Regional Focus: Challenges of scaling up Africa’s LNG production

S. Oirere, Contributing Writer

Several gas projects are underway in Africa, but they continue to be constrained by inadequate infrastructure, slow finance mobilization, lack of security and uncertainty over hydrocarbon regulations that are casting doubt on the outcome of the continent’s drive to meet its anticipated 128% gas demand increase by 2040.

Development of new liquefaction capacities and the expansion of existing LNG projects have seen mixed results in Africa, with Ghana marking time on a key export project due to political issues, and Cameroon successfully shipping its first cargo from Golar LNG’s new facility in May of this year.

Mixed gas market performance. Africa’s LNG market has shown mixed performance in the past few years, but has remained largely suppressed in terms of production and exports. A few gains were seen as Angola resumed LNG exports after disruptions caused by production outages in 2014 and 2016, and as Italian major Eni discovered the Zohr gas field in Egypt in 2015, with production fast-tracked to 2017. An estimated 56.6 MMm³ of gas is expected to come from the 850-Bm³ Zohr field, with the potential to increase output to 76.5 Bm³ by end of 2019.

According to the International Gas Union (IGU), Angola’s annual gas production hit a high in 2017 and could do so again in 2018. The country’s sole liquefaction plant, Angola LNG, has a nameplate capacity of 5.2 MMtpy. Egypt also recently embarked on a gas sector reform that included renegotiating contracts with international companies that were owed millions of dollars for gas supplies. As debts have been paid, some firms have resumed gas exploration and production.

More African gas producing countries posted increased volumes in 2017, according to the IGU’s 2018 annual report. The increase was attributed to new fields starting production and heightened security in gas production areas, especially Nigeria. According to the IGU, Nigeria posted strong gas exports of 21.3 MMt because of “lack of disruptions due to local unrest.” Meanwhile, gas exports from Algeria increased to 12.4 MMt in 2017, an equivalent of 6.8% compared to the previous year, driven mainly by the startup of several gas projects.

LNG project delays. The increases in gas exports notwithstanding, several promising LNG projects have been delayed for different reasons, although a few others have come online, boosting the region’s gas exports to Europe and Asia.

For example, in Ghana, political issues are holding back completion of a floating storage and regasification unit (FSRU) and associated services to support the West African country’s LNG import program. Bermuda-based LNG shipping company Golar LNG had signed a 5-yr agreement with West African Gas Ltd. to supply the 170,000-m³ newbuild FSRU Golar Tundra from Samsung, which would have been the first of its kind in sub-Sahara Africa. Although the FSRU arrived offshore Ghana in May 2016, startup was delayed as the country’s parliament delayed approvals for sales contracts and key infrastructure components, including a pipeline and jetty that are yet to be completed.

In Equatorial Guinea, completion and delivery of the much-anticipated 2.2-metric-MMtpy Fortuna FLNG encountered turbulence when the main developer, Ophir Energy, announced in July that the project had been pushed to 2019 following a revision of the company’s CAPEX for 2018. Earlier, in May, the OneLNG JV of Golar LNG and Schlumberger, which had partnered with Ophir for the Fortuna FLNG project, was dissolved after Schlumberger opted out. A final investment decision (FID) was expected last year.

The anticipated completion of Fortuna FLNG in 2019 will largely depend on whether Ophir is able to attract partners with capital. The company reported that it is “actively engaged in senior-level discussions with a number of counterparties over a financing solution for the project.”

Nigeria is also experiencing more than a 10-yr delay in its 10-metric-MMtpy Brass LNG project, with the country’s senate earlier this year calling for a probe into the delay. The project was initiated in 2003 by Nigerian National Petroleum Corp. (NNPC), which holds a 49% stake in the venture; international oil firms Conoco Phillips, Chevron and Eni each hold a 17% share.

FIG. 1. Nigeria LNG Ltd.’s LNG terminal on Bonny Island, offshore Nigeria.

 

LNG project advances. Although the fate of its Brass LNG project remains unclear, Nigeria took a step in July to expand its gas sector investment when Nigeria LNG Ltd. (Fig. 1), which is jointly owned by NNPC (49%), Shell (25.6%), Total (15%) and Eni (10.4%), awarded the delayed front-end engineering design (FEED) contracts for the expansion of Train 7.

Contracts were awarded to the B7 and SCD consortiums, paving the way for commencement of EPC pricing and bidding. The B7 JV is made up of US-based KBR Inc., France’s Technip and Japan Gas Corp., while the SCD JV includes Italy’s Saipem, Japan’s Chiyoda and South Korea’s Daewoo. The two consortiums will participate in a dual FEED process and produce a basic design engineering package (BDEP) to determine their EPC pricing, and eventually their bids to construct the train.

Meanwhile, progress has been reported in Cameroon with the development, delivery and setup of the $1.2-B FLNG Hilli Episeyo, which Golar LNG calls the world’s first FLNG vessel developed as a conversion project from an LNG carrier. Hilli Episeyo, located offshore Kribi, shipped its first LNG cargo to China on Teekay’s Galicia Spirit in mid-May. Under a production tolling agreement with oil firm Perenco and government-owned SNH, Golar LNG owns and services the Hilli Episeyo.

Upstream developments. Africa’s LNG landscape will likely see a major boost over the long term with the startup of the Tortue natural gas field, which straddles the Mauritania/Senegal maritime boundary and is being developed by BP and Kosmos.

The field, which spans 33,000 km², holds an estimated 15 Tft³ of recoverable gas and could contain an estimated additional 50 Tft³—a volume nearly equivalent to the entirety of Africa’s present gas production. From a depth of 2,700 m, BP and Kosmos will extract the gas and transport it through 100-km-long flowlines to an FLNG production system. The FLNG vessel modules will be located at a newly built breakwater and will be expanded over time, as required. BP and Kosmos are expected to announce their FID by the end of the year. If the FID goes through, first gas from Tortue is expected in 2021.

Despite some progress in the development of LNG projects in Africa, regional governments must commit themselves to addressing concerns about emissions, obstacles to transforming the region into a preferred LNG supplier, and how to create a more integrated LNG industry that can withstand the volatility of global prices. GP

SHEM OIRERE is a freelance journalist based in Nairobi, Kenya. He has spent more than 10 yr covering various sectors of Africa’s economy, 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 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).