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Gas will hold the key to Africa's energy future: IEA

Highlights

Share of gas in African energy mix to quintuple by 2040

Oil production to remain flat, gas output to more than double

Africa's solar industry crucial to global energy transition

London — Africa will emerge as a major player in natural gas markets as a producer, consumer and exporter with gas output poised to more than double in the next two decades, the International Energy Agency said in a new report Friday.

The share of gas in the energy mix in Africa is projected to rise to around 25% by 2040 from 5% now, according to findings from IEA's Africa Energy Outlook 2019.

IEA said the future for gas in the continent could look different due to a series of major discoveries in recent years -- Mozambique and Tanzania, Egypt, Senegal and Mauritania and South Africa, which collectively accounted for over 40% of global gas discoveries between 2011 and 2018.

"These developments could fit well with Africa's push for industrial growth and its need for reliable electricity supply," the report said, as Africa will observe a huge rise in its population and the rapid industrialization of its economies, which will surge in the coming decades.

Oil production will plateau in the next two decades, as gas becomes a bigger priority for the key oil and gas producers.

Oil output will reach 8.2 million b/d by 2040 compared with 8.4 million b/d in 2018 while gas production will surge to 317 Bcm in 2040 from 240 Bcm last year. Mozambique, Tanzania and Egypt will be the main drivers of gas production, according to the report.

But developing gas infrastructure will be a major challenge because of "typically small market sizes and concerns about affordability,"the report added.

With an oversupply looming on the gas market, "much will depend on the price at which gas becomes available along with the development of distribution networks, the financing available for infrastructure and the strength of policy efforts to displace polluting fuels," the IEAsaid.

DEMAND SURGE

Africa's importance in the global oil and gas markets will increase to the "growing appetite for modern and efficient energy sources."

Oil demand in the continent will grow by 3.1 million b/d between now and 2040 due to the doubling of the car fleet along with increaseddemand for LPG as a cooking fuel.

The report said African oil demand in 2040 would average 7 million b/d from 3.9 million b/d last year.

This is higher than the projected growth in China and second only to that of India, IEA added.

On the gas side, Africa will become the third-largest source of global gas demand growth over the same period, outlining its importancenot as a produce but also has a consumer.

Gas demand would increase to 317 Bcm in 2040 from 158 Bcm in 2018.

The report, however, sounded a note of caution to Africa's oil and gas producers that due to the changing development models in Africa,countries that are highly dependent on hydrocarbon revenues are coming under increasing pressure.

"Changing global energy dynamics mean that resource-holders cannot assume that their oil resources will translate into reliable future revenues," it said.

DEVELOPMENT OF GAS

African governments need to put policies in place to accelerate production growth to serve domestic demand and develop strategies to maximize the value of their resources, the report said.

Stressing that importance of East Africa's gas industry, IEA warned the governments of Mozambique and Tanzania to take adequate measures to ensure gas revenues lead to "tangible economic benefits."

"History suggests that, after major discoveries, some countries have quickly scaled up public investment and accumulated excessive debts based on unrealized future revenues, damaging their economic performance in the process," the report said. "Avoiding this so-called 'pre-source curse' is essential if income from gas exports is to provide maximum benefit to Mozambique and Tanzania."

CRUCIAL TO ENERGY TRANSITION

As a result of Africa's abundant reserves of fossil fuels, solar power and minerals it will hold the key for clean energy transitions worldwide, according to IEA executive director Fatih Birol.

"Africa has a unique opportunity to pursue a much less carbon-intensive development path than many other parts of the world," said Birol.

The key question for Africa as it embarks in the energy transition will be on how fast its solar industry will grow.

Africa has the richest solar resources in the world, but currently has only 5 GW of solar PV, less than 1% of the global installed capacity.

"Solar PV deployment between today and 2040 averages almost 15 GW a year, matching the average annual deployment in the United States over the same period," the report said.

Africa produces just 2% of global energy-related CO2 emissions but it is disproportionately on the front line when it comes to the effects of the world's changing climate.

"If policy makers put a strong emphasis on clean energy technologies, solar PV could become the continent's largest electricity source in terms of installed capacity by 2040," Birol added.

-- Eklavya Gupte, eklavya.gupte@spglobal.com

-- Edited by Jonathan Dart, jonathan.dart@spglobal.com