Global oil and gas operators entered 2020 unaware of what the year would throw at them. As the Covid-19 pandemic demolished global oil demand and drove oil prices down to new lows early in 2020, natural gas was not exempted. Rystad Energy estimates that global natural gas production dropped by 3.6% in 2020 as low oil and gas prices led to reduced exploration and production.

Despite the national lockdowns implemented to prevent the spread of Covid, gas demand was shielded by low prices, which made gas competitive within the power sector, preventing a larger drop. Demand for gas therefore did not fall as much as oil, recording only a 2.5% decline to about 3.84-trillion m³. Importers and buyers of liquefied natural gas (LNG) took advantage of low prices to substitute coal. As a result, global LNG imports grew 3% to 363-million tonnes in 2020. In Europe, imports remained strong during the first half of 2020 as buyers opted for less Russian piped gas. Asian LNG demand grew 4% year on year, mainly driven by China.

For market participants, the first response to the downturn was to reduce their costs for 2021 and adapt their strategies to the new environment. The prolonged economic recovery has, however, left many on the brink of bankruptcy. In this instance consolidation may be the only way to remain solvent. The consolidation of market participants will result in a less fragmented market, enabling faster responses to commodity price movements. It will also allow the bigger players with enough capital to take over distressed, smaller players — or their selected assets — at bargain prices. However, consolidation comes with the risk of creating monopolies within the LNG industry, an unavoidable challenge that regulators will be looking to address in the medium to long term.

In December 2020, Sasol announced plans to sell its full stake (49%) in a 175MW gas-fired power plant in Mozambique to Azura Power for $145m as part of an accelerated disposal programme to pay down debt. Headquartered in Nigeria, Azura Power is a developer, financier, acquirer and operator of independent power plants across Africa, with an aim to build the continent’s leading power generation platform. In April 2020 Sasol also sold off 50% of its base chemicals business, Lake Charles Chemicals Project in the US state of Louisiana, for $2bn. The sale followed a report by Sasol highlighting that the business had ran $4bn over budget. Ultimately, the company’s long-term success depends on how well it rides the current downturn. Speed will be everything, particularly for players looking to enter the industry or grow their existing market share.

In terms of outlook, Rystad Energy expects global natural gas production to grow 24% to 4.9-trillion m³ in 2040 from an estimated 3.9-trillion m³ in 2020. Most of the growth is expected to come from North America (410-billion m³  up on 2020 production), followed by Russia (up 190-billion m³) and the Middle East (up 185-billion m³).

Though companies like Sasol maintain their position to remain fully committed to the development of upstream operations in Mozambique, the divestments open up opportunities for other market participants to emerge as the champions of LNG exploration, liquefication and trade. The SA government’s intention to expand the LNG industry is reflected in the country’s Integrated Resource Plan (IRP), which envisages the development of an additional 8,100MW of gas- and diesel-fired generation capacity by 2030 to support energy security. This capacity is expected to make up the shortfall caused by the delays to the completion of the mega coal-fired power stations Kusile and Medupi, and the future decommissioning of other existing power generation facilities as they reach the end-of-asset-life in the coming years.

Mozambique will serve as the second-largest LNG producer in Africa after the completion of various projects, and it has the potential to become the fourth-largest global LNG exporter after Qatar, Russia and Australia. To put this into perspective, the combined production capacity of Mozambique’s Area 1 LNG Project, the Rovuma LNG Project and Coral South FLNG Project would equal 81% of all African LNG exports by 2023. Up to a quarter of the gas will be set aside for domestic use in Mozambique. LNG exports are expected to increase the country’s annual gross national product (GNP) by $10bn to $14bn. For Africa, Mozambique’s LNG offering will boost industrialisation, increase intraregional trade, generate jobs and trigger a virtuous cycle with far-reaching effects on the availability and access to energy, food security and the growth of the African economy.

Due to its limited domestic production, SA imports most of its natural gas from Mozambique via a transmission pipeline. PetroSA, the country’s primary producer of indigenous natural gas, has a depleting field that will not sustain the demand envisaged in the IRP. Public sector projects under way to ensure the country has enough capacity to import LNG feedstock include the development of an import facility and power plant at the Coega Special Economic Zone. Renergen, a locally listed company, is the only other local producer of natural gas in SA. The company is also the first to build a small-scale onshore LNG plant. It intends to monetise its LNG by developing 12-18 LNG filling stations across SA by 2024. Other significant local LNG projects include the offshore exploration by Total in the Brulpadda block. This discovery has been reported to have the potential to be a game-changer as the country is now believed to be endowed with large natural gas reserves.

The strides being taken in Africa’s LNG industry show that the private sector recognises the potential of a natural gas enhanced economy, and companies have already started to position themselves to exploit the opportunity. The collective participation of the public and private sectors within the industry has the ability to prompt the import and export of technology, expertise and LNG feedstock from country to country.

These activities are all supported under the Africa Continental Free Trade Agreement, which came into operation on January 1. There are many opportunities for continued industry growth aided by the right circumstances. For the African LNG industry to grow it simply needs a more business-friendly environment with a clearly defined policy framework.

It is encouraging that African governments have put energy resource plans in place, defining the extent to which the law encourages and supports the development and integration of LNG into the energy mix. Once other government and regional policies are fast-tracked, the development of the budding natural gas industry could help Africa transition away from its over-reliance on coal.

• Panashe is an associate at market research & strategy consultancy Birguid. This article was based on a Birguid research report on Sub-Saharan Africa’s LNG industry, covering SA, Mozambique, Tanzania and Nigeria.