As Chinese Gas Investments In Africa Take Off, Oil Imports Sink

China’s oil imports from Africa may have dropped sharply in recent years, but investments by Chinese companies in liquefied natural gas (LNG) are booming.

Nearly two decades ago, African oil accounted for close to a third of China’s imports. Now that figure has dropped to about 10 per cent, with China sourcing more of its oil from the Middle East and Russia.

But now in Africa, Chinese businesses are increasingly shifting into LNG investments – both to help China meet its swelling demand and to cut its reliance on Australian gas.

Mozambique, in particular, has emerged as a hotspot for global natural gas production following the discovery of more than 5 trillion cubic metres (176 trillion cubic feet) of natural gas reserves in the Rovuma basin, off the country’s northeast coast.

China National Petroleum Corporation (CNPC) holds a 20 per cent share in the US$30 billion Rovuma LNG project, which is set to see an 18 million tonne-per-year offshore facility built. The main partner in the project, US multinational ExxonMobil, said although the scheme had faced finance delays and worsening insurgency, it was on track to reach its final investment decision next year.

CNPC is also involved in another major scheme in Mozambique – the Coral Floating Liquefied Natural Gas project – which had its first LNG product shipped out in 2022.

Kai Xue, a Beijing-based corporate lawyer who advises on foreign direct investment and cross-border financing, said the Rovuma LNG project could mark the beginning of Chinese oil companies diversifying into gas throughout Africa, as China tries to reduce its reliance on imports from Australia, amid ongoing tensions over trade, strategic and other concerns.

“It is part of a broader strategy – as seen in the investment in a massive iron ore mine in Guinea and the construction of a railway in Mongolia for coking coal exports – all efforts to lessen dependence on Australian commodities,” Kai said.

Australia is China’s biggest source for LNG, accounting for about a third of all imports, although Beijing also buys the fuel from Qatar, Russia, Malaysia and the United States. But increasingly, China is also buying some gas from Africa, especially Nigeria, Mozambique, Algeria and Egypt.

In Congo-Brazzaville, Chinese operator Wing Wah is currently developing the US$2 billion onshore Banga Kayo block to capture previously flared gas for domestic use, the first phase of which aims to produce one million cubic metres per day.

In Algeria, China Petroleum and Chemical Corp or Sinopec and China National Nuclear Corporation have also just completed the dome lifting operation for a 150,000 cubic metre LNG storage tank under a new project by state-owned oil company Sonatrach.

David Shinn, a China-Africa specialist and professor at George Washington University’s Elliott School of International Affairs, said while Beijing’s oil imports from Africa had been in steady decline, LNG was a different story.

“China has been looking to Africa as a source of LNG and expanding investment in this sector,” he said.

But Beijing’s growing interest in Africa’s gas industry does not mean a total end to Chinese investments in the continent’s oil.

China National Offshore Oil Corporation (CNOOC), for example, is developing key oilfields across Africa, including Nigeria’s ultra-deep Egina field and the recently operational Akpo West field.

United Energy Group, meanwhile, is set to nearly double its Egyptian output after acquiring US-based Apex International Energy’s Western Desert portfolio, adding over 22,000 barrels per day to its production across five concessions. CNOOC is also advancing Uganda’s Lake Albert project, and is on track to deliver the first oil from the Kingfisher field this year.

Luke Patey, a senior researcher at the Danish Institute for International Studies, said China was consolidating its investments in Africa’s oil-rich countries. “Geopolitics matter,” Patey said.

He said the attractiveness of discounted Russian crude oil further weakened the position of African sellers, but the long-term economic picture did too.

“The efficient Gulf state producers will be the last ones standing as China advances in its green transition. Africa will need to look to India as the big, new oil consumer,” Patey said.

Xue also noted that the shift to renewable energy would have an impact on China’s oil imports over the coming decades.

“I believe China will rely less on seaborne oil imports in general due to the rise of electric vehicles and trucks,” he said.

This would reduce petrol and diesel demand, he said, and strategic investments could be made on more oil pipelines from Russia and Central Asia, helping to bypass the Malacca Strait choke point.

According to CNPC forecasts, oil demand in China could drop by nearly 70 per cent by 2060, which would significantly impact African oil exports to China over the coming decades.

However, the change in investment patterns would be gradual, Xue noted. “There is going to be a steady shift from seaborne oil and a long-term decline in oil demand in China, but these trends won’t reshape current African investments overnight,” he said. “The current projects still reflect the near-term need to secure oil and gas resources.”

Shinn at George Washington University said the recent investments in African oilfields might suggest a new hedging strategy by China, but equally they could simply represent efforts by Chinese oil companies to make a profit in Africa.

“Oil imports from Africa, most of it from Angola, seem to have levelled off at about 10 per cent. This still qualifies Africa as a strategic source,” Shinn said.

Padraig Carmody, a China-Africa expert and professor at Trinity College Dublin, said the recent oil and gas investments were more than likely a response to the global geopolitical upheaval.

Carmody said that after the Russian invasion of Ukraine, China started importing a lot more Russian oil and gas. This saw some smaller Chinese banks involved in financing the trade subject to secondary sanctions from the US and Europe – an issue that is now worrying larger banks in China.

He also pointed out that, after US President Donald Trump imposed new tariffs on Chinese goods, Beijing had retaliated with duties on American imports, including oil. As this makes the US more expensive, new supply deals are being signed in Africa.

“After the commodity price bust of 2014, energy security was easier to achieve without ‘locking up barrels at source’. But with increased instability, direct supply agreements to China reduce risk,” Carmody said.