NewAge taps opportunity in African FLNG

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NewAge taps opportunity in African FLNG

Steve Lowden hopes to reach FID on up to two FLNG projects in 2018

NewAge LNG is working with Chinese partners to design and lease purpose-built FLNG vessels that will unlock its parent company’s offshore African gas reserves. NewAge (African Global Energy) founder and chairman Steve Lowden tells Karen Thomas why scaling down is the new scaling up

Despite new project approvals slowing to a trickle, due to the prolonged slump in global oil and gas prices, an industry newcomer hopes that 2018 will be the year that it decides to progress its plan to develop small floating LNG (FLNG) projects off the coast of Africa.

Jersey-headquartered, London-based NewAge (African Global Energy) hopes to reach a final investment decision (FID) in 2018 on at least two FLNG projects. The long-term goal, says founder and chairman Steve Lowden, is for the company’s LNG business unit to lease “three or more” purpose-built FLNG vessels to tap small rich gas reserves – in Africa and beyond.

Its parent company, founded in 2007, owns upstream interests across Africa (see box) and in Iraqi Kurdistan. It plans to build a boutique LNG business from those projects, tapping its upstream projects for small quantities of rich gas to sell to gas-to-power projects, particularly in China.

It’s a business model that turns on its head the notion that the bigger the project, the bigger the economies of scale – received wisdom among energy majors. NewAge’s premise is that FLNG is best suited to locations that lack shore-based industrial infrastructure and capacity and that have an under-developed domestic market.

“The less developed the shore-based industrial capacity, the more suitable FLNG becomes in general,” Mr Lowden says. “Less developed, remoter parts of the world would need heavy investment in shore-based infrastructure, which adds material cost uncertainties.

“For these countries, FLNG becomes the infrastructure and then an enabler for developing the domestic gas business.  FLNG is also less capex-intensive and more conducive to a lump-sum, date-certain construction model.”

NewAge plans to lease newbuildings that can tap and process rich gas, found in small quantities of 3 tcf or less, in shallow waters, to support FLNG projects that produce up to 2M tonnes a year. “We studied conversions for two years,” Mr Lowden says. “But because we are focused on rich gas fields in shallow waters – fields rich in liquids – we have to do pre-processing.

“To do that, we can either install two vessels for gas processing and FLNG, or one vessel for a combined purpose. We concluded that it was logical to put everything on one vessel – and so we ended up deciding to go for a newbuild, as there was nothing out there suitable to convert.”

The decision then became whether to build a vessel with its own propulsion, or to add the processing and cryogenic systems to a traditional barge or to one of myriad floating options that exist as designs but – at the time of writing – have yet to come to market.

“If it’s a barge, your costs are less,” Mr Lowden says. “But once you get into deeper, less benign waters, you need to be fully shipped. Our focus has been on shallow, benign waters for which we can use a barge.”

Newbuildings

NewAge has gas reserves in Nigeria, Congo-Brazzaville, Cameroon and Ethiopia. In 2016, it went out to tender for an FLNG design to treat gas liquids and produce LNG. It awarded the contract to a consortium comprising SBM, JGC of Japan, China National Offshore Oil (CNOOC) construction arm China Offshore Oil Engineering and China’s largest shipyard, CSSC.

The partners plan to design and build vessels for multiple applications. “The upstream costs will be paid for by the liquids,” Mr Lowden says. “The FLNG then stands alone, as a business.

“We aim to keep the vessels relatively simple and at a volume of 1-2 mta that does not stress the upstream and is sized to meet point-to-point market opportunities. If you are building an FLNG vessel that can service multiple fields, you don’t need to stay at that location for 25-30 years, so you can produce at a much faster rate.”

NewAge LNG hopes to reach FID on up to two projects in 2018.

The first is its proposed 1 mta project in Congo-Brazzaville, tapping gas associated with the Eni-operated upstream oil project involving NewAge and SNPC.

NewAge subsidiary Congo-Brazzaville LNG (CBLNG) has secured government approval for the vessel and the offshore location and hopes to complete the fiscal arrangements shortly. If all goes to plan, Mr Lowden says, “we will be ready to go to FID before the end of 2018”, producing the first cargoes in 2022 or 2023.

The second is in Cameroon, where NewAge is operator for the Etinde joint venture, which has rich gas and a development concession from the government that includes FLNG. This, too, may produce 1 mta of LNG. NewAge has completed the tender process for the vessel alongside the CBLNG tender process.

“There is clear motivation for the stakeholders to want to take FID on this project before the end of 2018 – although the upstream joint venture plans to drill more wells to prove additional gas, which may be sold to other domestic and export markets or used to expand the FLNG project,” Mr Lowden says.

NewAge has yet to sign its first offtake agreement. And it will not cut steel until at least one project reaches FID. However, Mr Lowden hopes to synchronise the first two projects to optimise the work in the shipyard and with the topsides.

East Africa FLNG

In east Africa, Ethiopia and Djibouti are working on a third project that may or may not involve FLNG. Here, NewAge’s oil and gas discovery could support the project as a pipeline supplier alongside Poly GCL Petroleum, a joint venture between the China Poly Group and Golden Concord of Hong Kong that holds gas reserves of more than 4.5 tcf in Ethiopia.

Poly GCL wants to pipe gas from landlocked Ethiopia’s Ogaden Basin to the coast off Djibouti, for liquefaction. The project aims to export 2-4 mta of LNG. NewAge could supplement the gas feed when the project comes to market, either to meet domestic demand or to boost exports of LNG via Djibouti.

NewAge has been assisting the Ethiopian government on the pipeline issues.

Poly GCL has been linked to talks with Singapore shipbuilder Sembcorp Marine and Engie of France, partners in Gravifloat, a floating platform designed to support either liquefaction or regasification offshore projects.

NewAge is sitting this one out, however. “As a landlocked country, Ethiopia is not an obvious FLNG target,” Mr Lowden says. “The coastal location is Djibouti, which has a port and developed infrastructure. And Poly GCL aspires to a multi-million-tonne LNG project that may well be too large for FLNG.

“For us, the sweet spot – the real cost advantage for FLNG – lies in the segment below 2 mta… And I’m not yet convinced of the cost benefits associated with building gravity-based structures in a shipyard if the infrastructure and industrial capacity is sufficient for a land-based plant.”

New frontiers

So far, NewAge LNG has focused on projects that tap gas from the parent company’s upstream interests. However, it is also exploring FLNG opportunities, leasing additional vessels to tap gas other gas – including projects outside Africa.

NewAge will not discuss the design or costs of its own vessels. The key, Mr Lowden says, has been to keep the design simple and fit for purpose to minimise the shipbuilding costs.

China is an important part of the NewAge LNG business model. The company has Chinese shareholders and it is to this market that the LNG unit hopes to sell its output.

“We were keen to help the Chinese construction parties to secure an important position in the hi-tech FLNG business on the construction side, and on the consumption side,” Mr Lowden says.

“Because we are producing rich gas, we can produce LNG at the hotter end of the spectrum. That makes it particularly suited to power generation, which should be consistent with LNG-demand growth in China for power generation.”

NewAge is also supporting China’s drive to invest in emerging markets in general, notably in energy and infrastructure projects. In April, its parent company signed a partnership deal with China Overseas Infrastructure Development & Investment, affiliated to the China-Africa Development Fund.

Although it has no offtake deals to date, talks continue with prospective Chinese partners including CNOOC, particularly for Congo-Brazzaville cargoes.

“LNG is not much more than building a giant refrigerator – it’s not complicated,” Mr Lowden concludes. “What is complicated is putting the whole project together. Making everything work efficiently and effectively, from the engineering to the commercial arrangements to the various partnerships, is not straightforward.

“It is important to get it right at the outset as the costs of making changes after kick-off – whether onshore or offshore – are significant. We believe that the costs escalate as you start to scale up the size of the project – and that if you scale up, they can increase disproportionately…

“Another challenge comes with financing these projects. Such projects need robust economics – something that’s hard to achieve, given today’s low LNG prices, for a lot of projects. It’s also about securing world-class partners – that’s why we wanted Chinese involvement with this project and with our vessels.”

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