West Africa in search of solutions for associated gas, new discoveries

Gas storage, injection, LNG, or GTL

Editor's Note: The following is a summary of an article appearing in the May 2000 issue of Business in Africa, written by contributor Nicholas Shaxson.

Pressure on oil companies to stop flaring associated gas as well as the discovery of major gas fields around Africa is leading to its development as a valuable resource. Sub-Saharan Africa's huge reserves of natural gas pose a peculiar problem - a long distance from markets.

Companies and governments have ignored African gas for years, either leaving it in the ground or flaring it. Occasionally, small quantities were used to produce local power. This entire approach is changing.

All around the long coastline south of the Sahara, past Nigeria, Angola, and South Africa to Mozambique and as far up the east coast as Tanzania, natural gas gathering and marketing is becoming a new industry. As environmental movements in rich countries drive the switch to gas away from other fuels, African governments see gas as a resource and no longer want to see it flared.

Stranded gas

Though the technology for turning gas into transportable liquids has been around for years, it has been too expensive. This is still the case, if the costs of exploration drilling are taken into account. But, Africa has a lot of stranded gas lying in the ground, for which finding costs are already sunk. This is where the potential lies.

Angola, for example, has at least 10 tcf of probable gas reserves in old fields and in huge deepwater oil fields discovered over the past four years. The Angolan government is increasing pressure on companies to avoid flaring the gas, and most are scrambling to find solutions.

"There are large gas reserves in deepwater, but also over the years there have been a number of discoveries in shallow water blocks that have not been developed, and have been waiting for some Prince Charming to come along and awaken them," says Martin Eldon, Managing Director of Texaco Angola.

Texaco is planning to harness gas not only from its own shallow-water block near the town of Soyo, but also from all the nearby blocks south of Cabinda, and to build a pipeline to Luanda, where it plans to build a $2.5 billion facility producing some 3 million tons/year of LNG, possibly to start operation as early as 2005.

In the Cabinda enclave, which now produces around two-thirds of Angola's 800,000 b/d of oil production, Chevron has another plan. Rather than converting the gas to LNG and using expensive tankers, the producer wants to use technology pioneered by South Africa's Sasol to turn the gas directly into liquid fuels like diesel and naphtha.

Gas storage

Timing is crucial. First, production in Angola's deepwater fields started in January from Chevron's giant Kuito field off Cabinda, and the company has adopted a no-flaring policy on Kuito by re-injecting the gas by-product back into the oil reservoir. After three or four years, however, re-injection will begin damaging the field's ability to produce oil.

Next, a scattering of old oilfields in shallower waters are now effectively empty reservoirs, which could perhaps store gas for another three to five years. This will probably buy Chevron enough time - just - to set up their projects to harness the gas. "The real difficulty for Texaco will be in getting project go-ahead, and companies tend to be over-optimistic on the time scale for these," a London-based consultant said.

Both technological approaches are, for now, probably too expensive to make money. But the companies are under pressure from the government and have little choice but to go ahead. Over the estimated 25-year life span of such projects, costs will fall and rising demand for gas in the world will make them increasingly attractive.

LNG risks

World LNG markets are also a huge problem. While oil is simply loaded into ships, then usually traded freely on an international spot market, LNG needs costly re-gasification terminals to receive it, so outlets are limited. The commodity is usually traded on inflexible long-term supply contracts, and because there is almost no international LNG spot market, receivers of gas will find few alternative supplies in the event of disruption.

This makes an LNG project riskier for an end-user than an oil project in Angola, still in the throes of a long civil war with Jonas Savimbi's Unita rebels, and will add to the difficulties of finding buyers in a limited market already bursting with eager suppliers.

A similar problem faces turbulent Nigeria, which produces some 2 million b/d of oil, but holds vast gas reserves. Nigeria flares enough to power the whole of sub-Saharan Africa. "While Angola is an oil province, with some gas, Nigeria is a gas province, with some oil," an industry analyst said.

Nigeria is going ahead with an ambitious $3.8 billion LNG project on Bonny Island, which started production last October and will soon run at nearly 6 million tons of LNG per year. This should grow to 8.6 million tons when a third LNG train is added by 2003, and output will probably keep growing after that.

Nigeria has been lucky in sewing up its markets early, reducing the number of markets for rival LNG from Angola, for now at least. Chevron also wants to use Sasol's technology in Nigeria to rival the LNG project.

Gas-to-liquids

"Gas-to-liquids technology is so promising that its development could create an entire paradigm shift throughout the petroleum industry and reflects Chevron's strategy to grow our international business," said Richard Matzke, former president of Chevron Overseas Petroleum, talking at the signing of the memorandum of understanding with Sasol last June.

"There are trillions of cubic feet of natural gas throughout the world, isolated from the traditional gas infrastructure and thus considered geographically too distant for economical development. We believe gas-to-liquids technology will become the preferred method to commercialize such natural gas resources."

Chevron will also be a major investor in a planned 1,000 km, $400 million offshore pipeline to carry Nigerian gas to Ghana, Benin, and Togo for power generation projects, creating an industry based on regional cooperation. This has largely evaded the producers of oil, which have historically in Africa created a more outward-looking industry, focused almost entirely on exports to rich countries. Nigerian gas could be flowing to its neighbors by 2002 and the project may be expanded to 180 MMcf/d by 2008.

"With the realization of this project, we can say that the power crises, which hit Ghana, Togo and Benin in the 1980s and 1990s, will be a thing of the past," said Ghana's Power and Energy Minister, Dr John Abu.

Further south

Further south, different changes are afoot. Though Namibia's giant Kudu field and Mozambique's Temane and Pande fields are close to South Africa, years of apartheid-inspired isolation helped stifle their development. Mozambique's gas is just 500 km east of the large industrial heartlands of Johannesburg and Pretoria and the emergence of majority rule in 1994 has opened up huge new opportunities.

Sasol now plans to pipe Mozambique's gas to its large facilities in place near Johannesburg, which turn coal into liquid fuels and chemicals. Gas will provide an alternative feedstock to coal, and also supply Sasol's existing and growing network of pipelines carrying its special "coal gas" in South Africa.

Namibia's Kudu gas, because it is further from these markets, will almost certainly be used instead to generate electricity. This probably means it will take longer than Mozambican gas to bring into production, because South Africa currently has a surplus of power generation capacity, which will probably last at least until 2007.

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