CORRECTION: GLM COMMENT: West African FSRU plans face big hurdles

Author: Daniel Stemler

2020/05/27

This article was corrected to show that Benin is already connected to the West Africa Gas Pipeline, and reference to a 25-year pipeline construction period has been removed.

MADRID (ICIS)--Planned floating storage and regasification unit (FSRU) projects in Ghana, Ivory Coast and Benin have all faced severe delays, with none of the FSRUs starting operations, despite the involvement of energy majors such as Total and Shell.

Barriers include a lack of firm demand to justify construction of the floating import terminals, with governments reluctant to provide guarantees for long-term projects.

Highlighting cost issues, an LNG terminal is more expensive than an oil terminal and a typical FSRU charterer wants around seven to 10 years of commitment.

Other hurdles are that some west African countries might not have a pipeline network or proper market legislation in place.

Demand issues will create challenges as it is likely to take a while for regional demand to catch up with the potential capacity of the LNG import projects.

In the case of Ivory Coast, the government has the opportunity to ramp up domestic production in the east of the country, as well as importing LNG, to satisfy demand.

A better scenario for Ivory Coast would be if an FSRU in place encourages the government to prioritise the unit, in which it has made long-term financial commitments, rather than produce more gas domestically, leaving the floating terminal underused.

As things stand, FSRU development in Ivory Coast has been halted, adding to the delays already seen for this project.

The situation is similar in Ghana.

The country has vast domestic reserves from the Sankofa, TEN and Jubilee gas fields, enough for another 15-20 years.

Aside from the Shell-led FSRU development project, other supply and LNG-to-power projects have been cancelled in recent years because forecast growth in power demand was lower than Ghana’s government expected.

“They do not have space for both domestic production and LNG supplies, so the government has to decide who they are going to pay and not take from,” said a market source.

In Benin, which has the smallest demand among these west African countries, state-owned utility SBEE and France’s Total have already signed a contract for the development of an FSRU and a 0.5mtpa supply agreement for 15 years.

The project is expected to supply two power plants, one of them being the 127MW CCGT facility in Maria Gleta in southern Benin.

Benin is connected to the West Africa Gas Pipeline. It’s planned FSRU is supported by the fact that there have been reliability issues with the pipeline.

However, Benin will need significant fiscal support to realise the FSRU project, according to the market source.

The FSRU in Benin was expected to begin operations in 2021, but a separate source said that due to some ongoing contractual matters, it is likely to be further delayed.

Another west African country, Sierra Leone, is developing a floating storage unit, with the financial help of the International Finance Corporation.

So it is clear that while the prospect of a busy LNG import and regasification hub off the coast of west Africa is becoming more and more realistic, there are significant challenges to overcome.

As the market continues to struggle with a global oversupply of cargoes, the development of new demand centres is crucial if some semblance of market balance is to be achieved.

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