Angola joins LNG exporters club

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Angola has become the 19th nation to become an LNG exporter. The first LNG from its newly commissioned liquefaction project at Soyo – 350 km north of Luanda, at the mouth of the Congo River – was delivered to Brazil last month. It is the first new LNG exporting nation since Peru joined what is still an exclusive club in 2010, when its single-train liquefaction plant at Pampa Melchorita started up.

The 160,000 cubic metre cargo – which left Soyo aboard the SS Sonangol Sambizanga in June – was unloaded at Petrobras' regasification terminal in Guanabara Bay, Rio de Janeiro. As the photo above shows, the LNG was delivered by ship-to-ship transfer to the Exquisite, one of Excelerate Energy’s Floating Storage and Regasification Units (FSRUs).

Much-needed benefits: At a cost of $10 billion, Angola LNG is one of the largest single investments in the nation’s hydrocarbons industry. Its start-up promises significant benefits for what is still a poor country, despite Angola being the second-largest oil producer in sub-Saharan Africa. It will bring in much-needed export revenue; it will monetise gas that would otherwise have been flared or re-injected, a major environmental boost, given how much associated gas is flared from Angola’s various offshore oil production developments; and it will provide sales gas for the development of a domestic gas industry in Angola itself.

But Angola LNG – which has faced many challenges during the long and sometimes tortuous period of its development – now faces the most important challenge of all: selling its LNG at prices that justify its cost. Once ramped up to full production, it will have to sell 5.2 mtpa of LNG to markets other than the one it originally targeted – the United States.

At one time that would have looked a very tall order indeed. Today, because of fundamental changes under way in the way that LNG is traded, it does not. But, nevertheless, the challenges should not be underestimated.

Thinking again about marketing: Angola LNG follows in the footsteps of other LNG projects that decided during the first half of the 2000s that liquid markets in the United States and north-west Europe were a good basis for investing in new liquefaction capacity – challenging the traditional approach of agreeing inflexible long-term contracts to specific markets, with prices generally indexed to oil.

Then came the North American shale gas revolution. Expectations that the US was well on its way to becoming the world’s largest LNG market crumbled.

The LNG exporter most affected by this turnaround has been Qatar, which has uncommitted liquefaction capacity several times larger than Angola LNG, but which has managed the challenge of finding new homes for the output of its mega-trains with aplomb.

In the process, there has been rapid growth in the spot and short-term market for LNG. This has been partly because of the growth of flexible supply, mainly from Qatar, but also because of the nuclear power crisis in Japan, which has become the world’s largest short-term buyer.

In 2000 the short-term market accounted for just 5% of global LNG trade (then around 100 million tonnes). In 2012, according to statistics published by GIIGNL, the International Association of LNG Importers, it accounted for more than a quarter (of around 237 million tonnes). It is to this market – defined by GIIGNL as spot and short-term contracts of up to four years in duration – that Angola LNG will initially be selling.

Over the longer term the project is likely to seek to tie up at least some of its output in long-term contracts. But it will be facing significant competition – not least from Qatar.

Lining up ships and customers: Careful preparations have been made to ensure that marketing is as straightforward as possible. A new marketing organisation has been established; seven dedicated 160,000 cubic metre LNG carriers have been long-term chartered; and master LNG sale and purchase agreements have been executed with energy companies across the world, providing Angola LNG with what it claims to be “a robust and diverse portfolio of customers”. Further agreements are under negotiation.

Angola LNG Marketing Ltd. – based in London in the UK – has been created to conduct global LNG marketing and sales operations on behalf of the project. It is responsible for developing marketing strategy, negotiating sales agreements with buyers, and managing the shipping fleet.

Factors in favour: Commenting on the loading of first cargo, Artur Pereira, CEO of the project’s marketing business, said: "Angola LNG is entering the market at an exciting time. The world LNG market is expected to remain tight over the coming years, with very limited new LNG capacity coming on-stream."

Indeed, several factors are working in the project’s favour at what otherwise would have looked a difficult time. As Pereira says, with little new liquefaction capacity due on stream for several years, the LNG market is expected to remain tight until at least 2015 and probably beyond. Rapid growth in the short-term market has made spot and short-term trading a common practice, with some emerging markets relying on it primarily. Moreover, the project’s shareholders include experienced portfolio LNG traders.

Angola LNG is a joint venture between the nation’s national oil and gas company Sonangol, which has a stake of 22.8%, and four international oil and gas companies: Chevron with 36.4%, BP 13.6%, Eni 13.6%, and Total, also 13.6%.

It will gather and process 1.1 Bcf/d of natural gas to produce LNG and natural gas liquids (NGLs), which will include 125 MMcf/d for local electricity generation. At full production, over 70 LNG cargoes per year are expected to leave the plant, supplying 5.2 mtpa of LNG, plus propane, butane and condensate. The project has three loading jetties – for LNG, liquids and compressed butane. It will also supply the local market of Angola with LPG and natural gas for its industrial and energy needs.

From “a twinkle in the eye of Texaco” to start-up: The project, now operated by Chevron, was originally a twinkle in the eye of Texaco – the US company that Chevron took over in a 2001 merger – which was the first foreign company to begin working with Sonangol on a potential LNG project. Texaco had begun working on the project in 1997 but had kept it under wraps until it was sure that it would not be consigned – as I was once told by then marketing manager Mike Sinclair – to “the box of broken dreams”.

Texaco was planning a scheme to develop a comprehensive solution to eliminate natural gas flaring in Angola and monetise otherwise unused non-associated gas in offshore areas south of the Congo River. It was not until 1999 – when sufficient work had been done to convince Sonangol and Texaco that the project was “viable and competitive” – that the news began to leak out.

In 2001, the project came under the spotlight at the LNG 13 conference in the South Korean capital of Seoul, with a surprise announcement that it had received bids from four companies for its front-end engineering and design (FEED). Few knew that bids had even been invited, let alone received.

I still have one of the blue “Angola LNG” baseball caps that Texaco was handing out on its exhibition stand, along with an expensively produced coffee-table book of photographs showing how stunningly beautiful Angola is.

But it was not until December 2007 that final investment decision was eventually reached – and the original start-up target of 2012 was missed because of a series of technical hiccups. For lots of reasons, not least that the market needs Angola’s new tranche of supply, it is good to see the country’s LNG ambitions coming to fruition – at last.

by Alex Forbes

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