Africa. A vast continent, beset by challenges, loaded with opportunities, and rich in potential for the chemicals and energy sectors alike. Addressing these issues and maximising these prospects is the name of the game, especially for the members of the gases community gathered here in Johannesburg, under the auspices of gasworld.
While key decision makers from the industrial gases industry meet under one roof to discuss Future Investment and the Supply Chain this May, five thousand miles away in London (UK) sit the headquarters of a company focused on exactly that - unlocking the supply chain and Africa’s energy potential.
Gasol, formed in 2005 by a group of investors to invest in oil and gas opportunities, is driven by LNG. In its early days, the company planned to develop gas reserves in the Gulf of Guinea on the coast of West Africa, liquefy the gas and export it internationally. But, says Gasol COO Alan Buxton, “For various reasons that didn’t work out.”
The price of liquefied natural gas (LNG) was much lower at the time, and Gasol struggled as a small player to establish itself in LNG liquefaction projects that were hugely capital intensive. Around 12-18 months ago, however, the management team at Gasol changed and a new strategy was developed which the company hopes will drive the market forward in West Africa.
“Now we are not looking to export gas, but rather to supply gas domestically in West Africa,” Buxton explains. “That’s a much better strategy due to the huge demand for gas in West Africa. Power plants in the region operate on expensive liquid fuels and we plan to supply gas so that they can be converted to run on natural gas. It will be cheaper and better for the environment as well.”
LNG in Africa
Gasol has recently raised US$20m (March 2013) through an unsecured bond issue to institutional investors, something that Buxton credits in part to the company’s location in London and listing on the AIM, and is clearly intent on developing industry in West Africa via LNG. So why LNG, and why Africa?
In terms of location, Buxton cites high population and GDP growth, as well as a changing investment climate, for the allure of the African continent - creating a dynamic that combines shortage of supply with bountiful demand.
“Our business is to supply gas to markets that are gas constrained,” he says. “When you add, as in the case of West Africa, high population and GDP growth, then you have an attractive market which combines shortage of supply with high demand growth.”
“In Ghana, for example, the Government would like to increase electrical capacity from the current 2GW to 5GW to address the current supply deficit. That’s more than 100% - you can’t find that sort of market potential in more developed markets. The same market characteristics prevail as you travel up the West African coastline - Benin, Togo, Ghana, Cote d’Ivoire, Liberia, Sierra Leone, Guinea, Senegal, Mauritania. This is the market that we are concentrating on.”
Buxton continues, “I think the investment climate is changing and you can see that from the number of projects, particularly in the mining and oil and gas sectors, that are seeking funding in Africa. GDP growth in Europe has slowed to such an extent that equity and debt investors are turning to Africa and alternative markets.”
“The Governments in West Africa recognise this trend and are starting to capitalise on it, making their countries more attractive for foreign investment. There’s still a way to go, but it’s definitely happening.”
With Gasol in no doubt about the investment credentials in Africa, we turn to its energy vector or technology of choice, LNG. As Buxton has already explained, Gasol sees LNG as providing the gas to rival more expensive liquid fuels in operating the region’s power plants. But it is also the speed with which this cryogen is able to effect change in the region, as a medium-term solution, that is important for Gasol.
Buxton enthuses, “We see regasified LNG as providing gas to market quickly in West Africa, as a better alternative to liquid fuels. But let’s be clear - regasified LNG may be cheaper than liquid fuels, but it’s more expensive than natural gas developed onshore or offshore of the countries we are supplying to. So we see regasified LNG as a short-to-medium-term measure, to be substituted by natural gas when it becomes available from offshore reserves.”
“Gasol is also working on the longer-term solution and our association with Afren [Gasol is majority owned by the founders of Afren] is extremely beneficial in looking to develop natural gas from offshore fields in the region.”
Providing LNG to West Africa is not without its challenges, however. “Firstly, you need to have an extremely focused, motivated developer like Gasol to develop the project,” Buxton identifies. “West Africa has its challenges and perhaps a larger multinational might have relegated the Benin LNG Import project down its list of projects into the ‘too difficult’ category and developed a project elsewhere because it was easier. Gasol has key relationships in West Africa and our partnership with Bengaz in Benin has been instrumental in progressing our project.”
“Secondly, finance is a challenge and the key role of the development banks cannot be underestimated. We are working with the Dutch development bank, FMO, on our Benin LNG Import project and fortunately they understand the opportunity - a reliable, continuous supply of gas will kick-start power plant development and industrial projects in West Africa and the benefits to the countries concerned, Benin, Togo and Ghana will be enormous.”
“Thirdly,” he adds, “is credit enhancement - again there is a key need for insurance arms of development banks to provide credit enhancement of the obligations of the gas off-takers so that projects like ours can be financed and the significant benefits to the economy can be realised.”
As of yet, none of Gasol’s projects are operational, with its most advanced project being an LNG import project in Benin which sees the product regasified and sent through an existing operational West African Gas Pipeline to customers in Benin, Togo and Ghana.
At the heart of Gasol’s vision is regasification technology and, in particular, Floating Storage and Regasification Units (FSRUs). Not only is this seen as the fastest way to bring LNG to the countries of West Africa, but also a cost-effective means of delivery.
“The gas storage and regasification facilities are chartered, so the capital costs are manageable and we hope that we can produce first gas within 12 months of signing a Gas Supply Agreement,” Buxton affirms. “For our LNG Import Projects, we will enter into contracts for the purchase of the LNG. That’s why the recent announcement of our strategic alliance with Socar Trading, the trading arm of the State Oil Company of the Azerbaijan Republic, is so important. I don’t feel the market has quite grasped the importance of that alliance.
“There are five essential components you need for an LNG import project - firstly, the concession of the port and the gas sales agreements to the local utilities, which is what Gasol takes care of. The other three components are LNG supply, the provision of the gas storage facility, and the gas regasification facilities. Socar Trading are providing our project in Benin with all those. That’s a major step forward for Gasol and for the project.”
Pressed further about the preference for FSRU technology, Buxton is able to reel of a whole list of factors in its favour, not least a proven track record in other geographies. He clarifies, “Floating storage and regasification is now a proven and well tested technology elsewhere in the world. You can see the number of operational and committed projects. That is only half the story, as there are a large number of proposed projects.”
“In West Africa and for Gasol,” he adds, “I think the most important factors are speed to market and less capex than for onshore regasification. We plan to supply first gas from our Benin project in 2015 and the capex is significantly less than for an onshore regasification terminal.”
As delegates converge here at the Indaba Hotel & Conference Centre in Johannesburg for the third gasworld African Conference, unlocking Africa’s potential is the clear objective.
That same goal sums up Gasol, as exemplified by Buxton. “This is exactly Gasol’s raison d’etre - we are unlocking Africa’s energy potential by supplying gas to gas constrained markets, providing gas which is significantly cheaper to burn in power plants than liquid fuels. Gasol is the catalyst!”
That said, is it in Gasol’s aspirations or business plan to roll-out its projects beyond west Africa, to the rest of the continent? Buxton is not ruling out the prospect. “Our view is that we have to establish ourselves fully in our core market first. However, it is true that you acquire a reputation for developing expertise in your field, and we are now being approached to develop LNG import projects in other countries, in Africa and further afield as well.”
“We will look at all opportunities,” he affirms, “but it’s important not to lose our focus, which is to generate revenues in 2015 from our Benin Project.”
Finally, gasworld asks Buxton, if Gasol could relay one message to delegates in South Africa, what would it be? He smiles, “I know a really good AIM listed company that’s worth investing in and is seeking to unlock Africa’s energy potential; its name starts with a G!”