It is all very well for a country to possess natural gas riches under its continental shelf. It is a different matter though when turning that potential into wealth.
Africa’s extensive gas reserves pose very particular problems. The challenge is to ‘monetarise’ the resource, as the industry’s jargon rather pithily puts it.
In the past, much of the gas extracted on the continent – or more accurately, on its continental shelf – has been a by-product of drilling for oil. It has either been flared in gigantic and spectacular burns or pumped back into the seabed to maintain oilfield pressure stability.
The problem is that sub-Saharan Africa’s gas fields are ‘stranded’. In other words, they tend to be a long way from users who can pay for the resource.
It is industry – either directly or through power-generation plants – that absorbs the gas produced in developed countries.
However, outside of South Africa, the continent is the least industrialised in the world. Low levels of industrialisation mean low levels of demand for gas.
The sight of valuable reserves being flared off in the Gulf of Guinea provides a dramatic illustration of Africa’s development deficit.
The problem can be attacked from one or more of three directions. Gas can be a part of the developmental transition from primary (extractive) industries to manufacturing; it can be piped to existing markets; and it can be turned to liquefied natural gas (LNG), which is easy to store and transport.
The availability of gas may be able to kickstart national development. This typically means the creation of gas-to-power programmes run by the government through a national power company.
Gas-fired power stations have been extensively built in Nigeria and are under development in a number of other sub-Saharan countries.
In Nigeria, capacity to deliver 5 500 MW has been built, in the form of 22 gas-to-power plants, and there are plans to increase generation capacity to 30 000 MW by 2020.
Although Nigeria’s gas-to-power plants have been privatised, they face massive operational difficulties, including maintenance issues as well as theft (by both local communities and well-organised gangs) and deliberate sabotage (mostly by militant Niger Delta separatists).
In the first four months of 2015, the Trans Forcados pipeline – which carries more than half the feedstock to Nigeria’s power plants – was down no less than six times. The longest break in this period was 10 days.
Similar security problems as well as maintenance issues have bedevilled the other major pipeline – the West African gas pipeline – which runs from Nigeria to Ghana. Nigeria also hopes to increase the direct industrial uptake of natural gas.
However, industrialisation is a longer-term goal and realising it depends on overcoming many hurdles.
The availability of gas offers a competitive advantage but it is only one of many threads in the developmental tapestry
The availability of gas offers a competitive advantage but it is only one of many threads in the developmental tapestry.
The immediate solution to the problem of stranded gas deposits is the development of LNG plants. An LNG train – as the processing plants are called – essentially compresses gas at very low temperatures (lower than 161°C) to make transporting it by ship viable.
In contrast to its track record in gas-to-power, Nigeria has been one of the most successful LNG stories globally.
Nigeria is the world’s fourth-largest LNG exporter. The 22 million metric tons exported last year represent about 9% of global demand. This accounts for nearly half the gas extracted from Nigeria’s oil fields.
However, as recently as 1999, almost all Nigerian gas was flared off. Only about 10% was re-injected into the oil wells.
The Nigeria Liquefied Natural Gas Company was established in 1989 to monetarise the wasted resource, in partnership with oil majors Shell, Total and Eni. The first of its LNG trains – at Bonny Island in Rivers State – came on-stream in 1999. There are now six trains on the island and the industry has generated some US$85 billion over the subsequent 15 years.
Success is demonstrated by the reversal of the monetarisation/flaring ratio over the last 15 years. Only 10% of Nigeria’s production (9 billion cubic feet per day) is currently flared off. Today, half the gas extracted in Nigerian waters is turned into LNG.
It would seem that LNG is the way to develop natural gas reserves. LNG has been described by Adrian Strydom of the South Africa Oil and Gas Alliance as ‘the next paradigm’. However, things may not be as rosy as the Nigerian experience seems to indicate.
Over the last two years, global demand has dropped dramatically. Nor is this simply a result of China’s now faltering economic growth, although this is an important consideration. The main factor is the sudden and recent emergence of the US as an LNG exporter on the back of that country’s shale gas revolution.
In 2012, the US became a net energy exporter for the first time in several decades. By the end of 2013, US companies had applied for LNG export permits for more than 380 billion cubic metres per year. According to international consultancy McKinsey, that figure is ‘equivalent to all the world’s current liquefaction capacity’.
Plants originally intended to ‘decant’ LNG imported into the US were quickly retooled for export. This has made the global LNG market much more competitive and has already impacted on African development.
Angola completed its first LNG train at Soyo in 2012. Originally intended exclusively for exports to the US, it has struggled to find customers. Its first sales, in 2013, were to Brazil.
At the time of writing, the Soyo plant was closed, although this is apparently for technical reasons rather than market limitations.
The experiences of Nigeria and Angola contain salutary lessons for the continent’s emerging natural gas superpower, Mozambique, where immense gas fields were discovered in 2011.
A much smaller field was already in production at Temane, some way to the south of the new discoveries. Most of the production from Temane was by South African petrochemical giant Sasol and piped to the company’s main plant at Sasolburg in the Free State. It has replaced the coal feedstock on which Sasol’s operations were originally founded.
According to Sasol’s CEO, David Constable, the company spent US$12 billion on the pipeline, a central processing facility and conversion of its operations from coal to gas.
Sasol may be the key player in the monetarisation of Mozambique’s gas reserves. The firm has the financial muscle and technical knowhow to do things that are beyond the capacity of the Mozambique government.
It has already built one relatively small (140 MW) gas-to-power plant at Sasolburg and last year opened a second 175 MW plant in Mozambique near the South African border at Ressano Garcia.
Sasol has started to expand its ‘loop line’, which connects to the main gas pipeline between Mozambique and South Africa. According to Constable, the company already supplies gas to 540 industrial customers, mostly in Gauteng.
Exciting new developments may well be imminent. In August, Sasol published tenders for a new processing facility and gas pipeline with the plan – to pipe gas from Inhassoro, 750 km north of Maputo – awaiting approval.
The outcomes have been mixed but Mozambique has one great advantage – the large and ready South African market right next door
Why the new pipeline? Sasol hopes to meet the South African Department of Energy’s request for proposals – made earlier this year – for baseload gas-fired generating capacity of 3 126 MW. It is not clear at this point whether Sasol is thinking of one large or several smaller plants.
The idea is a neat solution to several problems – South Africa’s power generation deficit, Mozambique’s need to develop its gas resources and Sasol’s own desire to diversify.
Constable points out that, worldwide, Sasol relies on (processing) oil for 40% of its revenue and wants to move away from oil and more into gas. ‘I have always thought gas is something to go after’. With this ambition the company is already in at ground level in Mozambique.
The country will also see a major investment in the gas-to-liquid industry with Anadarko, for the installation of two trains at a projected cost of US$26.1 billion.
Mozambique is following the three classic gas-development paths, as seen in Nigeria: gas-to-power plants, LNG trains and pipelines to market. The outcomes have been mixed but Mozambique has one great advantage – the large and ready South African market right next door. That may make all the difference.