African gas pipeline projects compete with coal and LNG power

S. Oirere, Contributing Writer

Sub-Saharan Africa is in dire need of greater power generation capacity to provide energy to the 600 MM people on the continent who have no access to electricity. The region’s proven natural gas reserves of more than 496 Tcf could be a major driver for countries in the region to achieve energy security.

A few sub-Saharan countries are studying the implementation of proposed gas pipeline projects to move natural gas from production fields to power generation plants. However, concerns are emerging that investment proposals could become unviable due to increasing competition from cheap coal, preference for LNG imports, and studies indicating that electricity transmission lines could be a better option, in some cases.

Securing energy for sub-Saharan Africa. Major gas pipeline projects are at different stages of planning or implementation in West, East and South Africa, as countries such as Nigeria (Fig. 1), Tanzania and Mozambique (Fig. 2) integrate gas transportation infrastructure into their natural gas monetization and energy security programs. Across sub-Saharan Africa, increasing demand for sustainable sources of electricity is driven mainly by a growing middle class population, urbanization, increased household consumption and other infrastructure projects that are directly linked to power generation, transmission and distribution.

Fig. 1. Dredging (top) and laying (bottom) of Nigeria’s Northern Option Gas Pipeline 1. Images courtesy of Desicon Group.

 

Fig. 2. Sasol gas pipeline in Temane, Mozambique. Image courtesy of Sasol.

Plans are in place to expand existing pipelines, or to construct new ones, to transport gas to processing plants or power generating facilities within and outside of sub-Saharan gas-producing countries. These projects will be carried out through public-private partnerships.

West African pipeline extension. Plans are ongoing for the extension of the 678-km West African Gas Pipeline, which is owned by the JV West African Gas Pipeline Co. (Wapco). The company is operated by Chevron subsidiary Chevron West African Gas Pipeline Ltd., Nigeria National Petroleum Corp., Shell Overseas Holdings Ltd., Takoradi Power Co. Ltd., Societe Togolaise de Gaz and Societe BenGaz SA.

The Economic Community of West African States (Ecowas), a grouping of 15 countries in the region, is pushing for an extension of the Wapco pipeline to include more of its member countries. Ecowas signed an agreement in February 2015 with London-based Penspen for an 18-month feasibility study on pipeline performance and a possible extension to more West African countries. Penspen will evaluate the performance of the pipeline since its launch in 2010 and propose measures to optimize its operation.

The pipeline, which links to the Escravos-Lagos pipeline at Nigeria Gas Co.’s Itoki Natural Gas export terminal, has the capacity to transport 170 MMscfd of gas, with a potential capacity of 460 MMscfd. It delivers gas to Takoradi in Ghana, with delivery laterals from the main line extending to Tema (Ghana), Cotonou (Benin) and Lome (Togo). A University of Cape Town Graduate School of Business report on gas transportation in sub-Saharan Africa noted that the gas pipeline to Ghana has provided the country with “extremely attractive” options compared to liquid fuels or LNG.

East African pipeline construction. Tanzania and Kenya are constructing a 558-km gas pipeline from the commercial capital of Dar es Salaam to Tanga (both in Tanzania) and on to Kenya’s coastal city of Mombasa. The project, which has been completed between the gas fields of Mnazi Bay in Mtwara to Kinyerezi in Dar es Salaam under a contract by China Petroleum Technology and Development Corp., will meet estimated gas demand in the two countries of 50 MMscfd. This demand is projected to rise to 150 MMscfd by 2035.

The Mnazi Bay-to-Dar es Salaam pipeline section passes through Somanga Fungu, where a spur line has been installed from the Songo gas field in Lindi in southwest Tanzania. The 24-in. gas pipeline, which varies in thickness between 10 mm and 14.37 mm, will be line coated and buried 1 m deep. It will run from Ubungo in Dar es Salaam to Vipingo in Mombasa.

Southern African pipeline project. In Southern Africa, a JV agreement has been signed for the construction of the $6-B African Renaissance Pipeline Project. The conduit will transport gas from Mozambique to South Africa. The agreement was signed on April 22, 2016 between Mozambique oil and gas company Empresa Nacional de Hidrocarbonetos, a private-sector consortium, Profin Consulting Sociedade Anónima, South Africa’s SacOil Holdings Ltd. and Chinese international pipeline construction company China Petroleum Pipeline Bureau.

The 2,600-km, large-diameter main pipeline will link Rovuma Basin gas fields in northern Mozambique to South Africa’s industrial region of Gauteng. It will also deliver gas to towns along the pipeline route, stimulating industrial demand.

SacOil’s CEO, Thabo Kgogo, noted that new gas pipeline projects will enable both South Africa and Mozambique to increase the number of people with access to clean energy, while reducing oil import bills and achieving a lower carbon footprint in both countries. The African Renaissance Pipeline Project is also expected to boost the international competitiveness of southern African economies, create jobs and help improve living standards.

Competition with coal-fired power projects. Analysts believe that the viability of new and expanded gas transportation pipelines in sub-Saharan Africa will depend greatly on the price of the delivered commodity. How this price compares with the option of installing electricity transmission lines from the source of the gas to the target market will also factor into the viability of new gas lines.

An analysis by the University of Cape Town’s Graduate School of Business of several of the planned pipeline projects found that some of the sub-Saharan markets are “too small,” and the distances too large, to justify transporting gas via pipeline for electricity generation. For countries planning new gas transportation pipelines, the study claims: “The lowest[-cost] option from gas resource centers will be via power transmission lines rather than pipelines.” In this scenario, the power generation plants would need to be located near the natural gas source rather than near the consuming market.

In addition, the ongoing expansion of coal-fired power projects in sub-Saharan Africa could also pose a challenge to the viability of gas pipeline projects in the region. For example, Mozambique, which holds an estimated 75 Tcf of recoverable natural gas in its Offshore Area 1, is developing a coal-fired plant at Moatize. ACWA Power has negotiated with Brazilian multinational corporation Vale SA to develop a 220-MW coal-fired power plant, and another plant with a generation capacity of 50 MW, for Mozambique’s Electricidade de Moçambique.

Tanzania, with estimated natural gas reserves of 55 Tcf, is increasing investment in gas-related power projects. However, the country is also developing a 600-MW coal-fired power plant 900 km southwest of Dar es Salaam. The project, which will draw feedstock from 5 metric Bt of coal reserves, is likely to be completed in 2017 or 2018.

Competition with LNG projects. Gas pipeline projects are also competing with multibillion-dollar LNG investments by international oil and gas companies in respective partnerships with the governments of Nigeria, Mozambique, Angola and Tanzania. Experts claim that LNG could be cheaper, in some cases, compared to transporting natural gas over long distances for electricity generation.

In Tanzania, BG Group, ExxonMobil and Ophir Energy are developing a two-train, onshore LNG export terminal at Lindi in the southern part of the country. A final investment decision has been delayed by land acquisition challenges, but construction is tentatively slated for 2020.

However, in neighboring Mozambique, a two-train, 12-metric-MMt, onshore LNG project has seen progress after the government approved the Decree Law in support of the development and operation of the investment.

In addition, Chicago Bridge & Iron Co. (CB&I) was selected as the preferred engineering, procurement and construction (EPC) contractor for the project in May 2015. CB&I will partner with Japan’s Chiyoda Corp. and Italy’s Saipem SpA to construct the LNG terminal, with the first phase expected to be completed in 2021.

Impacts of pipeline vandalism. The disruption of gas pipelines in Nigeria by vandals has also given credence to some analysts’ assertions that most countries in sub-Saharan Africa would prefer LNG imports to pipeline gas supplies.

For example, the University of Cape Town analysis claims that the West African countries of Ghana and Cote d’Ivoire, which stand to benefit from the expansion of the West Africa Gas Pipeline, are also pursuing LNG import options in response to the criminal attacks on gas pipelines in Nigeria. The disruptions to pipeline operations have lowered Nigeria’s deliverable gas volumes to its customers.

For the Tanzania-to-Kenya gas pipeline project, the University study advises that the gas delivered to Mombasa be priced at LNG export parity, although fears exist that this could push up gas prices to $10/MMBtu. The study claims that this price level “…may render gas uncompetitive, when compared against Kenya’s other power generation options.”

Promise for pipeline projects that make sense. Sub-Saharan Africa is enjoying a natural gas boom with the recent discoveries in Tanzania and Mozambique. However, moving this resource from production fields through pipelines and on to power generating plants appears viable only if pipelines are the most attractive option.

In some cases, electricity transmission lines may be a cheaper route. Also, the decreasing costs of coal-fired power projects and the growing convenience and availability of LNG imports may rule out some pipeline projects. Market forces and policy changes will also play significant roles in determining the viability of gas pipeline projects in the region. GP

Shem Oirere is a freelance journalist based in Nairobi, Kenya. He has spent more than 10 years covering various sectors of Africa’s economy, including construction, chemicals, energy and water, and has had numerous articles published in several international publications and websites. Previously, Mr. Oirere worked for Kenyan national newspapers, including the Daily Nation, Kenya Times and The People Daily, where he served in various capacities as correspondent, business reporter and sub-editor. He earned a higher degree in journalism from the London School of Journalism and is also a member of the Association of Business Executives (ABE).