building capacity and meeting demand with the west … · building capacity and meeting demand with...

Building Capacity and Meeting Demand with the West African Resource 2nd Annual EU Gas Forum, Vienna

Fortunato Costantino, CEO Sahara Energy International, Geneva

The Sahara Group

Vertically integrated in the Oil & Gas sector of Nigeria

Oil and gas fields, crude trading, shipping, refined product trading, storage, aviation refuelling and petrol stations

Recently moved into the power sector, supplying 40% of Nigeria’s electricity

Annual turnover is in excess of US$5 Billion

A revolving working capital base/trade credit line of US$2.4 Billion

Sahara Group

Sahara

Energy

Resource

Sahara Bulk

Storage

Sahara Sea

Support

Services

Sahara

Energy Int’l

Pte Ltd

Sahara

Trade West

Africa

Energy

Resource

Limited

MIDSTREAM

Casablanca

Ventures

Aviation Air

and Land

Services

P-Lyne

Energy

Sahara

Power

Resource

SO Energy

DOWNSTREAM

Sahara Energy E&P

Sahara Gas

UPSTREAM

P-Lyne

Energy

KERL

Sahara

Energy

Fields

Sahara have interests in a number of oil blocks, and continue to evaluate other potentially lucrative regional opportunities *

OPL 332 Potential: 300 MMbbl (4 leads) Acreage: 1,300 km2 Activity: 3D seismic acquired and processed Sahara interest: 35%

OPL 284 Potential: 270 MMbbl (35% of block) Acreage: 1,128 km2 Activity: Seismic interpretation Sahara interest: 45%

OPL 286 Potential: 200 MMbbl (40% of block) Acreage: 1,112km2 Activity: 2 wells drilled Sahara interest: 24%

OPL 288 Potential: N/A Acreage: 1,010 km2 Activity: data mining with NAPIMS/DPR Sahara interest: 100%

JDZ Block 5 Potential: N/A Activity: PSC negotiation Sahara interest: 10%

* Seismic agreement over Block B1 of the East Cape Three Points in Ghana also signed with GNPC in 2008. Sahara has the First Right of Refusal on concluding the acquisition of 1000 sq km of the 3D seismic. (Seismic survey completed in April 2009.)

OPL 274 Potential: Over 140 MMbbl Acreage: 1,000 km2 Activity: Appraisal well 2010 Sahara interest: 100%

Upstream activities as central part of our development strategy

Sahara Group harnesses its skills to excel in the Nigerian Gas Sector

Nigeria holds the 7th largest gas resources in the world (187 TCF of proven reserves)

Sahara is committed to developing the domestic gas market, and holds strategic stakes in the LNG sector

Brass LNG – Sahara, in partnership with Sempra LNG, has been awarded a 2%

equity stake in Brass LNG, a 10mtpa Liquefaction and an investment level of $15Billion USD

OKLNG – Sahara, in partnership with Sempra LNG holds a 2.5% Equity stake in the OLOKOLA LNG Project, a 22MTPA Liquefaction plant proposed to be built on the Ogun/Ondo state border

NGMP – Sahara are consortium leaders in a project to develop a Central Processing Unit – a gas gathering and treatment facility to provide gas for domestic use (power plants, petrochemicals and export facilitates)

BRASS LNG Sahara-Sempra-NNPC: A Partnership to Add Value to Nigeria’s LNG Sempra Energy is a Fortune 500 energy services company, which develop energy

infrastructure, operate utilities, and provide related products and services to more than 29 million consumers worldwide - United States, Europe, Canada, Mexico, South America and Asia

The Sahara Group serves oil majors, independent marketers, local & international oil & gas traders, the offshore oil industry and the aviation industry

Sempra LNG and Sahara (JV SemSah) will offer NNPC several options for downstream participation in the LNG and Natural Gas value chain:

Financing of NNPC Equity in BRASS

Joint Marketing of LNG to create value and develop capacity using also NNPC staff

Joint Shipping of LNG: owning and operating the LNG ships in assistance with a reputable LNG ship owner/operator

NNPC Access to Cameron LNG

Term agreement on lifting rights to LNG

Access to lift NNPC Equity LNG

ONNE - Provision of an Oil & Gas Terminal with the following sectors: Industrial Estate Oil & Gas Mega Storage Tank Farm Oil & Gas Logistics Terminal Base Non Oil & Gas Logistics Terminal Base Residential Estate – to serve the industrial estate Advantages

1. Free Trade Zone Status 2. Jetty Ports and Water way access to the South-South and South-East regions of Nigeria 3. Provision of Power to the facilities available from the current power plants being managed by Sahara 4. Easy access and connection to the Railway system to Greater Port Harcourt city and South-East of Nigeria 5. Mega Storage Tank Farm 6. Easy access to the Port Harcourt International Airport

OGOGORO - Provision of Mega Storage Tank Farm for Oil & Gas activities - Oil & Gas Logistics Terminal Base Advantages

1. Free Trade Zone Status 2. Strategic Storage Reserves for Nigeria and West African Sub region 3. Access to Alternative Water way and Oil & Gas Logistic 4. Access to pipeline distribution network for South West and Middle belt of Nigeria

Onne and Ogogoro Logistic Projects

1.The NGMP focuses on the establishment of this robust gas infrastructure which will constitute a network of gas transportation and Central Processing Facilities (CPF).

2.The CPFs will be located in 3 dedicated areas in the Niger Delta called franchise areas: Western, Central and South Eastern franchise areas.

Sahara Energy Resource Limited Consortium Leaders for a Franchise Area identified by the NGMP, to build own and operate central processing facilities (CPF) capable of processing a minimum of 300MMSCFd by December 2012.

Sahara and the Nigerian Gas Master Plan

Focus of Discussion

Developing Sub-Saharan Africa’s potential to diversify supply & security of supply: which model to apply?

Logistics for export & increasing captive demand: balancing interests in export opportunities & country needs?

Risk vs. Opportunity in W. Africa: How the current financial crunch can generate more reward & not more fear?

Domestic Power Production in Nigeria: a new way forward?

Capitalising on arbitrage opportunities through the price convergence of Atlantic Basin & APAC

Bringing more consistent processes and clarity on the rights and obligations of buyers

Investing in overseas resource development to secure energy supplies

Business Models - Our viewpoint

Challenges to Suppliers

Rising investment costs

Increased contractual flexibility

portfolio of supply contracts & trades

unsold capacity

project financing complexity

Increased project risks

forward/backward integration play

Minimising mismatch

production and shipping

multiple contracts with different seasonality requirements

capitalising arbitrage opportunities via cargo swapping & backhauling arrangements

Buyer’s Preferences Reliability and security of supply

Greater operational flexibility

Competitively priced LNG

Own and manage LNG ships

Equity along the entire LNG value chain

US LNG import terminals are turning around – full circle!

The US has exported LNG to Asia from Alaska for decades

Not very large volumes, but better profits than ”exports” to other US states

Last few years, LNG imports have grown –and forecasted import, too!

Falling domestic production and growing demand

Imports from Canada, Mexico, and global LNG

With unconventional gas at home:

Less LNG is needed

Pipelines from Canada now export

Still some spare gas possible

Demand may grow more...

Talk of exporting shale!

Sabine Pass is turning around

Already re-exporting cargoes (to UK)

Liquefaction planned from 2015

Large investments in unconventional gas

Many years of small scale by small companies

Lower investments and shorter lead times

Suddenly large scale and entry of majors

Reserves cheaper than oil

Possible hedge –against falling LNG income

Attracted by large reserves at low cost?

Good match with smaller players?

Competitive advantage?

Technology development moves quickly in oil companies

Especially majors, such as Shell, Exxon Mobil, Marathon

Also, smaller entrepreneurial companies active Creative, inventive, cost conscious and close to the ground

Often in cooperation with larger companies with financial strength

Much lower cost –possible to make a profit for many

Varying costs, but much around $4/mmbtu

Cash flow challenge for smaller players at depressed prices

Liquids (NGL, crude oil) help economics

Some flexible supplies could get higher prices

New gas impacts the market at several levels

Short term impact of unconventional gas

Perception of shortage gone –some confidence in secure supplies

More “loose” LNG globally –pressure on prices

Lowest gas demand in years does not help

New uncertainty for ”conventional” projects

Medium term impact

With perceived oversupply, worries of high prices and SoS wane

Politicians and boards more positive to gas as fuel?

Long term possible impact

Large production of gas in Europe, Asia and America + Australia

Large impact on power mix, demand and price!

Europe’s Case: gas balance by scenario

We have grown up believing in gas as the green response

For the last 20 years, energy policy has been relatively easy to predict Close down nuclear Retire old lignite and coal Build some wind and other renewable Gas as the residual: remaining power

needs to be met by natural gas (CCGT)

New policy, “20-20-20”, will have a profound impact on gas!

Reduce CO2 emissions by 20% (or more) by 2020

Increase use of renewables to 20% of consumption

Reduce overall energy consumption by efficiency – also 20%

Develop new technology (CCS, fuel cells, offshore wind, etc)

Extend life and perhaps build new capacity

New national and European policies on efficiency and renewable energy sources have raised additional questions about the future trajectory of European gas demand…

Demand curve will shift down?

20% reduction in demand will greatly impact need for all new capacity

Base load generation from other fuels will grow more than expected?

Nuclear extended life + new

(Especially after 2020)

Coal extended life

Some new with capture technology

Some biogas CHP and other renewables into the mix

Main change will be in wind generation…

Large plans in most EU countries

Mostly “must-run” capacity

What will gas prices be?

Some gas prices linked to oil still

Forward oil prices currently up to $90/bbl

This indicates current gas prices and slightly rising

More gas available at spot prices

Depending on balance of supply and demand

Demand could fall if 20-20-20 is fulfilled

That would give lower price gas in Europe’s spot markets

Logically, floor at cost level (see next page), but not always so

Supply may rise – new projects + unconventional

This could also give surplus and lower prices

However, if 20-20-20 is abandoned, gas demand could rise

This would have a firming effect on prices

What is the advantage of ownership in LNG?

At peak periods – shortage of pipeline gas – premium

This upside is linked to being the marginal supplier

The marginal supplier is also the first to “fall off” the merit order

If there is a shortage of gas/LNG, ownership in chain may be an advantage

At base load either spot gas prices or oil link

Some oil link contracts still signed, especially in Asia

Good hedge for new comers, if much supply on oil link today

Increasingly spot prices are also valid for LNG

At over supplied markets, pipeline suppliers can normally go quite low in prices

If LNG still runs (for operational reasons), it may be at a loss

Gas prices differ in type and in the value chain

Wholesale prices most discussed

German border price

Quite stable due to oil link

Spot prices are more volatile

LNG prices – oil link or spot

But gas is transported and stored

Modulated, factory gate gas is therefore normally at a much higher price

Perhaps this is the most relevant price to compare with cost of unconventional?

Local gas may get high feed-in

Some countries are planning high entry prices for biogas into the gas system –even higher!

LNG Industry – Business Models

Portfolio Markets Resources

National Champions, Upstream driven IOC’s

Integrated players

Gas buyers and marketers

Examples:

Sonatrach, Petronas, Chevron

Examples:

British Gas, GDF Suez,

& aspirants

Examples:

Centrica, Kogas Tepco

New entrant strategy:

Integrated, equity gas driven, buyer, niche

player?

How to be a new and successful entrant?

Access to liquefaction growth driven by new concepts: Small, Mid-Scale Liquefaction Processes Conversion of off-shore gas flaring through

FPSO units

Partnership with producers: Market and Profit sharing Technology provision Cross-commodity offer

Commercial agility and innovation

Support from/to complementary business (Power, Storage)

Tailored shipping capabilities for flexible solutions:

FSRU‘s

EBRU‘s

Standard

Upstream:

Limited or constrained access to gas upstream reserves

Limited access to equity participation in new liquefaction assets

Downstream: No developed market on the targeted

downstream areas

Realistic scenario Possible strategy

Shipping: No proprietary assets No technology holder

Data: Infield

First issue: stranded gas reserves enough to justify interest?

Available fields to target Mid-Scale and FLNG represent >50% of the total currently discovered

Development costs look competitive but Liquefaction choices far from mature

Reserves depletion relevant to project’s economic performance

FLNG relocation not necessarily easy

4 fields 50-100 Tcf

5-50 Tcf

1-5 Tcf

~350 fields 0.5-1 Tcf

~700 fields 0.25-0.5 Tcf

~1000 fields 0.1-0.25 Tcf

~4000 fields <0.1 Tcf

LARGE

SCALE LNG

Mid-Scale

and

Floating

70 fields

~350 fields

Second issue: where the stranded gas reserves are?

Third issue: where’s FPSO feasible? - Global Wave Statistics

Issues that need to be carefully examined when considering a floating LNG facility: Location & sea condition Type of vessel & containment Mooring of the facility Access for export / import vessels Method of transfer of cargo Type of plant, liquefaction / regasification Deck congestion

FLNG CASE: How to be a new and successful entrant?

Production:

RESOURCE OWNERSHIP: access to gas reserves

FACILITIES: ownership or participation

Liquefaction: Ownership of liquefaction assets

Realistic scenario for INTEGRATED PROJECT Relevant Issues

Marketing: Proprietary shipping Captive market or downstream customers

Marine settings present technical challenges Reserves depletion Vs economic performance Upstream fiscal terms Relationship with NOC’s:

Profit sharing, Technology provision Cross-investment: flaring gas conversion/recovery

Risk allocation between the shipbuilder, process vendor, and EPC contractor

Process efficiencies Scale-up performance

Tailored shipping capabilities for flexible solutions providing optionality:

• FSRU‘s

• EBRU‘s

• Standard


Production:

RESOURCE OWNERSHIP different from FLNG Project

FACILITIES: resource owner different from FLNG Project

Liquefaction: PSC and/or GSA with producer in a FLNG

Project

Realistic scenario for MERCHANT PROJECT Relevant Issues

Marketing: Proprietary shipping or time charter Prop trading, arbitrage






• FSRU‘s

• EBRU‘s

• Standard

Gas Supply Agreement


Production:

RESOURCE OWNERSHIP different from FLNG Project

FACILITIES: resource owner different from FLNG Project

Liquefaction: Tolling Agreement between Resource

Owner and FLNG Project

Realistic scenario for TOLLING PROJECT Relevant Issues

Marketing: Proprietary shipping or time charter Prop trading, arbitrage






• FSRU‘s

• EBRU‘s

• Standard

Tolling Agreement

Downstream

Choose entry points in markets with sufficient interconnection and cross-border access for structured deals among different hubs

Portfolio of:

Long-terms secured sinks in complementary business (>5y, proprietary or contracted generation, tolling agreements)

Market risk mitigated, margin moved to power business (spark spread driven), good risk management needed

Short/medium wholesale positions (>1y), e.g. via partnership with Municipalities

Market risk is higher, margins tent to be higher, price formulae normally back-to-back

Storage access for structured transaction on seasonal markets

Contractual terms and shipping capabilities to play arbitrage games and access highest priced markets globally

Get logistic “tradable” position in constraints areas to attract appetite of producers for downstream ventures

Floating Vs onshore projects

Floating facilities offer several advantages over conventional land-based facilities for offshore fields, such as:

elimination of both harbor facilities and of long pipelines from the production platform to shore;

ability to relocate the facilities from one field to another (which encourages more rapid depletion of small fields);

faster field development time, with little site development work;

Better control of construction schedules and costs;

The plant can be commissioned in transit to the operation site, thus reducing the time to start-up; and

Enhanced safety by isolating the facilities away from populated areas.

Comparison published unit cost Standard Vs FPSO mid-scale

0

200

400

600

800

1000

1200

1400

DA

MIE

TTA

TAN

GU

H

BO

NN

Y 4

/5

IDK

U

QA

TAR

GA

S I

YEM

EN L

NG

QA

LHA

T

BIO

KO

SAK

HA

LIN

DA

RW

IN

ILC

SKIK

DA

AN

GO

LA

MEL

KO

YA

PER

U L

NG

PLU

TO

Daz

ho

u L

NG

Sun

shin

e G

as

FLEX

LN

G A

ust

rala

sia

Arr

ow

En

ergy

LN

G

Afr

ican

LN

G

Do

ngg

i-Se

no

ro

Cen

tral

Su

law

esi

PN

G L

NG

Average unit costs = 565

Average unit costs = 650

Gas flaring overview situation

Associated gas is often produced in remote locations and sometimes in small volumes

Two options to reduce gas flaring – re-injection or market the gas

Investment necessary to market the gas may not be economic

Lack of infrastructure

Low domestic demand for gas and/or electricity

Re-injection of associated gas is not always economic due to high cost and low incremental oil reserves

A sudden call on spare oil production capacity may exceed capacities of existing gas handling facilities, resulting in gas flaring

The World Bank Gas Flaring Reduction Initiative was formed to support national governments’ efforts to reduce flaring by providing

Facilitation of local public-private partnerships and co-operation on gas infrastructure and markets

Links with existing World Bank instruments

Assistance on carbon credits

GLOBAL GAS FLARING MAP Stable Flaring

9 countries had largely stable gas flaring across the time series. This includes Australia, Ecuador, Gabon, Iran, Kuwait, Malaysia, Romania, and Trinidad.

Long Term Increasers

22 countries have an upward trend in gas flaring over the time series. This includes Azerbaijan, Chad, China, Equatorial Guinea, Ghana, Iraq, Kazakhstan, Kyrgyzstan, Mauritania, Myanmar, Oman, Philippines, Papua New Guinea, Qatar, Russia (excluding KM), Saudi Arabia, South Africa, Sudan, Thailand, Turkmenistan, Uzbekistan, and Yemen.

The largest increases were in Russia (+10 BCM), Kazakhstan (+5 BCM) and Iraq (+4 BCM).

Short Term Increasers

21 countries show an upward trend in gas flaring from 2002 through 2006: Azerbaijan, Brazil, Canada (offshore), Chad, China, Congo, Equatorial Guinea, Ghana, Iran, Kazakhstan, Kuwait, Libya, Malaysia, Mauritania, PNG, Russia (excluding KM ), Saudi Arabia, Sudan, Thailand, Trinidad, and Yemen. Gas flaring in Russia increased by six BCM and the increase in Iran was 3 BCM.

Example – Nigeria

The image was made using the night-time lights from 1992 as blue, 2000 as green, and 2006 as red. Flares active in 2007 – but not 2000 or 1992 are red. Those active in 2007 and 2000 are yellow. Those active in 2000 but not 1992 or 2007 are green. Those active in 1992 but not 2000 or 2007 are blue.

Wrap up: how to implement the business model?

Access to unexploited resources in the upstream

Strong partnership and common goals with gas producers

Flexible portfolio of exit-entry points in diversified areas

Point-to-Point chain is an old concept, value of flexibility is recognised

Regas off-shore moveable infrastructure

Permitting & implementation easier/quicker

Early access to regas constrained markets

Flexibility of location (moveable)

Possible “floating storage” facility using ship-to-ship LNG transfer

Ship-to-ship transfer (STS) of LNG is advancing quickly

Global arbitrage – decision making

Tight supply and short-term market ‘shocks’ created arbitrage opportunities

Portfolio optimization approach creates significant value

Access highest priced markets globally

building capacity and meeting demand with the west … · building capacity and meeting demand with...

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