By Toyin Akinosho
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By Toyin Akinosho, Publisher
An “insignificant minnow” has made a huge impact
Victoria Oil&Gas reached a fork in its African journey when it completed the tie-in of gas supply to electricity generators at the Logbagba and Bassa Power Stations (combined capacity: 50MW) in Douala, Cameroon.
The average daily gas production to fuel these two power plants is about 10Million standard cubic feet of gas a day (10MMscf/d).
The commencement of gas supply triggered take or pay conditions in the contract with ENEO(a company partly owned and operated by UK based Actis and the state power utility in Cameroon). “The project was delivered in four months”, VOG declared in a statement.
The AIM listed company may just be ready for the bigger league. When VOG showed up in Cameroon over five years ago, talking up its capacity to supply gas to industries, it came across to many in West Africa as an insignificant minnow hoping to be noticed.
The company made announcement after screaming announcement about its incremental supply of gas and the value addition it was making to the industrial landscape in Douala, a ranking financial hub in Cameroon, which shares a border with eastern Nigeria.
But if you were sitting in Luanda, Lagos, Accra or even Abidjan, looking at VOG’s figures, you could be forgiven for wondering why such a little player was sounding so big.
“In less than four years, our company, backed only by its shareholders, has succeeded in drilling two complex wells, installing gas processing facilities for 20MMsc/d, laying 22km of pipeline and is selling gas and collecting revenue”, reported Kevin Foo, VOG’s chairman, in a 2013 address.
Well, 20MMscf/d of gas facilities? 22km of pipeline?
This, at a time when a 150MMscf/d gas processing plant was being constructed in Ghana; a ‘junior’
Nigerian company was installing a 200MMscf/d plant in the country’s south east and Angola’s 5MMMTPA LNG plant was about to come on stream.
It certainly required more than sheer empathy to pay attention to the details in Mr. Foo’s report, which was, in part, a complaint that the market was treating VOG unfairly. “I am concerned about the low share price, which I believe grossly undervalues our business and does not reflect the company’s achievements to date,” he declared.
But a few facts in Foo’s statement would make a lot of sense to a keen observer of the energy trade in Africa. VOG may be producing a minuscule volume of gas compared with producers in Angola, Ghana, and Nigeria, but it is receiving over $16 per thousand cubic feet (Mscf) from each of the 23 factories to which its gas line is connected in Douala. And for the two power plants, the contract is for $9 per Mscf.
Most of VOG’s customers were previously using Heavy Fuel Oil (“HFO”) for boilers driving mechanical plant and processes. The marketing and engineering teams of Gaz du Cameroon, VOG’s wholly owned subsidiary in Cameroon, “worked with the senior management of these businesses to demonstrate the cost savings expected to occur following conversion to gas from HFO and then implemented individual engineering solutions that ensured an efficient conversion”.
This payment of between $9 per Mscf for gas delivered to power plants and $16 per Mscf for gas delivered to industries is quite competitive compared with the rest of the continent. In Egypt, gas producers are wrangling with government to get anything higher than $5 per Mscf for processed gas supplied to the grid.
In Ghana, the cost is about $1 per Mscf for the separation, metering and pipeline costs to deliver the wet gas at the in-let of the processing plant, which is owned by government. In Tanzania, the government buys the raw, wet gas for $3 per Mscf and then goes to process and transport it.
In Nigeria, like Cameroon and Egypt, the gas is produced and processed by private companies, but Nigeria’s gas producers receive nothing higher than $2.5 per Mscf for supply to power plants;for industries, they get paid between $3 and $8 per Mscf on a negotiated basis.
VOG’s commencement of gas supply to Logbagba and Bassa Power Plants has taken the company’s overall gas production on average to 14.5MMscf/d. True, it’s not the huge volume associated with many projects in Cameroon’s neighbourhood. But the country’s 1,400MW power generation capacity, largely produced by hydrothermal plants, is inadequate for the population of 23Million and the economic activity they drive.
This has provided a space for VOG, which has increasingly gone from a supplier of gas for boilers to a supplier of gas to boilers as well as generating sets located in the customer’s premises and now supplies gas to a power utility. It’s an incredible journey. In most parts of Africa, the impact of a project is never directly related to size.This has been a small company with a huge impact.
This piece was first published in the April/May 2015 edition of Africa Oil+Gas Report
Six top European E&P companies, including TOTAL, BP, ENI, Shell, Statoil and BG, have jointly called on governments around the world and the United Nations Framework Convention on Climate Change (UNFCCC) to introduce carbon pricing systems “and create clear, stable, ambitious policy frameworks that could eventually connect national systems”.
These, they say,“would reduce uncertainty and encourage the most cost effective ways of reducing carbon emissions widely”.
The six companies set out their position in a joint letter from their chief executives to the UNFCCC Executive Secretary and the President of the COP21. This comes ahead of the UNFCCC’s COP21 climate meetings in Paris this December. “With this unprecedented joint initiative, the companies recognize both the importance of the climate challenge and the importance of energy to human life and well-being. They acknowledge the current trend of greenhouse gas emissions is in excess of what the Intergovernmental Panel on Climate Change says is needed to limit global temperature rise to no more than two degrees Centigrade, and say they are ready to contribute solutions”.
As the chief executives write:
“Our industry faces a challenge: we need to meet greater energy demand with less CO2. We are ready to meet that challenge and we are prepared to play our part. We firmly believe that carbon pricing will discourage high carbon options and reduce uncertainty that will help stimulate investments in the right low carbon technologies and the right resources at the right pace. We now need governments around the world to provide us with this framework and we believe our presence at the table will be helpful in designing an approach that will be both practical and deliverable.” (Helge Lund, BG Group Plc; Bob Dudley, BP plc; Claudio Descalzi, EniS.p.A.; Ben van Beurden, Royal Dutch Shell plc; EldarSætre, Statoil ASA; Patrick Pouyanné, TOTAL S.A.).
The chief executives call on governments, including at the UNFCCC negotiations in Paris and beyond – to:
• introduce carbon pricing systems where they do not yet exist at the national or regional levels
• create an international framework that could eventually connect national systems.
“To support progress towards these outcomes, our companies would like to open direct dialogue with the UN and willing governments. We have important areas of interest in and contributions to make to creating and implementing a workable approach to carbon pricing, including:
“1. Experience. For more than a century we have provided energy to the world. We are global in reach, closely familiar with managing major projects and risks of many kinds, and well-versed in trading and logistics. As we are already users of carbon pricing systems across the world, exchange of information at international scale could help to identify the best solutions.
2. Motivation. We want to be a part of the solution and deliver energy to society sustainably for many decades to come. Like our counterparts in other industry sectors we will play a key role in implementing the measures and deploying the technologies that will lead to a lower carbon future. Low carbon business models and solutions are fragile until they reach critical size, but with linked carbon pricing systems worldwide, uncertainty would be reduced and such solutions will start to create value for business more rapidly.
3. Pragmatism. We believe our presence at the table could be helpful in designing an approach to carbon pricing that would be both practical and deliverable, as well as ambitious, efficient and effective.”