According to EY the potential pitfalls for a Golden Age of Gas in Africa are:
- A possible global economic recession. Resulting restrained energy demand growth and reduced energy investment, in particular a significant slowdown in China, 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 groundwater contamination and wastewater disposal) and/or the possible causal relationship to seismic activity.
- Capturing flared gas for export and/or domestic use.
- Domestic gas demand growth; building local/regional 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 perception/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 pricing.
- Potential supply chain issues with local content requirements, especially in human capital terms.
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 for each country as indicated in the chart below.
The combined or overall risk rating then weights these individual ratings:
- Political - 25%
- Economic – 25%
- Tax – 15%
- Legal – 15%
- Operational – 10%
- Safety – 10%
Adapted from a report by Emma McAleavey
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