All articles in the Gas Monetization Section:


Will the current over supplied LNG market leave room for future East African LNG?

By Henrik Poulsen and Bimbola Kolawole, Rystad Energy

A decade ago, several of the E&P majors turned their exploration eyes on East Africa.
The first half of this decade became an East African exploration success, and major gas discoveries with more than 120 TCF (Trillion Cubic Feet) combined were discovered (Mozambique & Tanzania). A new ‘world-class’ petroleum province was revealed and the optimism in the region soared to record levels, and it might be only the beginning. The undiscovered potential is still very promising and could very well triple already discovered volumes. Mozambique can become the largest petroleum producer in Africa by the mid of the century, if the success continues.

However, the majority of the gas will initially need to be exported as Liquefied Natural Gas (LNG), due to limited domestic markets and inadequate pipeline infrastructure. The liquefaction process and distant transport to the consumer markets add to the breakeven cost of East African gas. Simultaneously, the global LNG-markets (since 2014) have undergone a set back as the rest of the petroleum-markets. Finally yet importantly, comes the COP21 (21st. Conference of the Parties, Paris, December 2015) agreement, and the uncertainty political decisions may have on the future long-term role for gas as a primary energy resource in the global energy mix.

This article discusses in further detail the East African potential to become a significant international LNG supplier, the outlooks of the Asian LNG markets and finally share some aspects on the future fate of natural gas as a primary energy source.

Will it be possible for East Africa to become a significant global LNG supplier?
Several world-class gas discoveries were discovered offshore South East Africa in the years 2010 to 2014. A brand new global petroleum province was revealed. In most cases, major IOCs operate the discoveries with resource ensuring Asian companies as partners. Solid operators will ensure financial strength, technical knowhow and long term mind set. All important factors required when developing and exploiting a new petroleum province. As per today it has been discovered more than 120 TCF, and Rystad Energy estimates the total future resource potential to be around 370 TCF. In other words, the undiscovered potential is twice as big as what has already been discovered. The figure below shows the commercial natural gas resource potential in Mozambique and Tanzania, split by project Life Cycle. Undiscovered potential is marked in light blue pattern, and dominates the volumes.

The operator ENI recently reached a final decision on development (FID) of the Coral South gas field in Mozambique. The project will be developed by a floating LNG (FLNG) production unit. The production capacity is (by the operator) estimated to be 3.4 million tons per annum MTPA, equivalent to 4.7 bcm/yr. Rystad Energy believes that this project is only the first in a long row of many more to come in the following years. Anadarko recently reported that the development of the offshore area 1 in Northern Mozambique, comprising an on-shore LNG plant consisting of two initial LNG trains, soon is reaching an FID. The capacity is by the operator estimated to be 12 MTPA or 16 bcm/yr. Tanzania is for the moment lagging behind Mozambique, but should be encouraged by the results achieved by its neighbor to the south, to reach agreements with the operators Shell and Statoil.

Rystad Energy believes first LNG shipment from Mozambique to be in either in 2023 or 2024, and Tanzania to follow 4-5 years later. We estimate that the combined gas and LNG production in East Africa will exceed 120 bcm/yr by 2040, whereof LNG will be the dominant product. As East African pipeline infrastructure is developed (from the 30’ies and onwards) will the piped gas share for domestic use (in East Africa) become more and more dominant. Mozambique’s potential to pipe gas to South Africa could be an engine in this regional development. Below is a figure showing Rystad Energy’s prediction of East African natural gas production split by LNG and piped gas towards 2040.

How will the LNG markets develop – is the world about to become swamped in gas/LNG?
The Asian LNG markets will be paramount for East African LNG export. Similar to the oil market, did the North American shale industry turn the gas markets upside down in 2015. The rapid increased production sourced from shale gas reservoirs made US self-supplied and left the country with a significant export potential. The price of Henry Hub plummeted, and the same effect spilled over to the (Asian) LNG markets.

The new LNG price became suddenly dependent on the Henry Hub pricing, as US commenced to export most of its excess production as LNG to other continents. LNG is now priced as Henry Hub + liquefaction- and transport costs. The large numbers of sanctioned LNG projects in Australia and US before the price crash has left the world currently swamped in LNG. Rystad Energy has estimated that the LNG market will remain over supplied to 2023, with a peak in 2020, where the supply capacity excess the demand by almost 70 bcm/yr. However, we predict LNG demand to continue its strong growth as gas is becoming a more and more important primary energy resource in Asia and the Middle East. By the end of the 20’ies, it will be a deficit of more than 200 bcm/yr, if no new LNG-projects are sanctioned for development.

As seen from the figure above, it is likely that by 2023 will the world face a deficit on LNG, due to lack of LNG project sanctioning the last couple of years. Two thousand and twenty three coincides perfectly with prediction of the first LNG to be exported from East Africa. East Africa can/will be instrumental in filling the deficit supply gap in the second half of the next decade. If no projects are sanctioned for development the coming years, will the LNG deficit by 2030 surge to more than 200 bcm/yr. Hence, leaving plenty of room for East African LNG, as shown in the figure below.

East African LNG will of course face strong competition from other producers, especially Qatar, Australia and Papa New Guinea, in the race for the rising demand in South-East Asia and the Middle East. East Africa benefits from its reasonable vicinity to India and Pakistan compare to Australia. The majority of the growing gas production in the Middle East will be needed for domestic purposes to cover an increased gas consumption. Hence, the production increase in Qatar and Iran will not find its way to Asia. Below is a figure showing India’s predicted need for gas import versus the LNG export from Mozambique and Tanzania towards 2040. It will not be until 20 years from now before East Africa will export enough LNG to cover India’s import needs only. The latter as an indication of future Asian LNG needs.

Rystad Energy has assessed which LNG projects would most likely be sanctioned and developed by 2025. It is predicted that the production deficit gap in 2025 will be about 50 MTPA (70 bcm/yr), which soon need to be covered. By assessing breakeven prices for potential future LNG projects it is possible to predict, which projects will most likely be developed, and to which breakeven cost. An LNG price at 7-8 $/MMbtu is needed in order to develop another 50 MTPA by 2025. Below is a figure ranking potential future LNG-projects to come on stream by 2025 by breakeven price. Projects to the left have the lowest breakeven costs. The development of Area 1 offshore Mozambique (in red circle) has the 3rd. lowest breakeven price (6,2 $/MMbtu) among the most profitable projects believed to come on stream by the mid of next decade.

Which role will gas get in a carbon-restricted world?
The COP21 agreement negotiated and ratified in Paris in December 2015 will probably have a great impact on the future mix of primary energy sources. Fossil fuels, and especially coal, will be taxed in order to curb the markets. Coal, as gas, is predominantly used for power generation. Coal is cheap, scalable and reliable with low or no disruptions. The same characteristics apply for gas. However, coal emits about twice as much CO2 per energy unit as gas, which makes gas more attractive if the consumer has to pay for the emissions. Three countries, China, US and India, currently count for 50% of the global CO2 emissions. Thanks to lowered gas prices (shale revolution) in US, which made gas more competitive over coal, has the world’s second biggest emitter been able to reduce its annual CO2 emissions by more than 700 million tons (about 10%) since 2007. What happened in US is likely to happen in the two biggest coal consumers, China and India, as well. Replacing coal power plants with gas plants has shown to be the most effective step towards a less carbon-emitting world. This partly explains why gas consumption in IEA’s ‘2-degree scenario’ is expected to increase by 12-14% towards 2040. Gas will to a quite large extent need to replace coal. The highest gas consumption growth will come in Asia and the Middle East when coal and oil are abandoned and replaced with gas as power generator. Africa’s dire needs for energy and power in their race for raised prosperity, will also play a significant role in the future hunger for gas.

As shown in this article, East Africa has a considerable potential to become a significant LNG exporter. Less tight LNG markets from the mid 20’ies provides good timing for East African LNG. Price competitive development, vicinity to main markets and steady growing Asian LNG (gas) demand should ensure East African LNG export for several decades to come. However, Mozambique and Tanzania need to continue to court the industry to leverage their discoveries and ensure revitalized exploration. Building a sustainable E&P industry needs both the industry and the government to co-operate and to wear the ‘generation perspective glasses’, in order to become a success.

About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), as well as Singapore and Dubai.

Author: Henrik Poulsen
Henrik holds an MSc. in Petroleum Geology from the Norwegian University of Science and Technology and is currently Senior Vice President – Government Relations at Rystad Energy. He has more than 25 years of experience in the E&P and oilfield service industry and has worked as a consultant for 15 years in the E&P industry, assessing geological and economic uncertainties. Since 2005, Henrik has held several senior management positions at different companies such as Roxar (Emerson), Schlumberger and Rystad Energy.

Author: Bimbola Kolawole
Bim (Bimbola) is Business Development Manager –Africa at Rystad Energy. She is also responsible for account management, training and support for clients in the Region. Her area of expertise includes business strategy, general management, business development, training and support as well as project coordination. Previously, Bim worked at IHS Energy where she was responsible for managing selected clients across the Oil & Gas space value chain in the EMEA region. She holds a BSc. in Economics from Ilorin University, MSc. in Energy Finance from Dundee University and an MBA from Leicester University.


Ogbele Reaches 50 Billion Cubic Feet Milestone

By Sully Manope, in Lagos

Niger Delta Petroleum (NDEP) will be delivering the 50 Billionth standard cubic feet of gas from the Ogbele field to the Nigeria Liquefied Natural Gas(NLNG) System on Friday, September 22, 2017.

This comes to 8.62Million barrels of oil equivalent (BoE).

The field, the first in the country to be officially classified as a marginal oil and gasfield, has produced 35Million standard cubic feet of gas every day(35MMscf/d), transporting the molecules through its 20km pipeline to the NLNG system, since November 2012. It is the only indigenous, Non NNPC JV supplier of gas to the NLNG Bonny Terminal, site of Africa’s largest gas monetisation project.
“It also holds the distinction of being the first independent, indigenous marginal oil field to attain gas flare-down from its operations in Nigeria”, company officials say.

The Ogbele field was awarded to NDEP in 2000 and it came on stream as an oil producer in August 2005. Five years later, NDEP decided to develop and monetise the field’s gas resources with the construction of a 100MMscf/d capacity gas processing plant, which it completed in 2012.

Three years after it commenced gas delivery, the company received an Excellence Award for implementation of a gas flaring reduction project from the World Bank led Global Gas Flaring Reduction (GGFR) Partnership at the GGFR Global Forum held in Khanty-Mansiysk in Russia in 2015.

50 Billion standard cubic feet translates to millions of Carbon Dioxidemolecules that would have been emitted into the atmosphere when the flared natural gas (mostly Methane), combusts with the oxygen in the air, NDEP officials argue, “but we shouldn’t even be lenient on the equivalence of CO2that the company has saved the world by exporting 50Bscf of Methane, because Methane is a far worse offender in global warming than CO2”, they contend.

There are other reasons why the 50 Billion standard cubic field milestone is significant. For one, a so-described marginal field has delivered so much oil (over 12 million barrels) and gas over a time frame often associated with midsized hydrocarbon fields. For another, Marginal field operators in Nigeria, as a rule, are some of the worst gas polluters in the country: NDEP and Platform Petroleum are exceptions to the rule, with their gas processing plants. Frontier Oil operates a gas plant on the Uquo Field, but it doesn’t have a choice because Uquo is a gas field with a small oil rim.

Pan Ocean also takes credit for installing a gas processing plant to mop up some of the associated gas produced in the course of crude oil production. Seplat and NDWestern are big suppliers of gas to the domestic gas market, in part because they acquired gas processing plants as part of the purchase of their core assets from multinationals. But constructing a gas processing plant by such companies from the scratch is rare. Thirdly, NDEP’s gas processing plant makes it, along with its crude oil-to-diesel topping plant, a vertically integrated oil and gas company.


Angola LNG Sells All To Vitol

Angola LNG Limited (ALNG) and Vitol SA (Vitol) have entered into a multi-year LNG sales agreement. Under the agreement, ALNG cargoes will be delivered to Vitol at destinations around the world.

This deal“demonstrates our ability to respond to the needs of our customers and the market”,Artur Pereira, CEO, Angola LNG Marketing Ltd, said. “Vitol has already purchased many LNG cargoes from Angola LNG, and we look forward to continuing our successful relationship”

The 5.2MMTPA capacity plant, Angola LNG, commissioned in 2013, draws its gas supply from a diverse range of sources, primarily associated gas from offshore oil operations in Blocks 15, 17, and 18. The LNG’s use of associated gas as a primary feed source is unlike other LNG projects around the world which tend to use non associated gas.

Pablo Galante Escobar, Head of LNG, Vitol, said; “We are delighted to have entered into this agreement with Angola LNG. It is an exciting initiative for Vitol; we have a long history of investment and partnership across Africa and are pleased to add these LNG purchases to our portfolio.”


SHELL Completes another Major Gas Export Project in Nigeria

Facility will supply a trickle to the domestic gas market

Shell, the Anglo Dutch super major, has announced production commencement at Gbaran-Ubie Phase 2 Facility in Nigeria’s central Niger Delta.

The project is mainly to maintain supply of natural gas to the export market and deliver some molecules to the domestic market.

Gbaran-Ubie Phase 2 follows the success of the first phase of the Gbaran-Ubie integrated oil and gas development, which was commissioned in June 2010.

Peak production at Gbaran-Ubie Phase 2 is expected in 2019 with approximately 175,000 barrels of oil equivalent per day, comprising about 864Million standard cubic feet of gas per day and 26,000 barrels of condensate per day, according to the Shell Petroleum Development Company, the largest of all Shell subsidiaries in Nigeria.

Eighteen wells have been drilled and a new pipeline constructed between Kolo Creek and Soku, which connects the existing Gbaran-Ubie Central Processing Facility to the Soku Non-Associated Gas plant, a key facility for supply of gas to the 22MMTPANigeria Liquefied Natural Gas (NLNG), Africa’s largest single gas export project.

Shell said that first gas flowed from the wells in March 2016, with the facilities coming on stream in July 2017. Gbaran-Ubie Phase 2 will process the condensate from Kolo Creek, Gbaran, Koroama and Epu fields, “thereby assisting in reducing the volume of flaring from its operations”, Shell claims.

The European oil giant said that during construction, members of the community and local sub-contractors provided goods and services in line with the provisions of a Global Memorandum of Understanding. It added that training was provided to the community in pipeline maintenance, scaffolding, welding and piping fabrication.


Fortuna Gets A Dedicated Offtaker, FDI Imminent

Gunvor Group has been nominated as the preferred LNG Buyer for offtake from the Fortuna FLNG project by the Equatorial Guinea authorities, Ophir Energy the operator and OneLNG, its investment partner.

Ophir Energy says that the commodity buyer is committed to take the full contract capacity of the Gandria FLNG vessel of 2.2 MMTPA which will be purchased on a Brent-linked, Free on Board (“FOB”) basis for a 10 year term.

“All parties have agreed the principal commercial terms subject to finalising a Sale and Purchase Agreement (“SPA”) for the offtake ahead of the Final Investment Decision (“FID”) on the Fortuna FLNG project”, Ophir enthusiastically declares in a release.
 
The contract structure allows flexibility for up to 1.1MMTPA of the Fortuna capacity to be marketed on an alternate basis. Consequently the agreement gives the Fortuna partners alongside the State of Equatorial Guinea, the potential to sell volumes to higher priced gas markets in Africa and beyond, whilst retaining a share in the profits of such onward marketing.
 
“With the identification of a preferred LNG Buyer now achieved, the last significant milestone prior to the FID of the Fortuna FLNG project is the completion of the project funding, with FID remaining on track for 2017”, Ophir says.
 
Gabriel Mbaga Obiang Lima, Minister of Mines and Hydrocarbons for the Republic of Equatorial Guinea, commented: “The selection of Gunvor sets a landmark moment in the development of the Fortuna Project. The partnership with Gunvor also paves the way for the government’s objective to deliver important projects that monetize our gas, promotes local content and brings world-class petroleum technology to Equatorial Guinea.

The Fortuna Project will target becoming the first choice supplier of LNG for the LNG to Africa initiative , furthering Equatorial Guinea’s leadership position in Africa as an LNG exporter.”


South Africa’s First Onshore Gas Project Should Reach Market By 2019

By Sully Manope

Tetra4, the natural gas subsidiary of JSE-listed energy company Renergen, is developing a natural gas resource in South Africa’s Free State Province through the creation of a 107-km pipeline network and associated gas processing facilities.

Tetra4 is the holder and operator of the country’s sole onshore petroleum production right, which, in 2015, was acquired from Molopo South Africa Exploration and Production in a deal valued at $50Million. The asset has since started producing limited volumes of gas, which is being processed at a recently completed natural gas compression station in Virginia, (a gold mining town in the Province) and sold to Megabus-a passenger transport and logistics company-which uses compressed natural gas to fuel its bus fleet.

The current development is designed to increase gas production to well above 1.23MMscf/d and enable Tetra4 to pursue new markets for the gas, including gas-to-power opportunities.

Tetra4 is close to receiving debt funding of $17MM for the project from the Industrial Development Corporation and says the key outstanding condition precedent for the funding to happen relates to receipt, from the Petroleum Agency South Africa (Pasa), of a record of decision for the project’s recently completed environmental impact assessment (EIA). The company expects PASA to approve the EIA decision by early August 2017 and for pipeline construction, all going to plan, to begin before the end of 2017.

All things being equal, Tetra4 expects the project to enter commercial operation before the end of the first half of 2018.


Will Egypt Allow Rosneft To Export Gas From Zohr?

Russian giant Rosneft has been credited in the media as proposing to export gas from Egypt’s Zohr field, the vast deposits in the Mediterranean sea.

Quoting a source in the company, the widely respected Russian news agency, TASS, said that Rosneft, which holds 30% stake in the gas field, “will export gas from Zohr to the countries of Europe and the Middle East”.

But that’s exactly contrary to the expectations of the Egyptian government at this time.

Egypt’s economy was experiencing a severe gas deficit when ENI discovered Zohr in late 2015. The government’s assistance to the operator to fasttrack the field’s development is situated in the proposition that Zohr would help return Egypt back to self-sufficiency in natural gas.

“We will sell gas from the Zohr project when economic conditions are best for it. In this case we will act as a gas exporter from one country to another,” TASS quoted the source as declaring.

The Egyptian government is willing to purchase gas from Zohr for higher than $5 per thousand cubic feet (Mscf). That’s one of the highest gas prices in the world at the moment.

Neither the Egyptian Petroleum Ministry, nor Rosneft Public Affairs, responded to our query.


Dangote is the smallest gas offtaker in Tanzania’s Mnazi Bay

From September 2017, Dangote Industries’ Cement plant is expected to be supplied with five million standard cubic feet of gas per day (5MMscf/d) of natural gas from the Mnazi Bay gas development project in Tanzania’s Mtwara Region.

It is the smallest volume contracted to any of the eight contracted offtakers in the project.
Read more


Equatorial Guinea Looks Forward to A Second FLoating LNG

With the final investment decision for the first Floating LNG in Equatorial Guinea almost at hand, the state is looking forward to discussions around a second such project.

The Ophir operated FLNG, focussed on draining gas resources in the Fortuna cluster of fields in Block R, looks forward to taking FID by the end of June 2017, but Equatorial Guinea, as a country, is proactive about further inflow of investment in gas export industry.

Its Ministry of Mines and Hydrocarbons (MMH), has gone ahead to enter into a binding agreement with OneLNG SA (the company with which Ophir has an agreement for the Fortuna FLNG) to explore the liquefaction and commercialization of natural gas in offshore blocks O and I.

“OneLNG, a joint venture between Golar LNG and Schlumberger to rapidly develop gas reserves into LNG, will commit funding to explore the technical and commercial feasibility of a floating liquefied natural gas project”, according to a release on behalf of MMH by Africa Oil and Power.

“The agreement commits the State and OneLNG to find a binding commercial and technical structure for an agreement on a second FLNG project with a target date of end of 2017”, the release notes.

The Government of Equatorial Guinea is a stakeholder in production sharing contracts in blocks O and I through its national oil company, GEPetrol, which is an indirect participant in the development of the liquids-rich gas and condensate fields Alen, Diega, Aseng and Yolanda.

There is no mention, in the press release, of Noble Energy, the operator of Blocks O and I.

“This agreement is a crucial step to monetizing these offshore natural gas reserves and expanding Equatorial Guinea’s sizeable role as a global gas exporter while developing a domestic component,” said H.E. Gabriel MbagaObiang Lima, Minister of Mines and Hydrocarbons of Equatorial Guinea. “Equatorial Guinea is an African pioneer in deepwater FLNG projects and OneLNG has been a vital partner in those efforts. We stand ready to work with OneLNG to provide the right incentives to make this project work.”

“OneLNG looks forward to again collaborating with the Republic of Equatorial Guinea on an innovative project,” said Jeff Goodrich, Chief Executive Officer of OneLNG SA. “This further cements the strong relationship we have built in executing the Fortuna Project.”


Egypt Connects Eight Million Households to National Gas Grid

The Egyptian Government has connected a total of 7.9Million Households into the National Gas Network.

2.1Million, or 26.5% of that number, were connected between 2013 and 2016. The country hopes to have connected an additional 715,000Households by the end of 2017.

Egypt started connecting households to natural gas in 1980, but for the first 20 years, only one million households were connected.

Despite the surge in the growth of household connections, some provinces (governorates) are still not part of the grid.
The Marsa Matrouh governorate, located in the north-western part of the country, with some parts bordering Libya, was connected for the first time between 2013 and 2016.

© 2017 Festac News Press Ltd..

Site by BluQuadrant