Optimising the LNG potentials in West Africa

West Africa of which Nigeria plays a significant part is traditionally considered as an exporter of pipeline gas and liquefied natural gas (LNG) however, there are indications that in future it could come to be seen as an LNG market.

In the past, issues around financing, market conditions, price sensitivity and the small size of the individual gas markets were all strong deterrents to sellers looking at West Africa as an LNG destination, even though the region’s per capita energy consumption is very low.

The situation in the summation of industry close watchers has fundamentally changed because, faced with the slowdown in Asian LNG demand and a global LNG oversupply, sellers are looking for new markets. At the same time, LNG has become more affordable, more flexible and is increasingly sold on a spot basis.

A report by the King Abdullah Petroleum Studies and Research Center indicated that most African countries would need small initial volumes to feed the integrated LNG-to-power projects that sponsors are considering. This could lead to a further development of gas demand in other sectors as gas supply becomes available and infrastructure is developed.

The new markets could benefit from the proximity of existing West African LNG suppliers, and future projects in Cameroon as suppliers optimise shipping distances.

According to the report, “The key issues of financing and the role of the state see investors looking for governments to provide regulatory and political clarity to prospective sellers, financial institutions to facilitate access to capital and LNG suppliers that will accept the risk of delivering to these new markets”.

The intended gas markets for these new LNG projects will only be developed if domestic gas buyers can secure their offtake liabilities and ability to pay for the energy to the satisfaction of lenders.

The idea that West Africa could become an LNG destination is not new. It has been proposed for many years, however, over the past two years the global LNG market situation has radically changed.

Industry experts are of the view that as the gas industry ponders how to bring an end to its new dark age, developing gas markets in West Africa could be one solution. Gas is also an opportunity for West Africa, so long as it remains affordable.

Intra-regional gas trade in West Africa has remained limited so far. This leaves LNG imports as the main solution to empower resource poor African countries. As of late 2016, the list of potential LNG importers includes Senegal, Côte d’Ivoire, Benin, and Ghana.

Only Ghana so far has a floating storage regasification unit (FSRU) on site, albeit not yet operational. West Africa could be a growing LNG importer; while individual countries represent small volumes, all markets begin small (0.5-2 million metric tons per year, mtpa) and the aggregate could be significant in the medium term.

A further development of demand in other sectors is also envisaged. The short shipping distances to neighboring producers could make these markets more attractive. By 2020, five Africa countries will export LNG.

The road to developing LNG imports may be a long one, though. The key issue is how to attract investors and reduce the risks, given the initial small size of markets, the countries’ low credit ratings, low domestic energy prices and higher project risks. Most projects have opted for the more flexible FSRU, which can be put more rapidly into operation has lower capital costs.

KELECHI EWUZIE