west africa - gaffney, cline & associates monetisation-challenge… · lng & west africa...

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West Africa Gas Monetisation – Challenges and Opportunities

The Royal Institution 29th January, 2014

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Confidentiality and Disclaimer Statement

This document is confidential and has been prepared for the exclusive

use of the Client or parties named herein. It may not be distributed or

made available, in whole or in part, to any other company or person

without the prior knowledge and written consent of GCA. No person or

company other than those for whom it is intended may directly or

indirectly rely upon its contents. GCA is acting in an advisory capacity

only and, to the fullest extent permitted by law, disclaims all liability for

actions or losses derived from any actual or purported reliance on this

document (or any other statements or opinions of GCA) by the Client or

by any other person or entity.

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Agenda

▪ Overview of Gas Monetisation Issues in West Africa

▪ Consideration of specific issues in selected countries

▪ Potential game changers

▪ Conclusions

Size of circle is

proportional to

reported gas

reserves

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West Africa Gas Monetisation – The Challenges

▪ Superficially gas usage is full of contradictions – large gas flaring in close proximity to very low per capita commercial energy usage

▪ Is the biggest challenge in West Africa too much gas????????

▪ Or too little gas ?????????

▪ In fact it’s a far more

complex story……..

Source: Panos London

Source: Wikipedia

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Gas Monetisation Options

▪ We’ve all seen diagrams such as the following which compare distance to market versus reserves size to determine optimal monetisation routes

▪ West Africa has typically been an oil-oriented play with associated gas

▪ But such diagrams give no indication of costs ……..

Distance (km)

Qu

anti

ty (

MM

scfd

)

Pipeline LNG

LNG &

GTL Medium-scale LNG

Small/Med -scale GTL

GTL

Small scale LNG

Methanol/DME

Fertilizer or CNG

(Domestic Markets

Power

Source: GCA

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Illustration of Typical Gas Development Options ▪ Low volume, high cost

gas developments can be difficult to monetise

▪ West Africa characterised by numerous small fields and associated gas/gas caps. So some key options are: – Commercialise via

Fertilizer or GTL – if gas price is low

– Develop multiple fields and/or wait for further exploration (pre-salt?) success

– Monetise via power generation

– Small scale LNG?

– Micro GTL?

▪ Each have challenges

Feedstock Gas Price US$/Mscf

Qu

anti

ty, M

Msc

fd

LNG GTL

Methanol/DME

Power Ammonia/

Fertilizer Small scale LNG/GTL

4 2 6

100

200

300

Source:GCA

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West Africa Gas Monetisation – The Challenges

▪ Some of the issues facing gas

developments in West Africa are:

– Lack of gas infrastructure ▪ Lack of other infrastructure e.g. roads,

ports

– Disconnect between gas availability

(price and/or volume) and viable

development options

– Affordability of gas in domestic markets/payment issues

– Associated gas at low pressure therefore high cost to deliver via pipeline to users

– Exports versus domestic market seeding

– Investment climate/marketing

– Numerous stakeholders and need to co-ordinate with many companies and government entities

Source: telegraph.co.uk

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Production Costs and Supply Challenges

Prices that consumer can pay

Prices that producers

require

Price subsidies

Price subsidies (e.g. power subsidies) can have major distortion effects

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CAPEX

▪ CAPEX costs can be significant even for small gas volumes – and

usually will be accompanied by additional location specific costs e.g.

road/bridge improvements, dredging, etc

0

200

400

600

800

1000

1200

1400

GTL LNG Ammonia Power

US$

MM

CAPEX for 100 MMsfd plant

10,000 BPD 0.7 MMTep.a. 1 MMTe p.a. 400 MW

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Case Study – Mid Scale Gas Monetisation West

Africa

▪ Production is widespread across country and generally

flared or re-injected

▪ Is fertilizer production viable?

Gas P

rod

ucti

on

, b

cf

Vented & Flared Re-injected Marketed

▪ If fertilizer

production

needing

approximately

100

MMscf/day is

targeted what

needs to be

done…..

Source: EIA

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Mid Scale Gas Monetisation -Key Conclusions

▪ Flared gas provides sufficient quantities – but gathering all

is not viable (low pressure, location)

▪ Target of approx 100 MMscfd for commercialisation will

require multiple fields

▪ Regional gathering viable (not country-wide gathering)

– Current and planned field developments

▪ Coastal regions prioritised – exports viable

▪ Buy-in of government essential – to ensure adequate price

and to act as gas broker

– Will slow down and complicate the process of negotiation of a

gas sales agreement but will ultimately provide more certainty

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Case Study - Angola

▪ ALNG developed and now exporting LNG but the country

faces extreme power shortages

▪ Are export-oriented projects “easier” than domestic market

oriented ones? Large-scale gas finds may need a major

export project to

– Cover unit costs and justify upstream expenditure

– Attract an IOC to drive the project

– Avoid market flooding

▪ E.g. if gas to ALNG were used to make ammonia this alone would supply

nearly all of East African regional needs

▪ “Politics” of exports versus developing domestic markets

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Case Study Angola – Power Generation

▪ Power Generation can typically tolerate high gas prices (especially if alternative is diesel generation!)

▪ But what if power prices in the country are desperately low? Or if massive infrastructure investment required?

Angola

Power Prices

Source: GCA

Source World Bank

Feedstock Gas Price US$/Mscf

Qu

anti

ty, M

Msc

fd

LNG GTL

Methanol/DME

Power Ammonia/

Fertilizer Small scale LNG/GTL

4 2 6

100

200

300

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Case Study - Angola

▪ However……

– Plans to ramp-up electricity generation capacity (to 5,000 MW by 2016) and update fragmented power grid.

– Allocation of US$17 billion from national budget – lessens the need for financing ▪ Economy is buoyant and growing, thanks largely to oil and gas export

revenues

▪ World Bank estimates of US$1.3 billion per year spending required on infrastructure….but as percentage of spend of GDP (approx 7%) this is manageable

▪ Gas availability for domestic power generation?

– Various associated gas blocks supply ALNG

– Blocks 1 and 2 – various concessions ring-fenced for ALNG future supply ▪ But other concessions available for domestic market projects

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Case Study - Jubilee and TEN gas monetisation

▪ Ghana “will not export a molecule of its gas”………

▪ So a major commitment to gas infrastructure development is required…

SHALLOW TANOSHALLOW TANOSHALLOW TANOSHALLOW TANOSHALLOW TANOSHALLOW TANOSHALLOW TANOSHALLOW TANOSHALLOW TANO

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EBONYEBONYEBONYEBONYEBONYEBONYEBONYEBONYEBONY

HICKORY NORTH

BELIER

TANO SOUTH GAS

BANDA

BUBALE

MAHOGANY EAST

EBONY

PECAN

B-3

AKASA

ADDAX

ENYENRA

WAWA TANO SOUTH OIL

SANKOFA

TWENEBOA

ODUM

PARADISE

ALMOND

COB

BEECH

25.000

kilometres

Ghana

Cote

D’Ivoire

Source: Petroview

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Ghana – Targeting the Domestic Market

▪ Gas Processing Plant and pipeline to supply gas from

Jubilee (and later TEN development) to Ghanaian market

– Funding from China Development Bank – not likely for non-

associated gas targeting domestic market

– Delays to project from, amongst other things, payment issues

▪ Projected gas production from Jubilee and TEN is at

levels that the domestic market can likely absorb (but will

still need major investment)

– What will be position on exports if more gas found? At what

size gas discovery (if any) are exports inevitable?

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Other West African Gas Monetisation Issues

▪ Nigeria

– Largest reserves, LNG projects and export pipeline

– But security concerns, legislative uncertainty and exit of major

players

▪ Brass LNG – impact of ConocoPhillips country exit?

▪ OK LNG – BG, Shell and Chevron left project

– Future focus on smaller scale projects driven by indigenous

companies?

▪ Cameroon

– Efforts to increase gas consumption – conversion of HFO and

LFO based power generation in Douala region, plus cement

manufacture and glass manufacture conversion to gas

– Only viable due to onshore field location and low cost of gas?

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Game Changers (?) – Small Scale LNG and GTL

▪ Small scale LNG , targeting new markets e.g. transport

– Trucking fleets being converted to LNG in USA

– NG Buses in China

▪ Some areas of west Africa have limited infrastructure – so could any new infrastructure for e.g. transport, bunkering be gas-oriented instead of traditional fuels?

▪ GTL – potentially convert gas to transport fuels (mainly diesel) or to syncrude and export with oil

– Particularly applicable to associated gas fields

▪ May not be robust to very high gas prices (but few technologies are) – but a good match for small - mid size gas fields??

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Conclusions

▪ Gas monetisation in West Africa is challenging but by no means impossible!

▪ Nothing is static – investment is occurring all the time – “necessity is the mother of invention” (and investment?)

▪ Look beyond high level data and country-wide trends – There doesn’t have to be a national gas strategy in order to develop

one ammonia plant

– Degree of access to electricity and length of power transmission lines installed in a country are interesting facts – but look at the specifics

▪ Look at whole value chain – does gas monetization plant alone need to make money or is the whole value chain more important?

▪ Get a good handle on regional gas balances – gas gathering schemes may not be cost effective at the moment but is anyone finding reinjection no longer viable?

▪ Patience is a virtue, good things come to those who wait etc. etc…..

west africa - gaffney, cline & associates monetisation-challenge… · lng & west africa...

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