African LNG picture bears watching.Africa's LNG LNG (liquefied natural gas): see under natural gas. industry is the oldest in he world, with the continent having osted the world's first liquefaction liquefaction, change of a substance from the solid or the gaseous state to the liquid state. Since the different states of matter correspond to different amounts of energy of the molecules making up the substance, energy in the form of heat must either be supplied to plant to come online at the Algerian port of Arzew in 1964 - built to supply gas to the UK and then France before the first major North Sea discoveries were made.
Now, in addition to Algerian national Sonatrach's various facilities, Africa has producing LNG plants in Libya, Egypt and Nigeria. These have a total capacity of nearly 51 million tons per year (51mtpa), most of which goes to Europe, with an increasing amount going to the U.S.
By the end of 2010, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Infrastructure Journal research, Africa could have more than doubled its capacity to nearly 130 mtpa--which will be a impressive achievement if fulfilled.
Africa's main markets for its LNG are in Europe and North America- collectively known as the Atlantic Basin. But its position as premier supplier to these import markets has recently been challenged by Qatar and its giant RasGas and Qatargas projects at Ras Laffan--which together should be producing 77 million tons a year by 2010--one-third of world production.
Several of Qatar's projects (RasGas 3, Qatargas 2 and 3 for example) have been put in direct competition with African ones because of the intended destinations for their cargoes in the Atlantic Basin. Qatar has also shown, through these massive LNG projects and others like Qatofin, an increasing ability to attract huge amounts of attractively priced international bank financing--something that African countries can only dream of. Yet, despite this huge expansion of capacity in Qatar and the problems of investing and financing in Africa, the African LNG industry continues to move forward.
Nigeria is at the forefront and while it may be notorious for tribal attacks on oil and gas facilities and pervasive corruption, it has a slew of LNG projects on the table--including further expansion of the already-large Nigeria LNG (NLNG NLNG Nigeria LNG (Nigeria) ) facility at Bonny Island Bonny Island is situated at the southern edge of Rivers State in the Niger Delta of Nigeria. In the early 1990s the Federal Government of Nigeria, in collaboration with 3 international partners, Shell Gas BV., CLEAG Limited [ELF] and AGIP International BV. plus the greenfield projects Brass LNG (10 mtpa) and Olokola LNG (OKLNG--22 mtpa).
Along the western coast, Equatorial Guinea Equatorial Guinea (gĭn`ē), officially Republic of Equatorial Guinea, republic (2005 est. pop. 536,000), 10,830 sq mi (28,051 sq km), W central Africa. (EGLNG--3.4 mtpa plus a second train likely) and Angola (Angola LNG--5 mtpa) have projects of their own on the go, with the first already 75% of the way through the construction process. Cameroon is apparently considering joining the former of these, while additional projects have been discussed in Mauritania and Namibia but are on hold for now because of disappointing exploration results.
On the northern coast, Algeria (which produced more than double Nigeria's output last year) has agreed to go ahead with its first LNG project, involving foreign partners Gassi Touil, with Spanish firms Repsol and Gas Natural through their new joint venture, Stream. National oil and gas company Sonatrach is also rebuilding the Skikda plant where an explosion killed 27 people in 2004 and destroyed three trains with 2.5 5mtpa of capacity.
However, it is Egypt that has taken the lead in terms of project financing Project financing
A form of asset-based financing in which a firm finances a discrete set of assets on a stand-alone basis. in Africa, with both Egyptian LNG (ELNG ELNG Egyptian Liquefied Natural Gas (Alexandria, Egypt))
ELNG Elongate ) trains having attracted funding from the hanks, with the help of financial adviser Socirt6 Grnrrale. The government has just issued approval for another 5.5 mtpa train to be built at the competing SEGAS Damietta plant.
No Shortage Of Activity
Overall, it's apparent there is no shortage of activity on the African LNG front. Frank Harris, an LNG expert at oil and gas consultancy Wood Mackenzie, said, "One of our themes is that there are probably three countries that in the next decade are set to become big players in LNG--Nigeria, Russia and Australia. Qatar is out of the game for the time being because of the moratorium they have put on new projects."
Australia is more suited to supplying Pacific Basin countries in Asia and possibly the American West Coast. Meanwhile, Russia is yet to get its act together--largely due to political considerations, as continuing delays on the massive Shtokman project demonstrates. Iran is also out the game momentarily because of its nuclear program, despite sitting on the world's second-largest gas reserves behind Russia.
One project financier's overview finds that "Because of all these issues, it has dawned on everyone that there is a momentous reliance on Nigeria now."
The rationale is simple. With 5 trillion cubic meters (176 Tcf) of proven reserves at the end of 2004, Nigeria has the largest gas resource in Africa--more than a third of the continent's total. Only Algeria comes close with 4.55 trillion cubic meters; next is Egypt with 1.85 trillion and then Libya with 1.49 trillion. To put it in context, North Sea producers Norway, the UK and the Netherlands have just 4.5 trillion between them while the U.S. has 5.3 trillion.
Nigeria has one LNG facility in operation--the Nigeria LNG (NLNG) venture at Bonny Island in the Niger Delta The Niger Delta, the delta of the Niger River in Nigeria, is a densely populated region sometimes called the Oil Rivers because it was once a major producer of palm oil. , jointly owned by national oil company Nigerian National Petroleum Corporation (NNPC--49%), Shell (25.6%), Total (15%) and ENI (10.4%).
NLNG's capacity is now an impressive 17 mtpa after Trains 4 and 5 became operational earlier this year and there is more to come. Train 6's 4 mtpa is due to come online at year end while the NLNG SevenPlus project should deliver an extra 8 mtpa when it comes on steam, hopefully in 2010.
Also in the offing coming; arriving in the foreseeable future.
visible but not nearby.
See also: Offing Offing are the mega US$7 billion OKLNG project (22mtpa) in Ondo State Ondo State, Nigeria was created on 3 February 1976 from the former Western State. It originally included what is now Ekiti State, which was split off in 1996. Akure is the state capital. and the smaller Brass LNG venture (10mtpa) in Bayelsa State--the biggest new LNG projects being proposed for Africa at the moment. Final investment decisions on both are due later this year
Challenges In Nigeria
Meanwhile, the Repsol and Gas Natural's Stream venture recently signed a memorandum of understanding A Memorandum of Understanding (MoU) is a legal document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment. with Nigeria for another liquefaction plant with an initial annual capacity of around 7 million tons. If all goes to plan, a joint venture company should be set up in around a year after initial studies.
Plenty of activity is planned for Nigeria alone, but what about the practicalities of getting these big projects done? Building new liquefaction plants requires huge investments and plenty of additional work securing sources of gas, offtake Off´take`
n. 1. Act of taking off; specif., the taking off or purchase of goods.
2. Something taken off; a deduction.
3. A channel for taking away air or water; also, the point of beginning of such a channel; a take-off. contracts from buyers and much more. This is in a context of spiraling construction costs and a country-specific context of widespread corruption in addition to kidnappings and attacks on oil and gas installations.
Stephen Craen, Socirte Grnrrale's managing director of oil and gas project finance, explains the difficulties of operating in Nigeria. "Like many banks our branch there was confiscated. Our situation was worse in that the people who took over continued to use our name. So we were reluctant to do business in Nigeria while the situation was outstanding. However, this is now substantially resolved."
Since democratic elections were reinstituted in 1999, the government of Olusegun Obasanjo has made some progress in improving the political and business landscape. However Obasanjo has nearly completed his maximum of two terms under Nigeria's constitution and some uncertainty remains as to what will happen next. The recent spate of kidnappings and attacks on oil and gas installations is obviously a negative factor, though they are not seen as a major hindrance for getting projects off the ground.
One project adviser said: "With a fair wind I can see progress, but the political situation will be the determining factor because there is an election in the next year and it is difficult for the bank market to get underwriting commitments before they know what the government is going to do?'
The welter of projects planned and required for Nigeria also presents problems in terms of capacity and potential costs of construction. Frank Harris of Wood Mackenzie said: "With NLNG train seven, OKLNG and Brass, to some extent they are all competing with each other to get the EPC (1) (Entertainment PC) See HTPC.
(2) (Electronic Product Code) A standard code for RFID tags administered by EPCglobal Inc. (www.epcglobalinc.org). contractors and get the ships." These issues inevitably feed into the financing process.
Uwa Igiehon, head of RBC Capital Markets RBC Capital Markets is the corporate and investment banking division of Royal Bank of Canada ("RBC"). Broker dealers
Depending on the jurisdiction, the division uses different broker dealer subsidiaries of RBC:
Simon Elliston, Citigroup's head of project finance for EMEA, agreed: "The very idea of large-scale financing in Nigeria is a challenge, so there will be a need to order these projects. For many years the country was in default, though it has recently been rated BB- by S&P. But the amount of money that Nigeria needs for infrastructure investments and its upstream and downstream projects is enormous. BB-does not give that."
He added: "It has taken Qatar Petroleum Qatar Petroleum (QP) is a state owned petroleum company in Qatar. The company operates all oil and gas activities in Qatar, including exploration, production, refining, transport, and storage. [lead partner in the RasGas and Qatargas projects] 15 years to get its tremendous access to debt. Nigeria needs to address its overall infrastructure to manage the development of its oil and gas infrastructure. It needs to build gas pipelines, LNG plants and address human resource issues. One would trust that the Nigerians will manage to do it in an orderly way. They have got allies in terms of the oil companies and the international banks."
So far the successive NLNG projects have all been financed using equity, with the exception of NLNGPIus (Trains 4 and 5). This project managed to attract around US$1 billion in non-recourse financing in 2002 when Nigeria was still in default, with the backing of the ECAs and security of the previous LNG trains' cash flow. Financiers are hopeful about the prospects, though, and each of the big upcoming projects has financial advisers to help them through the process
The demand is certainly there for the gas, with strong growth expected to continue in the Atlantic Basin import markets where West African West Africa
A region of western Africa between the Sahara Desert and the Gulf of Guinea. It was largely controlled by colonial powers until the 20th century.
West African adj. & n. LNG goes. Statistics from the U.S. Energy Information Administration predict that annual North American North American
named after North America.
North American blastomycosis
see North American blastomycosis.
North American cattle tick
see boophilusannulatus. consumption will rise sharply between now and 2030, and Western Europe Western Europe
The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). is expected to consume around 75% more (31 Tcf)--at a time its own reserves are apparently depleting.
Brass has already signed agreements coveting all of its offtake and the other two major projects do not seem to be having too many problems. However, delays to at least some projects seem inevitable and there are concerns the Brass project partners might get distracted in sorting out their respective shareholdings following Chevron's withdrawal to focus on OKLNG.
There are also worries about the capacity of Nigerian state partner NNPC NNPC Nigerian National Petroleum Corporation
NNPC Nigerian National Petroleum Company to handle its significant share in all of these projects, since it is looking at an equity commitment of around US$1 billion for OKLNG alone even with a 70/30 debt/equity ratio.
There is plenty of activity elsewhere on the continent--both on the west coast and on the shores of Mediterranean where most of Europe's LNG has traditionally been sourced. Angola, Equatorial Guinea, Egypt, Libya and Algeria all have projects at various stages of the planning and construction processes.
Probably the most interesting LNG project outside Nigeria today is Equatorial Guinea LNG on the west coast, with details of what should be an intriguingly structured financing package potentially involving a second train expected soon.
"Equatorial Guinea is interesting in that the first project is pretty well advanced," Harris said. "But the more interesting thing is the second train. There have been some probably rather ridiculous reports that the second train will be producing in 2009, but my understanding is that there is not enough gas from Equatorial Guinea itself, so they need a tie-in from Nigeria or maybe Cameroon. So there are difficulties there. But Equatorial Guinea has this reputation as a can-do kind of place, and the first train has been a success."
It seems that Angola LNG Angola LNG is a liquefied natural gas plant located in Soyo, Angola.
In the absence of a sufficiently large domestic market for gas, Angola is seeking a large-scale opportunity to commercialize associated gas from current and future developments and to commercialize could go the same way with project financing to follow equity when the project is either mostly or completing finished. The partners in this venture are Chevron (36.4%), Sonangol (22.8%), BE ExxonMobil and Total (13.6% each).
Said Craen, "Equatorial Guinea Train 2 is likely to move forward. But it is a bit like Egypt in the issue of getting enough gas to feed a second train, so they have been looking to their neighbors. I am always skeptical about projects which need second countries to get off the ground as it enormously increases the complexity and requires a great deal of time to reconcile different commercial and political interests."
Meanwhile, on the north coast, Egypt will go ahead with another large 5.5 mtpa train at the existing SEGAS Damietta plant, despite having plentiful domestic demand for its limited gas reserves in addition to several large-scale petrochemical projects on the table. Project partners Union Fenosa and ENI have considered project financing for this proposed second train.
While Egypt has taken the lead in African LNG project financing by way of the two ELNG trains, Sonatrach has used its own resources to fund projects and is not keen on using foreign banks. As a result, Gassi Touil and any other projects progressing there (for example a possible Gassi Touil 'lookalike' with Statoil) will probably be equity financed.
Harris said, "For my money, the more interesting thing is that as we get into the next decade Algeria has got some excess capacity." He estimated that from around 2009 onward it should have an extra 8.5 mtpa uncontracted after a contract with Suez expires and the Skikda revamp comes online.
Libya A Long Shot?
Another intriguing prospect is Libya, where Shell is working with the National Oil Company to expand the capacity of its aged Marsa Al-Brega plant.
Some project financiers are skeptical about prospects for the shorter term. Elliston said, "Libya is a long shot because it has just come off the U.S. embargo. It is a long way off despite the oil majors' interest. It hasn't put its toes in the water yet."
Craen added, "I know there is no current need for finance and the Libyans are not short of revenues. They are quite capable of funding their own requirements for the time being, although this may change if they opt for major new projects, in LNG for example."
From a legal standpoint, there is a somewhat different perspective. Jason Kerr Jason Ian Douglas Kerr (born 7 April, 1974 in Bolton, Lancashire) is a former English cricketer, who is currently Academy Director of the Somerset County Cricket Clubs academy.
An all-rounder, he played Right Hand Bat with a Right Arm Medium Fast bowling style. , a partner at White & Case, said "Libya is looking more lively at the moment." He pointed to a steering committee steer·ing committee
A committee that sets agendas and schedules of business, as for a legislative body or other assemblage.
Noun that the UK Law Society has set up as part of a government initiative to help Libya with its legal and regulatory framework.
"It is expected that a report of recommendations will be submitted to both governments in late 2006. The results of these may well set the pace of foreign investment in Libya in years to come. It is the place for the future without a shadow of a doubt."
Africa may well still be viewed with caution by many foreign investors, but its burgeoning LNG industry shows how vital the continent is in terms of providing energy to import markets where demand continues to grow.
Though Algeria and Egypt have been providing some spot cargoes to India, Japan and South Korea over the past few years, the overwhelming amount of LNG from existing and future African projects is bound for the Atlantic Basin, with an increasing bias toward the U.S.
In terms of financing, the international banks appear set to take an increasingly prominent role in financing the projects proposed in Africa to satisfy demand. Egypt has already financed two trains using debt and Nigeria one, and several of the upcoming projects in Nigeria and elsewhere look set to make use of project finance.
Taylor DeJongh's chief executive Terry Newendorp said, "It is interesting to note that the African projects have approached financing very differently than the Qatari or Omani ones. African projects have been much more equity during construction then using the cash flow for financing the next train. In part, it is because of the political risk element and the difficulty in obtaining bank capacity; and in part it has been driven by the timetables to hit the U.S. market when gas shortages are keeping prices high."
So the trend seems to be toward getting financing later on in the process, when progress can be evaluated and confidence increased in the viability of project structures.
Nigeria will continue to lead the way, though plenty of issues remain if all of its planned projects are to progress smoothly. As Elliston said, "The Nigerian LNG scene is emerging by definition. It is on an upward curve, but they are still at the early stages of the curve."