Africa could emerge as a powerhouse in natural gas production as attention on the continent known for oil production takes aim at natural gas to help fulfill demands worldwide and stimulate local economies.

If various regions of Africa are able to overcome obstacles, which vary depending on the region, the rewards could be great, considering the abundance of untapped resources. Making up about 7.5% of the world’s gas reserves, Africa has proved reserves of approximately 494 Tcf, with technically recoverable natural gas reserves estimated at nearly 2,612 Tcf, according to figures in Ernst & Young’s “Natural gas in Africa: The frontiers of the Golden Age” report.

“Natural gas development holds tremendous opportunity for Africa, and it can be a strong prime mover for broader economic and social development,” the report said. “But those opportunities come with risks and challenges – some that are beyond the control of local/regional industry and government. Others, while daunting, can be managed, but will need resolute and dedicated attention. Most importantly though, the opportunities for Africa presented by the Golden Age of Gas are enormous and the challenges and risks can be addressed and mitigated, if not fully overcome.”

Currently, gas production in Algeria, Egypt, and Nigeria are taking the lead, making up 88% of the 7.2 Tcf produced in 2011, according to the report. But drilling activity continent-wide continues to increase not only onshore, where companies primarily focus on oil and also for gas, but offshore as well, which reportedly witnessed resurgence in 2010.

Now, the West African countries of Nigeria and Angola are joining North Africa’s Egypt and Nigeria for heightened drilling activity while work offshore East Africa’s Mozambique and Tanzania steps up.

And the finds – by large and small independents alike – are turning heads.

In October, Tullow Oil’s Twiga South-1 exploration onshore Kenya struck oil. The well is part of a multi-well drilling campaign in Kenya and Ethiopia. Kuwait Energy made a new oil discovery at the Ahmad-2 well in the Gulf of Suez, Egypt. In another announcement, oil and gas deposits were reportedly discovered in the Bida basin in Nigeria’s Niger State.

The report noted large discoveries offshore Mozambique and Tanzania. However, it predicted that in the future, African gas exploration is anticipated to shift to the east. Unconventional gas resources in North Africa and South Africa could add to the new supplies.

East Africa: Dubbed “the new promised land” or the “next epicenter,” East Africa has shed its reputation of being a “non-story” with complex geology, poor seismic data, and political factors that hindered coastal exploration, the report said.

With companies making finds in the area – such as Anadarko’s frontier-opening Windjammer discovery offshore Mozambique in the Rovuma basin and additional discoveries by the company along with Eni – recoverable reserve estimates for the country jumped to 196 Tcf. Success in the basin continued in Tanzania with major gas finds by BG Group, Ophir Energy, and Statoil and partner ExxonMobil. With limited gas demand from the region, the report pointed out that most of gas from the discoveries is destined for Asia.

The region has more potential if limited gas activity in other East African areas such as Sudan, Ethopia, and Uganda takes a positive turn from infrastructure woes and political issues.

Other challenges include a moratorium on hydraulic fracturing in South Africa, where water concerns, land ownership, and infrastructure also have posed problems. The technique has proven a success in boosting gas production in the US, but the process uses hefty amounts of water. Nonetheless, the report pointed out South Africa has substantial shale gas resources in the Karoo basin. “Risked gas in place has been estimated at more than 51 Tcf, with recoverable gas estimated at almost 494 Tcf.”

North Africa:  Home to three of the continent’s four top gas reserve holders – Algeria, Egypt, and Libya – the report pointed out a number of challenges that face gas development in the region.

“In the wake of last year’s overthrow of the Mubarak government, natural gas has become an intensely politicized issue in Egypt. Egypt has long been Africa’s biggest consumer of natural gas, and the focus of the gas industry in Egypt was originally to provide cheap domestic energy,” the report explained. “But in recent years, exploration and development success has led to growing export temptations and to subsequent over-commitments of export supply, with resulting domestic shortages and high prices.

“Domestic fuel subsidies have long been an issue, and the new government will likely be very sensitive to public opinion. As a result, the new government is expected to scale back gas export ventures, via pipeline and LNG.”

But that may not be the case for other areas in the region. For example, Algeria – the second-largest gas supplier into Europe – is working to expand its gas reserves and export infrastructure, the report noted. The country is opening offshore blocks, a first, and making special fiscal concessions for shale gas development, the report noted.

Meanwhile, Libya is still in somewhat of a recovery mode following last year’s revolution. But the lifting of US sanctions and the government’s offering of production-sharing agreements could help facilitate restoration.

West Africa: Known for its oil, the West African region has limited domestic markets for gas with most of the gas being flared, according to the report. But a global gas-flaring reduction initiative by the World Bank is working to change that.

“While Nigeria dominates the sub-region in terms of reserves and production of oil and gas, the country and its national oil company (NOC), Nigerian National Petroleum Co. (NNPC), has struggled to translate its vast resources into consistent, efficient revenue generation,” the report explained. “Tribal and ethnic violence has frequently curtailed production and threatened foreign investment, while the development of a consistent government energy policy has often been seemingly compromised by corruption and mismanagement.”

Work is under way to transform the NNPC into a competitive international company as the government revamps policy to up local participation and upstream investment returns, the report continued.

Angola, on the other hand, has been the area’s and the continent’s bright spot recently.

“Angola has delivered Africa’s strongest increases in oil production over the last decade and has seen its associated gas production rise dramatically as well. And like much of the sub-region, until recently most of that gas was flared,” the report said.

Flaring reductions and gas capture have been a focus in Cameroon, Gabon, Ghana, and Equatorial Guinea, the report noted. “Notably, with the opening of Marathon’s big gas monetization project, EGLNG, in 2007, oil’s dominance [in these countries] has given way to gas. Ghana’s massive Jubilee development, while primarily oil-focused, is also generating lots of associated gas.”

Areas where current and future gas markets are great stand to benefit from production in Africa. Already, other NOCs from some of those areas have realized the potential and chose to invest in African assets. Among them, according to the report, are China’s CNPC, CNOOC, and Sinopec; India’s ONGC; South Korea’s KNOC; Malaysia’s Petronas; Russia’s Gazprom; and Thailand’s PTTEP.

Natural gas production could jump to 1. 4 Tcf by 2035, according to the International Energy Agency, while regional gas consumption could reach 6 Tcf. Net exports from the continent could double to more than 8.1 Tcf by 2035.

“African governments and local/regional NGOs will of course have critical roles to play,” the report said. “Their first and foremost role will be developing a meaningful and practical master gas development plans, ones that address the upstream tax and licensing models. Secondly will be the necessary infrastructure issues and investments, and local training and job creation issues. Collaboration and partnerships with the IOCs, big and small, will also be critical.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.