In Sub-Saharan Africa (SSA), rising gas prices pose a strong upside to LNG liquefaction projects. However, as of December 2022, only a limited number of projects are in advanced project stages, limiting the immediate impact of rising prices on LNG infrastructure growth. Following the cessation of pipeline gas shipments from Russia to Europe, European buyers have increased their LNG imports by more than 70% y-o-y from February to November.

This has led to a hike in LNG prices, which we expect to persist throughout 2023, although at a level below their peak in 2022. Sub-Saharan Africa will be among the regions most affected by this development, as it has emerged as a key growth region for gas production in recent years, with Mozambique, Mauritania, Senegal and Congo-Brazzaville all in the process of initiating gas production. In total, we expect SSA LNG exports go grow by 14% in 2023 and 4.8% in 2024. With LNG demand rising and fresh take-off contracts having been signed throughout H22, new impetus for liquefaction projects has emerged across the region.

This has led to several FIDs in new projects, most notably ENI’s investment in a liquefaction facility at the Norther Gas Complex in Angola and the stationing of a FLNG vessel in Congo-Brazzaville. In addition to these, German chancellor Scholz signalled his country’s interest in supporting the expansion of LNG production at Senegal’s GIP gas field. The energy price crisis has also reignited interest in several proposed projects, such as the Tanzania LNG project, or an upgrade to production capacity at Rovuma LNG in Mozambique, although no FID has been reached for these projects.

While these developments pose a strong upside risk to our LNG production outlook, we draw attention to the long project horizon of some gas developments in the region. This will make it difficult for projects not associated with existing gas production to take advantage of rising prices, especially as new LNG capacity in markets such as the United States and Qatar are set to lead to a gradual market easing over the medium term. Given that SSA LNG production is set to peak in the second half of our forecast horizon from 2022 to 2031, we therefore draw attention to the relatively moderate impact of the energy price crisis on our overall SSA LNG growth forecast.

Furthermore, although rising prices benefit SSA LNG liquefaction, we note that developed markets are increasingly pricing out African players in LNG regasification. As LNG prices are rising globally, many African offtakers find it increasingly difficult to justify investments into regasification facilities. In addition to that, due to a spike in demand for facilities like FLNG vessels, prices for essential equipment have spiked over the short term, putting pressure on SSA investors.

We currently do not expect new pipeline developments between SSA and Europe, as projects are obstructed by political and security risks. Still, we note that the European gas crisis has led to increased interest in several projects, providing upside risks to pipeline development in West Africa. West Africa currently lacks pipeline connections to the European gas network. Over the last two decades, this has led to multiple proposals for pipelines between the two regions, most prominently the NIGAL pipeline from Nigeria through Niger and Algeria and the Nigeria Morocco-pipeline along the West African coast. However, both pipelines would be among the longest in the world, requiring large upfront investments and posing significant engineering challenges. In addition to that, they would pass through regions posing heightened operational and political risks, including existing insurgencies in the Sahel region. Furthermore, the Nigeria-Morocco pipeline would have to pass through the territory of 14 sovereign states, inducing great regulatory challenges and political risk. For these reasons, we maintain our earlier view that their construction remains unlikely in the absence of major geopolitical and economic changes.

Despite these persistent challenges, we note that rising gas prices have led to renewed interest in the pipelines. Thus, we note the upside risks from the Russia-Ukraine conflict for pipeline developments in the region. In June 2022, the governments of Nigeria and Algeria signed an agreement to move forward with the NIGAL pipeline. According to this agreement, the pipeline is to be owned and operated by Nigeria’s and Algeria’s national oil companies, NNPC and Sonatrach, at 45% equity each, with 10% to be held by the government of Niger. Nigerian government officials have also expressed confidence in potential European funding for the project. In September 2022, the Nigerian and Moroccan governments signed an agreement to conduct further feasibility studies for a proposed pipeline along the West African coast, connecting the growing gas producers of Nigeria, Senegal, and Mauretania to Spain. The Saudi Islamic Development Bank has pledged USD60mn of financing for the study, while the OPEC International Development Fund is set to contribute another USD12.8mn.
Source: Fitch Solutions