Natural gas in Africa: frontier of the Golden Age

Risks and challenges

  • Share

African risk dashboard (countries with natural gas potential and/or production)

African natural gas production

Source: EY analysis from IHS Global Insight.

Bar chart depicting women's roles on boards

The potential Golden Age of Gas for Africa will clearly come with risks and challenges.

The most important of these will include:

  • A possible global economic recession, with resulting restrained energy demand growth and reduced energy investment; in particular, a significant slowdown in China, a crucial economic partner in much of Africa, could adversely impact trade flows, aid and investment flows
  • Slippage on global commitment to “greener” energy; coal stays strong
  • Increasing gas-on-gas competition from new supplies (conventional; unconventional; LNG; GTL)
  • Societal acceptance of unconventional gas development, particularly as related to hydraulic fracturing and the potential environmental impacts on water (i.e., water supply, potential ground-water contamination and waste-water disposal) and/or the possible causal relationship to seismic activity (i.e., earthquakes)
  • Capturing flared gas for export and/or domestic use
  • Domestic gas demand growth; building local/regional gas distribution infrastructure; integrated local/regional economic and industrial development must be thoughtfully planned and coordinated
  • Technological breakthrough for alternative/renewable energy — cost-competitive non-fossil fuels
  • Political instability; failure to develop stable, fair fiscal/legal regimes and systems; corruption perceptions/business culture/ ease of doing business
  • Lack of existing gas production/supply infrastructure in some frontier regions — increased investment requirements
  • Mega-project investment requirements may limit opportunities for smaller players; mega-projects also frequently subject to delays and cost over-runs
  • Gas contracting pressures — need for long-term contracts to underpin massive investment in an LNG project, but increasing reluctance of buyers to do so — related pressures to move away from reliance on oil-indexed gas pricing
  • Potential supply chain issues with local content requirements, especially in human capital terms
Risk rankings for Africa are quite high, but in many countries the “risk trend” is improving.

Six factors to consider

A country risk-rating system developed by IHS Global Insight examines the investment climate in specific countries, across six “risk dimensions” — the political, economic, legal, tax, operational and security environments are separately rated in each country — providing a comprehensive picture of the quality of conditions and level of stability encountered by investors in each country. The principal quality these ratings are measuring is stability.

The risks of encountering instability or poor investment conditions span six factors:

  1. Political risk: an assessment of the overall framework of the country’s political situation — whether the institutions are stable and democratic, whether the government is able to pursue its policy program without continual political deadlock and whether the political life of the country is sufficiently settled and secure
  2. Economic risk: looks at conditions and stability at the macro level — whether the economy provides a secure market and base for investors, and whether the government’s policies are beneficial or harmful
  3. Legislative risk: assessments of the degree to which investors might encounter legal hindrances
  4. Taxation risk: assessments of the degree to which investors might encounter punitive and/or unpredictable taxation
  5. Operations risk: looks directly at the conditions on the ground for businesses, assessing the bureaucratic obstacles that businesses and their staff face in going about their work
  6. Security risk: also looks directly at the conditions on the ground for businesses, assessing the physical obstacles that businesses and their staff face in going about their work, whether these are poor infrastructure and/or the threat of terrorism

The combined or overall risk rating then weights these individual ratings:

  • Political — 25%
  • Economic — 25%
  • Tax — 15%
  • Legal — 15%
  • Operational — 10%
  • Safety — 10%

The risk rankings for key African countries are summarized in the African risk dashboard (see adjacent chart).

African risk dashboard (countries with natural gas potential and/or production)


Overall, risk rankings for Africa are quite high, but in many countries the “risk trend” is improving. 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.