Key highlights
- This report highlights small and modular solutions as one-way African countries can still explore natural gas.
- Nigeria has been identified as being able to use modular solutions to address the lack of proper gas infrastructure
- African countries face huge gas financing gaps, and this hampers the industry on the continent.
Nigeria has adopted small, modular and flexible solutions to address gas financing problems, according to the Gas Africa report by the International Gas Union (IGU) and investment research agency, Hawilti.
The report also noted that gas-rich African countries are facing a financing problem. It highlighted that the lack of large and credit-worthy off-takers in Sub-Saharan Africa has hindered the development of the small-scale gas industry.
It further disclosed that while small-scale projects will not drastically transform Africa’s gas sector in the short term, they can be built with much fewer risks, provide a sandbox to demonstrate new business models, and eventually scale up as demand grows. So, this has made them very credible options to pre-develop domestic gas markets on the continent.
Nigeria’s progress in the gas industry
The report said Nigeria has been able to adopt small solutions before proper infrastructure can be built. The report stated:
- “The case of Nigeria notably illustrates how small, flexible, modular solutions can go a long way in pre-developing markets before proper infrastructure can be built. One of the country’s main challenges is bringing energy to its manufacturing hubs in the north when all its gas is produced hundreds of kilometers further south.
- “In the absence of pipeline infrastructure, private investors started investing in small compressed natural gas (CNG) stations over a decade ago, allowing gas to be trucked across the country to factories and industries. The growth of these “virtual pipelines” has successfully pre-developed markets and unlocked enough gas demand to justify the development of the 614km Ajaokuta-Kaduna-Kano (AKK) pipeline that is now under construction.”
Nigeria has also been successful in attracting private capital into piped natural gas (PNG) projects within local industrial areas. This has been achieved through the private sector forming joint ventures with state governments or through franchise agreements with the state-owned Nigerian Gas Marketing Company (NGMC).
The report also highlighted the fact that some of these ventures were developed by Axxela, which has grown gas distribution ventures around small demand centers in Lagos and Port Harcourt and is now able to scale up operations.
Recall that in 2022, Japan’s Sojitz Corporation acquired a 25% interest in Axxela, demonstrating the success and scalability of its business model.
What you should know
The report noted that the bankability of the African gas-to-power industry has largely relied on such securities issued by the World Bank, giving assurance that bills would be paid to gas producers and power generation companies.
- However, these same structures that have made projects bankable are not only becoming harder to secure from Development Finance Institutions (DFIs), but they are also increasingly being challenged by African governments as they are deemed too expensive for state utilities and bulk power purchasers whose balance sheets are weak.
