[NGW Magazine] Scandinavia goes to W Africa
This article is featured in NGW Magazine Volume 2, Issue 13.
Next month could see a ground-breaking project starting up in electricity-starved Ghana, using small LNG vessels and correspondingly lower costs.
Global LNG trade is dominated by large shipments each in excess of 150,000 m³, a volume that so far has proven too much for sub-Saharan Africa to swallow. But if Norwegian shipowner IM Skaugen has its way, LNG imports into the region will begin shortly – but on much smaller ships transporting no more than 12,000 m³ at any one time.
It’s that size of cargo that has proven successful in developing Scandinavia’s small-scale LNG market over the past 17 years.
Skaugen’s annual report and Q1 results, both released June 7, include photos of the jetty to which it expects to ship its first cargo to Africa this July; and of civil works at the planned onshore mini storage site, plus some cryogenic storage tanks awaiting installation there.
What the company hasn’t said is where the site is in Africa, or the customer for its LNG. It was approached for details or an interview by NGW, to which it responded by referring to updates between January 23 and June 7 adding that these “cover the information that we can disclose.”
Shipping news publisher TradeWinds has reported the site is Aboadze in western Ghana, near the port of Takoredi. One gas-fired independent power project (IPP) due to have begun construction there is ‘Ghana 1000’, led and 60%-owned by US developer Endeavor Energy whose CEO Sean Long is a veteran promoter of African IPPs.
Endeavor is also 51% owner of the nearby 200-MW Amandi Power IPP which reached financial close in December and is due to start generating in April 2019. Endeavor is backed by US private equity firm Denham Capital.
Skaugen said June 7 that its first LNG would be delivered in July 2017, but on May 22 it had predicted this would occur towards the end of June.
There’s an element of financial pressure on Skaugen. This, and the difficulties of project management in an uncertain regulatory environment, may explain its reticence to give away too much detail about its so-called SSLNG (small scale LNG) project. But three points are worth noting.
First, contracts were signed on three of its 15 small-scale LPG/LNG carriers on January 23 allocating them to this ‘SSLNG’ project. But until Skaugen indicates otherwise, these remain “subject to various conditions, including that of definitive agreements and a financial close.” So if the contracts aren’t finalised, a fifth of its fleet could be at the mercy of the low-value spot charter market.
Even the contract values have changed: in January, its two 10,000 m³ and one 12,000 m³ time-chartered vessels could expect revenues totalling $42mn/yr, or $420mn over 10 years. In early June, however, that had been revised down to $39mn/yr, and some $273mn over 7 years, with only two such mini-tankers initially needed.
Second, Skaugen itself only recently completed a refinancing, and held off publishing its 1Q report in order to wrap that up. But the refinancing extends debt maturity until April 6 2018 only. The company – impacted by low charter rates from its mainly small LPG carrier business in recent years – made net losses of $6mn in 1Q2017, $23mn in full year 2016, $5mn in 2015 and $27mn in 2014.
Third, it was reported that Ghana 1000’s construction had been delayed until 2018. This project is intended to develop a 1.3-GW combined-cycle gas turbine (CCGT) plant, albeit including an initial phase of 125 MW that was originally to have started up end-2016. Endeavor CEO Long declined to be interviewed by NGW or provide any update.
Skaugen – still without identifying its power plant clients – however insisted in its 1Q 2017 report that such clients are “with support of the Skaugen team of professionals… working very hard to make their facilities ready to receive and consume gas in the form of LNG. All equipment required has been ordered and paid and is on location or on a ship en route to the location and ready to be installed. All equipment is site specific and made for the SSLNG solution.”
Elsewhere in its reports, Skaugen added that “the power plants requiring the gas as LNG are new plants, constructed for burning natural gas as feedstock, but have remained idle due to a lack of gas supply. Start-up of the project is early July 2017, as advised by the client.”
One other area of doubt is whether Skaugen itself would be responsible for the supply of any LNG to Africa. Its role to date has been purely as a ship operator, rather than supply and trading.
If the Skaugen project’s client is Ghana 1000, the latter signed a term sheet in March 2015 for LNG supplies from Shell. Endeavor acknowledged back then that a next step would be to convert this into a full LNG sales and purchase agreement.
It’s not clear if this has happened, however, or whether this would only happen, once ‘definitive agreements and a financial close’ cited by Skaugen are signed – because none of those involved will talk to NGW, Shell referring NGW to GE and Endeavour Energyas they are the project developers.
Ghana, a Tricky Market for LNG
Ghana for sure is strewn with IPPs crying out for gas, as there’s little or no supply through the West African Gas Pipeline (WAGP) from Nigeria, which is managing its own crises. Life is made no easier for Ghana’s IPPs when they are not paid on time for their power production, including by the state.
There is however associated gas from Ghana’s offshore Jubilee oilfield, soon to supplemented from its sister TEN offshore oil field complex, both Tullow-operated. From 2018 there will also be significant associated gas flows from the Eni-led OCTP oilfield complex, which produced its first oil this May. Most gas from these fields is bought up by state GNPC – some Jubilee gas is now being supplied free – and onsold to power producers. Such gas supplies though are subject to fluctuation.
In Ghana, normal or unavoidable disruptions in offshore gas flows, given the country’s lack of back-up supply, are a big headache for generators. Tullow said June 28 it and partners have agreed with the government a five to eight-week shutdown for repairs to the Jubilee production ship later this year. Jubilee will not supply gas during the outage.
However, Tullow added that “the TEN gas manifold has also been installed and commissioned and a gas export trial to Ghana National Gas Company’s facilities has been successfully completed” – a hint that TEN gas should now be available to cover any shortfall from Jubilee later this year.
LNG would be an ideal commodity to balance out any shortfalls in piped gas, which is probably why a joint venture of Nigerian state NNPC with private Nigerian firm Sahara Energy – West Africa Gas Limited (WAGL) – chartered the FSRU Golar Tundra on a long-term agreement.
But that FSRU has remained anchored idle for more than a year offshore the Ghanaian port of Tema since its agreed charter start-date of June 1 2016. Initially WAGL had failed to apply for an LNG import licence. But it now seems the ship is just too large to be brought into Tema for berthing, as had been hoped.
Another shipowner Hoegh LNG has contracted to charter its FSRU Hoegh Giant to Israeli-backed Quantum Power from mid-2018. The idea is it will be anchored offshore, at the end of a purpose-built 12km subsea pipe now reportedly being laid by Quantum’s contractor Micoperi. But Quantum was not available for interview when contacted at a recent London event by NGW, or since.
Skaugen’s SSLNG approach could provide a fillip to its business plan, now based largely on shipping LPG from A to B at relatively low charter rates. It could also reduce the logistical hurdles inherent with major project construction in this part of West Africa, and trading large LNG cargoes. And Skaugen’s gambit keeps lights on, it will be a small step towards providing access to clean electricity for a few of the 600mn Africans that lack this today, and a possible template for providing it in the decades to come.
After all, there’s no global shortage of LNG on the horizon, and there are possible supply sources at Nigeria LNG and in Equatorial Guinea on the doorstep of African IPPs.