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The transport and energy sectors have recently been hit hard by disruptive technologies causing considerable discomfort to the value chain; however, this has also opened up new markets, presenting active players with striking LNG revenue streams to explore. Here is what ensued during an ESI Africa live webinar on this trending topic.

This article first appeared in ESI Africa Issue 1-2020.
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One of the leading disruptors in the energy industry is the rise of liquefied natural gas (LNG), which is definitely shaking things up in the entire energy value chain across the globe. Taking a deep dive into this technology, ESI Africa brought together experts from the field to dissect the factors that influence the LNG outlook, now and into the future.

Joining us on-air for the Heightened interest in LNG stimulates Africa’s gas economy webinar, which is available for download on ESI-Africa.com, were Muzi Mkhize, a full-time regulator member for petroleum pipelines regulation at NERSA, Aldworth Mbalati, the CEO of DNG Energy, and Mohamed Rali Badissy, a professor of energy law at Penn State Dickinson Law & senior advisor on energy and finance to the US Department of Commerce.

According to research, the African LNG market holds 7.1% of proven global gas reserves and is expected to contribute nearly 10% of global production growth through to 2024. However, little (predominantly in West Africa) has been done to exploit this potential. Africa’s energy consumption has already increased by ±50% since 2000 and is forecast to increase a further 60% by 2030, noted Mkhize in his opening statement during the live broadcast. He continued: “These figures indicate that there is a need for more energy with the growing population as well as the increasing economy.” This draws attention to an incredible challenge that Africa is facing and that LNG must be part of the solution within the energy mix, he stressed, adding: “We need to take into consideration that energy is the lifeblood of any economy – an enabler and input cost.”

Highlighting that everything starts with good planning, Mkhize said: “In South Africa, we have a national development plan from which other plans flow. That is informed by befitting policy, legislative and regulatory environment frameworks. Without the requisite infrastructure and human capital, all that planning is in vain.” He then listed a number of challenges inhibiting the LNG growth in the continent.

Mkhize’s list of challenges:

• Lack of policy and regulatory certainty

• Weak and badly managed institutions and state-owned companies

• Instability and sovereignty risks

• Shortage of capital: according to research, “no nation in sub-Saharan Africa is rated investment grade”. Countries with poor credit records rely on foreign investment from aid agencies such as the World Bank to provide guarantees to build LNG import and export facilities.

Drawing listeners’ attention to an advantage that LNG holds, Mbalati broached the topic of the carbon emissions held within every computer and mobile device in use. “You need to ask yourself – how much in emissions does this machine emit before it lands on my desk?”

Mbalati posed this question because shipping plays a pivotal role in our day-to-day lives and reducing carbon emissions in the shipping industry, as one of the biggest emitters, is important. “Africa, especially if you look at Cape of the Good Hope, has over 57,000 vessels that pass through it and the bulk of those vessels are using fuels that are high in sulphur and that are not climate-friendly,” Mbalati pointed out. As a solution, he proposed that “if we were to move into a scenario where we provided LNG bunkering services around the South African or the Cape of the Good Hope area, it would mean that Africa as a continent is contributing its part by becoming an international player in terms of a service provider to the marine industry”.

Current LNG market

Adding his voice to the discussion, Badissy highlighted that the use of LNG fuel primarily for power and industrial use, and imports in transport fuel are increasing. “We are starting to see it used as a combination for off-grid energy, where you have hybrid systems that use both LNG and solar or wind. We can see the use cases and the opportunity for LNG deployment in the downstream multiplying across the world but there continues to be a challenge in the African space.”

However, the overwhelming global picture, when looking at the current LNG market, tells a story that is still very much the same as it has been in the last 20 years. Europe is the largest LNG consumer, followed by legacy consumers in Asia, which include Japan and Korea. There has also been a fall in the US market due to the focus switching from the importation of gas to being an exporter as a result of the shale gas revolution. “The new story in the LNG space is the new sources of demand; and this is where Africa will rise up,” Badissy said.

While there are demand centres outlined in Europe, Asia and Latin America, Africa is still primarily thought of as an exporter in the gas space. Expressing disappointment, Badissy noted there are very few cases of deployment of gas utilisation in the African market: “If anything, the countries that are using gas, are the countries that have gas. There’s been an effective entrance of African countries into the market as consumers, at least non-native consumers of natural gas”.

On a positive note, he observed that where African countries are able to develop the use cases for power transportation for that demand, then “they have advantages for having access to loads of the world’s well-priced gas in a form of LNG”. This type of development could see African gas exporting countries trading with other African countries.

The advantage is that once the infrastructure is in place. “You have liquidity; you have the opportunity in Africa to actually be a player that can borrow from multiple sources to get price competition, to get demand stability, and it could work rather well,” he advised. The outlook is positive if the downstream market in sub-Saharan Africa is developed: “Right now the gas sources are available and the nearby markets will soon be available: for example, in Mozambique, Ghana and Senegal”.

There is also the portability of LNG as technology to consider, as African nations can skip building basic pipeline infrastructure and instead use LNG as the new mode of distributing energy in the form of natural gas.

Revealing a graph [Figure 1], Badissy reflected on LNG being the cheapest option of delivering natural gas. “Gas pipelines do make a lot of sense over short distances but over long distances, they don’t. Africa is a huge continent, and over long distances, LNG becomes the cheapest mode of delivering natural gas.” On the cost basis, Badissy said if the industry is talking about building the energy future market in sub-Saharan Africa, then the best way to deliver energy access and the quality of energy stability to African consumers is LNG. “LNG, as a technology, is providing an opportunity for African governments to avoid costly infrastructure, and deliver both plentiful gas at a reasonable price.”

On the whole, Africa has the potential to become both exporter and importer in the gas space. LNG may be the technology for capitalising on that potential, while taking advantage of geographic proximity that East and West Africa offer in terms of having some of the biggest gas producers and consumers in the world. ESI

Listen to the full discussion and access the presentation at www.esi-africa.com/webinars