply of 197bn m³ in 2015 is expected to reach 224bn m³ in 2021.

African gas demand growth is forecast to rise by 3.4% on average in 2015-21, albeit from a low base of 124bn m3 in 2015 to 151bn m3 in 2021, driven by cheap supply. This is a similar growth rate to the past six years, says the IEA. However it remains a fraction of world demand: 3,555bn m³ in 2015 and forecast to reach 3,896bn m³ in 2021.

On supply, Algerian state producer Sonatrach will face “mounting difficulties” with its $90bn oil and gas investment programme for 2015-19, the IEA said. New production – such as from BP/Sonatrach In Salah Southern fields since early 2016 – will largely offset declines at other fields. The country’s Southwest Gas project – run by joint ventures including the Touat, Timimoun and Reggane fields that together could add 9bn m³/yr – should be ready by 2017 but “the likelihood of slippages is high.” Algeria thus will remain a Mediterranean basin -- rather than global -- gas and LNG supplier, it says.

Egypt expects $6bn-$10bn to be invested by Eni and the government to get the giant Zohr field onstream, expected to ramp up from 2017-18 to reach 27bn m³ in 2019, with the IEA saying that Eni will be paid between $4 and $5.90/mn Btu for gas most of which will be sold on the domestic market – so higher than the $3-$4.10/mn Btu agreed by Cairo with BP/DEA in 2015 on their 12bn m³/yr West Nile Delta offshore gas project, due to start 2017.

Nigerian gas production is expected to decline slightly by 2021, the IEA forecasts, so tackling the flaring of 60% of associated gas production -- representing one-third of marketed production – becomes even more essential.

Turning to demand, Algeria aims to build 27.8 gigawatts of extra generation capacity, the IEA report says, although the strain on the country’s finances is impacting state utility Sonelgaz’s ability to fulfil this, while a lack of upstream investor interest will constrain Algeria’s planned gas production growth.

The IEA is more upbeat about Egypt’s gas demand prospects, forecasting growth of more than 5%/yr out to 2021, and potentially higher due to pent-up demand from power generation, following a 15bn m3 fall in domestic production between 2008 and 2015, and supply rationing to Egypt’s fertiliser factories. It notes that Egypt has chartered two floating LNG import terminals (FSRUs) with a combined 13.5bn m³/yr import capacity for five years.

In Nigeria, the IEA says gas prices remain too low to attract investments in processing plants and to finance the needed domestic distribution network. Relative to its population “Nigerian gas consumption is very low … and progress in building new power capacity remains incredibly slow” with efforts “hampered by gas shortages, pipeline vandalism” plus funding and pricing issues.

The report – which notes that Ghana has a 7.5bn m³/yr capacity FSRU under development by West Africa Gas Ltd (a Nigerian joint venture of state NNPC and private Sahara Energy) and shipowner Golar LNG – omits to mention two less advanced projects in Ghana that have yet to charter such FSRUs. Nor do plans being drawn up for floating terminals in would-be African LNG markets like South Africa, Morocco and Cote d'Ivoire feature in the report.

Mark Smedley