Angola LNG shuts down until 2015 for major re-build

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The troubled Angola LNG project looks likely to be out of action until the middle of 2015 while the owners and EPC contractor Bechtel conduct inspections and correction work to substantial portions of the plant. The news comes in the wake of an accident in April which led to a release of hydrocarbon vapour from a ruptured pipe.

It remains unclear how serious the accident was in terms of the volume of hydrocarbons released, but there have been suggestions that the plant was put at risk of an explosion had the released hydrocarbons been ignited.

A report published by Reuters on 28th May quoted a spokesman for the Angola LNG consortium as saying: “Following investigation into the incident that took place . . . on 10th April, Angola LNG will pull forward a planned shut-down to allow its contractor Bechtel to both correct items from the incident and – in parallel – address plant capacity issues.”

Just a week before that, Angola LNG had approached ship-brokers to lease out its entire fleet of LNG tankers, suggesting that the plant was expected to be out of action for some time.

String of accidents: The $10 billion, 5.2 mtpa project – which came on stream in the middle of last year, eighteen months late – has been plagued by a string of accidents and engineering failures. These have included electrical fires, pipe ruptures and the capsizing of a drilling rig.

One of the largest energy investments in sub-Saharan Africa, 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%. Located at Soyo – 350 km north of Luanda, at the mouth of the Congo River – the project delivered its first cargo to Brazil in June last year, making Angola the 19th nation to become an LNG exporter.

However, over the past year the plant has had to shut down several times and has delivered only a fraction of the cargoes that it had hoped to.

The plant was designed to gather and process 1.1 Bcf/d of natural gas to produce LNG and natural gas liquids (NGLs), including 125 MMcf/d for local electricity generation. At full production, over 70 LNG cargoes per year were expected to leave the plant, supplying 5.2 mtpa of LNG, plus propane, butane and condensate.

Disappointment: The poor performance of the plant to date and the current year-long shut-down will come as a big disappointment to Angola – given the high hopes that the project would generate significant benefits for what is still a poor country, despite it being the second-largest oil producer in sub-Saharan Africa.

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.

The company 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.

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.

One of the technical challenges that the plant faces arises from the fact that its supply is mostly associated gas from multiple fields and operators. Earlier this year Chevron said: “Due to the variability in the associated gas that supplies Angola LNG, the plant is expected to operate at approximately 50% capacity until permanent plant modifications are completed in 2015.” That, of course, was before the decision to shut the plant down completely for a year.

Marketing challenge: Along with its technical challenges, Angola LNG – once it comes back on stream –will face the challenge of  selling its LNG at prices that justify its cost. Assuming it eventually ramps 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.

The technical difficulties that the plant has suffered will make it difficult to arrange long-term contracts, because buyers will be concerned about the plant’s ability to deliver cargoes reliably. Convincing buyers that all the problems have been fixed for good may end up being the biggest challenge of all.

By Alex Forbes