LNG in Africa – LNG is not a rich man’s fuel

I have been writing about LNG in Africa for years now. Remember? Sub-Saharan Africa is going to be one of the most exciting plays in the LNG world for the next two decades. But it’s not going to be a walk in a Japanese garden – more like walking on burning charcoals barefoot.

Africans are slowly (very slowly) waking up to the fact that it might be better and more profitable to keep their home-produced LNG close to themselves and develop their continental economies instead of exporting every last drop. Let’s see the issue with the eyes of those affected.

Wouldn’t it be nice to be able to replace expensive and dirty diesel and gasoline with cleanly burning natural gas? Especially those producing electricity would love to leap. But we face a chicken and egg dilemma here.

Natural gas distribution grids in African countries are either failing or do not even exist in the first place. And in those rare cases when there is a distribution grid, it is insufficient so all transport and storage can only be done by using LNG.

Every MMBtu of LNG converted to electricity or used as a fuel is oil products that do not have to be imported expensively. In case those oil products are produced locally, they could be exported more profitably than LNG. But even one of the really big oil producers such as Nigeria or Angola import refined fuels so for the next decade or so it going to be a reduction of imports instead of new exports.

Besides, as transport is a regional affair and hence distances are smaller than what we are used to in LNG, smaller vessels and smaller terminals can be used economically which will in turn lower the cost of investment and operations. Quick, flexible terminal solutions will give the market a shot in the arm.

Besides, interested consumers will be able to transform their currently operating electricity production infrastructure (a backyard generator usually) into a much cleaner and quieter appliance. This will strengthen the overall electricity production infrastructure and help to avoid huge investments in new power plants and the upgrading of failing or non-existing grids.

Let’s be frank on this – the African reality is the backyard generator as this is the only thing that assures homes, offices, and industries of stable and secure power supply. This would not be a bad thing if those generators were not so loud, so dirty and so expensive to run. Natural Gas (aka LNG) would make those generators a lot quieter, real clean and if the LNG is locally produced, it would be a lot cheaper as well.

Does that make sense to you? It sure makes a hell of a lot of sense to me. Big power plants were built in the developed world decades ago because, at the time, the economics of centralized power production seemed to make sense. Distributed power is a relatively new fad but with LNG, Africa could grab a ride early and skip a lot of the big stuff. That’s a bit like with mobile phones which made developing better landlines obsolete.

I have been working on a project in the Caribbean and one of the first questions I faced was – how can a comparatively less wealthy country such as Jamaica afford to pay for LNG if rich Europeans cannot afford it?

Let’s face it – it’s a question of alternatives. If your world is a world of diesel and gasoline generators which is a very expensive fuel, then LNG looks pretty cheap to you. Let’s remember that despite the Asian madness that had us in its grip until a couple of months ago, LNG was always the cheaper option than oil products. Anyone able to pay for oil distillates must, therefore, be able to pay for LNG too.

The only hitch is that LNG requires special infrastructure. Diesel or gasoline remains liquid at ambient temperatures and pressures. They are very flammable and pretty dangerous to deal with but we are so used to them that no one ever thinks of the potential consequences of a mistake.

LNG on the other side requires an insulated chain that is a little more complex. How complex? Let’s be honest – we have handled LNG as an industrial product for half a century now and we have done so in the unlikeliest of all environments – so that bit of complexity is more an excuse for inaction than anything else.

What’s the real problem then? Oh, easy – it’s a classic chicken and egg dilemma. The market does not want to make the move unless there is the security of supply (I don’t blame them) and the supply side does not want to jump in unless there is a market they can lean on to finance their investment. Classic catch-22, isn’t it?

As so very often someone will have to kick the door open and take a little risk. Someone must provide the first LNG supply line and build up a market on a back-to-back basis.

Africa is a good place to start as they already have LNG-producing ventures, plenty of flares to convert to fuel (that means a lot of potentially cheap feedstock), and huge numbers of customers that cannot easily get connected to something that remotely resembles a grid that works.

Even with lower oil prices now, last time I looked diesel and gasoline were pretty expensive. Looks like those subsidies are going down as the national governments can simply not afford them anymore. The retail price is not at European levels yet but it’s getting there and we are beyond US levels now. Compare that to the purchasing power of the average African and we have a calamity.

Nobody has ever done anything towards “LNG as a fuel” in those countries because subsidies kept the pressure on the economy lighter than it should usually have been. With prices high, anyone is looking for an alternative.

That makes the region ready for LNG as a fuel.

Oh, shall I repeat the green properties of LNG to you for the zillionth time? Probably don’t need to as I have done that in many other posts on my blog. I know that many switchers don’t care now but once one becomes used to the clean, efficient, and silent power generator in the backyard I have a hunch that there will be an appetite for more.

African LNG should stay in Africa – at least a portion of it as it is more profitable for Africans to use it at home and build their economies rather than exporting it and importing expensive distillates in turn.