Africa is a proving ground for small-scale FLNG projects
Africa has become the home of floating LNG (FLNG), with one project under way and two in the construction stages. The continent is well-placed to welcome additional FLNG projects for a number of reasons: plenty of offshore gas, small local demand, and governments eager to encourage investment and ready to offer attractive terms. Finally, Africa’s location – and well-served sea-routes – make exports to Europe or Asia a relatively straightforward proposition.
2018 saw some significant steps. Perenco’s FLNG unit offshore Cameroon, the Hilli Episeyo, reached full commercial operations in June and all signs have been that this has successful. The Golar vessel started up with only half its potential capacity in production at 1.6 bcm of 3.2 bcm, with the operator reserving its options for switching on the other half at a later date.
In December 2018 BP and Kosmos Energy opted to go ahead with the Greater Tortue Ahmeyim project, off Mauritania and Senegal. This first phase will produce 2 bcm, with first gas due in the first half of 2022. Resources held by the companies are put at 425 bcm, leaving plenty of scope for expansion.
Kosmos chairman and CEO Andrew Inglis commented that the development could be expanded to 13 bcm. “We also believe there is potential for two additional world-class gas hubs in the region – one near the Bir Allah discovery, offshore Mauritania, and the other near the Yakaar-Teranga discoveries, offshore Senegal.”
According to the FID statement, released in December 2018, BP will be the offtaker, while BP has also signed up to offtake gas from Coral South in Mozambique. Gazprom is the offtaker for Perenco’s Cameroon FLNG, under an eight-year contract.
Future FLNG prospects are in view in Gabon, Nigeria, Congo-Brazzaville, and the Etinde development in Cameroon.
Eni’s Coral South offshore Mozambique is the first ultra-deepwater FLNG plan to go ahead, in around 2,000 metres of water. Tortue, offshore Mauritania, is deeper, at around 2,850 metres. Tortue will probably see four wells linked via an 80-km pipeline to a FPSO, where liquids will be stripped out. From there, 4.5 bcm will move to an FLNG vessel moored to a new near-shore breakwater.
Even for smaller FLNG projects financing has been a challenge. Perenco’s project operates under a tolling model. Golar financed the conversion on its own balance sheet. Eni and its partners in Mozambique used US$4.6 billion in debt from a range of export credit agencies, including those from China, South Korea and Italy, for Coral South. BP is financing most of Tortue, and is also carrying its partner, Kosmos Energy, for around US$500 million.
Banks have been conspicuous by their absence. Ophir Energy was unable to finance Fortuna (offshore Equatorial Guinea) partly because Schlumberger pulled out of the deal. Ophir lost its licence covering the field at the end of 2018 and it now seems Fortuna is more likely to be developed through a pipeline to the existing onshore liquefaction plant.
While FLNG looks untested from a bank’s credit committee’s perspective, onshore liquefaction plants bring their own concerns, over land ownership and physical security risks. In reality, floating projects are probably considerably less risky. Their construction does not depend on finding local skilled employees. They can keep operating while political or military conflicts play out ashore (Angola’s offshore oil assets maintained production during its civil war), and can ultimately leave if either the resource or the local administration fails.
As lenders begin to understand that technical risks are low, and that sovereign risk is mitigated by keeping assets afloat, it is likely that banks will finally enter this market in Africa and elsewhere. Small-scale FLNG therefore looks like a promising market opportunity.