Risky LNG Project May Find Right Timing


BMI View: Gasol expects that its liquefied natural gas (LNG) regasification unit offshore Benin will be operational by 2015, although final agreement between partners is still to be reached. The plan provides an interesting solution for gas shortage s in the region and low f inancing requirement for Gasol as it plans to lease an already existing floating storage regasification unit to Azerbaijan's SOCAR. However, we maintain a number of obstacles remain before this project can advance . In particular we stress that delays could call into question the viability of the project as we expect Ghana to boost gas production from its Jubilee field in the coming years.

Gasol's Chief Operating Officer, Alan Buxton, confirmed the company's intention to move forward with its partner BenGaz to install a floating storage regasification unit (F S R U) offshore Benin. The plan involves the lease of an old LNG vessel and regasification barge to be moored in the Cotonou harbour , with initial import capacity of 2.7bn cubic meters (bcm) which could be increased to 3.7bcm in the future .

The project has been well managed so far and is currently awaiting final commercial agreements between the partners and the suppliers, which Buxton expect s to be reached by the end of 2013. If an agreement is reach as planned , financing for the initial steps of the project could be released early 2014. Accordingly, Gasol is targeting to receive first gas on Benin's coast in 2015.

Feedstock is expected to come from Azerbaijan's SOCAR , with whom the partners signed an LNG supply deal and are expected to lease the F S R U. Gasol also reached preliminary agreements with both Communauté Électrique du Benin (CEB) and Ghana National Gas for the purchase of gas. Transportation through the existing West African Gas Pipeline (WAGP) remains to be negotiated, but we do not see this as a significant obstacle considering BenGaz is part of the consortium.

Life Line For Gas Hungry Shore
Map Of The West African Gas Pipeline

Spotting A Market Gap

Ensuring sufficient gas supply has been a key objective for the development of the countries in the Gulf of Guinea . The WAGP was commissioned in 2008 but started small commercial deliveries of gas to receiving countries only in 2011 and was intended to supply Benin, Togo and Ghana with 1.76bcm worth of Nigerian gas annually in a bid to boost economic development and provide reliable for feedstock for power generation in the region.

However, since initial operations began (behind schedule), a number of unplanned outages have seen erratic or non-existent supplies of gas.

  • In 2009, vandalism by Nigerian rebels prevented flows of gas for nearly a year;

  • Supplies have remained offline since August 2012, when the pipeline was damaged in a battle between the Togolese Navy and pirates;

  • In November 2012 an explosion killed two engineers working to repair the pipeline.

While the pipeline finally restarted operations late June 2013, outages resulted in significant electricity shortage s in Ghana (see ' Energy Security Concerns Will Persist ' February 8 th ). The country has been attempting to boost its gas generation capacity in recent years in order to move away from expensive oil imports. Expected development on the Jubilee should have boosted the country's gas supply, but problems in gathering funding have postponed the monetisation of the associated gas.

Can Gasol Fuel Shortage?
Ghana's Gas Consumption & Production, bcm

Therefore, we see that Gasol's project could find a role to play in gas supply for the region. It will help to alleviate the lack of reliability of Nigerian supply. Disruptions to supply along the WAGP occurred on the Eastern part of the line, due to piracy and frequent disruptions in Nigeria's gas production. Supplying gas from Benin to Ghana thus appears offer a more reliable route for gas.

Issues Still Threaten Risky Project

This LNG project will however face a number of significant obstacles which could either delay or completely impede its development:

  • Gasol holds little track-record in developing LNG infrastructure. Securing financing could be difficult and costly for the company as the project will retain a high risk profile investors. Potential doubts about the company's capacity to secure supply could push funding cost high enough to put the commercial viability of the in doubt .

  • It is unclear which FSRU SOCAR will provide and it remains possible that updating the ageing vessel could pose technical challenges. This could trigger delays and result additional costs which could reduce the profitability of the project.

  • Output at the Jubilee field could increase significantly if Ghana manages to overcome the financing issues that it faced in the past. Large gas supplies from this domestic field would limit demand for imports from the Gasol project.

Overall, while we see the project could fill an important supply gap in the regional gas consumption, it faces significant challenges. If however Gasol manages to start the FSRU as expected by 2015, the company could benefit from delays to the Jubilee field associated gas project.

This article is tagged to:
Sector: Oil & Gas
Geography: Benin