x Abu Dhabi, UAETuesday 23 January 2018

Angola enters natural gas market with first cargo to Brazil

Despite delays, the Angola's multibillion-dollar LNG plant built with the help of Chevron is out of the blocks. With its first delivery due in Brazil next week, the outlook for the hydrocarbons industry is looking rosy.

The first cargo departs the Angola LNG facility in Soyo on June 16 aboard the SS Sonangol Sambizanga. Courtesy Angola LNG
The first cargo departs the Angola LNG facility in Soyo on June 16 aboard the SS Sonangol Sambizanga. Courtesy Angola LNG

After a long and frustrating wait, full operation at Angola LNG, a US$10 billion natural gas processing facility in Africa, is finally up and running.

Production of liquefied natural gas (LNG) has safely commenced and the plant shipped its first cargo on June 16 after 18 months of delays.

Petroleo Brasileiro, or Petrobras, Brazil's importer of liquefied natural gas, is preparing to receive Angola's first spot cargo, ship-tracking data show.

"Angola LNG is entering the market at an exciting time," says Artur Pereira, the chief executive of Angola LNG Marketing.

"The world LNG market is expected to remain tight over the coming years, with very limited new LNG capacity coming on-stream. We are delighted to be producing and shipping our first LNG cargo."

LNG Marketing, based in London, says a "large number" of sales have been agreed worldwide and others are in the negotiation stages.

The SS Sonangol Sambizanga, operated by Angola LNG and with a capacity of about 161,000 cubic metres, is now off the coast of Rio de Janeiro, according to transmissions captured by IHS Fairplay on Bloomberg. It is scheduled to dock July 14.

The tanker loaded the supercooled natural gas at the Angola LNG terminal at Soyo, according to Petrobras. It has a floating regasification terminal at Guanabara Bay near Rio de Janeiro. Petrobras will import as many as 60 LNG shipments in total this year, up from 56 last year, the company says.

The Angola plant has the capacity to produce 5.2 million tonnes per year of LNG, 63,000 barrels per day of natural gas liquids for export, and 125 million cubic feet of natural gas per day for domestic consumption.

The facility had previously halted production due to fires, pipeline failures, and labour shortages.

Chevron's subsidiary, Cabinda Gulf Oil Company, has a 36.4 per cent stake in the joint venture, along with Sonangol with a 22.8 per cent interest and subsidiaries of Total, BP and ENI, each with a 13.6 per cent stake.

"First gas at Angola LNG is an important milestone in support of our strategic plan to grow our production," says George Kirkland, the Chevron vice chairman.

"This project will commercialise natural gas resources in western Africa to meet growing demand in the region and internationally."

Initial production of LNG at the plant was sold to Angola's state oil and gas company Sonangol, according to LNG Marketing. The SS Sonangol Sambizanga is one of seven LNG vessels under long-term charter to the Angola LNG project.

The project aims to collect and transport natural gas from offshore Angola to an onshore liquefaction plant on the coast near the Congo River. It plans to use associated natural gas produced from existing crude oil operations and new non-associated gas from other offshore fields.

The project has been designed to support continued offshore oil development. Other objectives include the reduction of natural gas flaring and the reduction of greenhouse gas emissions from offshore producing areas.

As one of the largest single investments in the Angolan oil and gas industry, the project is set to play a key part in the financial prosperity of the company, according to LNG Marketing.

"Angola LNG's vision is to be a reliable and competitive supplier, a strong community partner, and a role model for the economic development of Angola," says Antonio Orfao, the chairman of Angola LNG company. It is expected to process gas to produce and deliver LNG and natural gas liquids throughout an expected life of at least 30 years.

Chevron's involvement in the project is just one of many the company is engaged in across the African continent.

It is also involved in upstream activities in Chad, Democratic Republic of the Congo, Liberia, Morocco, Nigeria, Sierra Leone and South Africa.

New daily oil equivalent production of 451,000 barrels in Africa during last year represented approximately 17 per cent of the company-wide total, according to Chevron.

In March, Chevron announced its subsidiary Chevron Overseas (Congo) Limited was getting ready to develop the Moho Bilondo "Phase 1 bis" and Moho Nord projects offshore the Republic of Congo.

"With the project, we will enhance our position in this prolific deepwater basin," Mr Kirkland says.

Like Chevron, other energy giants have become heavily invested in Africa. The region's vast hydrocarbon reserves are particularly attractive to oil majors around the world.

BP, for example, has a significant presence in Africa, operating in nearly 20 countries across the continent. The BP Africa region consists of the company's downstream operations in Kenya, Lesotho, Malawi, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe.

According to BP, total downstream capital invested in Africa amounts to $550 million with an annual operating budget of about $100m.

BP's global merger with Castrol, in particular, has made a noteworthy impact on its footprint in Africa. In manufacturing, Castrol brings to BP two plants in Durban, one on the Reef and one in Zimbabwe.

In addition, BP announced in April that this year it plans to begin investing nearly 5bn rand (Dh1.85bn) in South Africa over the next five years. Half of this investment will be spent on upgrading a joint venture refinery called Sapref, which it owns with Shell.

Sapref will focus on complying with South Africa's proposed clean fuels requirements, says the group managing director Iain Conn.

On the other hand, the oil giant announced in May that it was reconsidering further investments in Algeria because of insecurity in the south of the country. The attack on the Amenas gas facility in Algeria, which is operated by BP, occurred in January and resulted in the deaths of about 40 foreign workers.

These developments come during a challenging time when the United States is drastically reducing energy imports from Africa. According to the US department of energy, American crude oil production grew by more than one million barrels a day last year, which marked the biggest increase to date. Consequently, US imports from Nigeria, Algeria and Angola plunged by more than 40 per cent last year, reaching their lowest level in decades.

Meanwhile, the competition for LNG projects around the globe is heating up. Indeed, Africa is home to plentiful gas finds in Mozambique and Tanzania, but several LNG projects in other parts of the world are also rapidly advancing.

Australia, for example, is taking a prime spot in LNG developments, and Russia recently signed a 25-year $270bn oil and LNG supply contract with China.

However, such factors are not deterring major corporations such as Chevron in their approach to Africa. In addition, the International Energy Agency (IEA) and even the accounting firm Ernst & Young also recognise the continent's potential.

The IEA forecasts natural gas production in Africa will expand to almost 400 billion cubic metres (bcm) by 2035, with regional natural gas consumption growing to almost 170 bcm. Increasing at an average rate of 2.7 per cent per year, gas production is expected to nearly double by the year 2035.

According to the Oil & Gas Journal, proved reserves of natural gas in Africa were estimated at about 14 trillion cubic metres (tcm), as of January 1 last year. African gas reserves totalled about 7.5 per cent of the world's total. Technically recoverable reserves of natural gas in Africa are estimated at about 74tcm, making up almost 10 per cent of the world's total.

Ernst & Young, in its published report titled Natural Gas in Africa, predicts broader infrastructure build-out in Africa may include "massive export facilities, as in the case of LNG, but also smaller projects such as pipelines and gas distribution networks to support local/regional domestic gas demand". According to the report, "the opportunities for Africa presented by the Golden Age of Gas are enormous and the challenges and risks can be addressed and mitigated, if not fully overcome".

Some of these major challenges include a possible global economic recession, failure to properly implement global commitments to "greener" energy, increasing gas-on-gas competition from new supplies and public acceptance of unconventional gas development, according to the Ernst & Young report.