It was 6.15pm on a Friday evening in January 2018. A local flight from Lagos, Nigeria, was approaching Asaba, a capital city located west of the Niger River and was unable to land after being informed by the Asaba airport control tower that the airport was closed for the day. The reason, apparently, for the airport’s early closure, was a power failure which meant the runway lights would not be operational for the aircraft’s departure back to Lagos. Out of all passengers disappointed to be returned to Lagos, one resorted to the 6-hour bus ride to Asaba because he could not afford to miss an important meeting he had scheduled for the following day. This is just one of many examples of the cost to businesses and citizens, of power disruption on the continent which has persisted for decades.
With the global rise of gas-to-power projects, floating storage regasification units (FSRUs) are increasing in demand, particularly in regions where there is limited gas infrastructure. FSRUs therefore offer an opportunity to introduce LNG into new markets. FSRUs first came on to the market in 2005 when the Gulf Gateway Deepwater Port in the US became the first terminal to receive LNG not using a land-based LNG terminal. FSRUs offer a cheaper and quicker alternative to land-based LNG regasification terminals which can take billions of dollars of investment and years to build. The cost of a new FSRU is typically about 50% of the cost of an onshore terminal and can be built in half the time. A new-build FSRU typically costs between $240m – $300m and can be constructed in about 24 – 36 months. Conversions of LNG tankers to FSRUs typically cost $80m - $100m and can take up to 18 months to convert (due to long delivery times of equipment).
However, there are several considerations to be made with the deployment of an FSRU vessel, which are further discussed below.
With Africa’s growing energy needs, and lack of adequate infrastructure, FSRU opportunities ought to abound on the continent. However, of the 26 FSRU units currently in operation globally (23 as terminals and 3 as LNG tankers), only two of these are in Africa (the BW Singapore and the Hoegh Gallant deployed in Egypt), with planned FSRU units for Ghana and Cote d’Ivoire. (A further 10 are under construction with options for another 10 placed with various shipyards).
This paper looks at the viability and successful implementation of FSRUs in African markets. However, to understand some of the challenges and solutions facing the African energy sector, it is helpful to first look at the history of energy development in the continent.
Electricity was first generated in Sub-Saharan Africa in the late nineteenth century, shortly after developments in electricity in Europe and North America. This resulted in a small number of African countries having electricity, generated by power stations fueled by wood, coal and diesel, and a few by hydroelectric stations. However, it is noted that in Europe and North America, small thermal plants were quickly replaced by large facilities which could produce electricity at much cheaper rates because of the economies of scale. Comparatively, electricity access spread at much slower rates in Africa and expensive power plants continue to be used today which makes electricity access expensive for many households*.
Some early examples of the electrification of African cities:
- Ethopia - The first diesel generator was reportedly a gift from the German government to the Emperor in the 1890s
- Nigeria - The Public Works Department was already supplying electricity to government buildings in Lagos by 1896
- Sierra Leone - The colonial government installed a diesel generator in Freetown in 1928
- South Africa - The first African city with street lights was Kimberley in 1882
By the end of the colonial period in the early 1960s, only a handful of major cities had electricity and in general there was limited access which did not extend to many rural areas. A number of small generation facilities had been installed for colonial settler communities and for large mines and industrial customers. Many of these facilities remained the foundation for energy infrastructure after independence but in some regions these have not been maintained or developed.
With Africa’s hydroelectric potential, a number of large industrial projects did take off but as these required huge investments and had significant environmental and social consequences which disrupted living conditions for many people, they were not sustained. Hydropower currently provides around a fifth of current capacity but that capacity is not being fully utilized.
In addition to structural challenges, the slow development of the energy sector (and hence slow electrification of Africa) was mostly due to: (i) the difficulty of obtaining funding for projects (ii) rural populations scattered across vast hinterlands and therefore no economies of scale to justify the investment in more electrical grids (iii) poor government organizational capacity (iv) priority to industrial customers over households, (partly because of their ability to pay and because they often helped part finance the power plants). For example, the aluminum smelter in Cameroon still consumes 25% of the country’s electricity, even though there isn’t enough supply to meet the growing demand of household consumers. In Mozambique, the energy generated by the Cahora Bassa dam benefits only a few households with only 20% of the country’s households benefitting from electricity access in 2011.
*K. Showers: ‘Electrifying Africa: An environmental history with policy implications, Geografiska Annaler: Series B, Human Geography
On a typical day at a hairdressing salon in Lagos, there is a noticeable number of mobile and digital devices on charge (the salons have enough chargers for different phones for energy needy customers). You would be forgiven for thinking there was a charging dock service on offer. People are armed with chargers in churches, restaurants, bars, malls, wherever there is an opportunity to take advantage of a generator to top up battery life on the digitals. It means there is one less thing to worry about if there is no electricity at home for the next 12 or 24 hours, and sometimes longer.
Energy access remains one of the continent’s biggest challenges. Africa has long been submerged in bouts and periods of darkness which is ironic, being a continent with some of the world’s largest crude and gas reserves. The lack of energy infrastructure is crippling the growth potential of many countries and whilst there are many initiatives of importance to governments that are being prioritized – from healthcare to free trade agreements – modern, reliable and sustainable energy is critical for the economic growth of Africa.
As of mid-2017, over 640 million Africans have no access or have interrupted access to electricity. This corresponds to an electricity access rate of 40% - the lowest in the world. In Nigeria, 96% of households are connected to electricity grids but only 18% function half the time.
Africa’s energy potential is huge yet only a fraction of this has been tapped. Renewable energy is on the rise but fossil fuels will, for the foreseeable future, remain a large part of the overall energy mix. Furthermore, Africa’s wealth of fossil fuels and renewable resources are not evenly distributed. This translates to a disparity between electricity access in different countries, and also between urban and rural dwellers.
While renewable is a fast-growing source of fuel, oil and gas continues to account for over half of the world’s energy supplies. Natural gas continues to grow in demand and now overtakes coal as the second largest source of energy.
With energy and environmental concerns high on the agenda of many governments, the gas, oil and power sectors stand to be part of a wave of new opportunities. This is where FSRUs could open the opportunities for many gas-to-power projects that are springing up across the continent.
A single FSRU vessel can generate 3,600 megawatts of power, sufficient to light up Ghana, Togo, Cote d’Ivoire and Benin. The opportunities and advantages notwithstanding, there are also challenges and considerations to be had with the implementation of an FSRU project.
Firstly, one of the attractions of FSRUs is the flexibility in relocating it whenever there is a need to meet specific energy needs, unlike an onshore terminal which is fixed and hence a sunk cost. They can also be purchased outright for long term markets that have been identified and are a good bridging solution when a land-based terminal is being built.
In order to be an economically viable solution, there needs to be sufficient demand to make installation of an FSRU worthwhile. With the existing issue of scattered demand centres, this will mean addressing the geopolitical dynamics that exist by moving towards greater collaboration and organization between neighbouring states on meeting the energy distribution needs for their respective regions.
In addition, depending on whether the FSRU is to be located offshore or onshore, there might be other costs to consider with respect to mooring and connection of the pipeline to the gas network. Unless the FSRU is moored in sheltered waters, there may also be weather and ocean current considerations to be had if it is to be moored offshore.
There are also other energy initiatives that may compete with the FSRU opportunities although in the short term these do not pose a huge threat to the development of the FSRU African market. Scheduled for completion in 2019 is the $6.4 billion Grand Ethiopian Renaissance Dam (GERD), which is expected to generate 6,000 megawatts of power, almost three times as much as Ethiopia’s current generating capacity. The GERD will be Africa’s largest hydroelectric power but this is causing a lot of tension between Ethiopia, Sudan and Egypt over the impact the dam will have on the Nile’s freshwater flows and the exacerbation of already existing problems threatening the world’s longest river. Hydroelectric plants are expensive but as they are dependent on water flow, there are hardly any fuel costs. However, these plants can be affected where there are periods of drought.
Lastly, the FSRU space remains a niche one with only a handful of FSRU operators with FSRU operational experience, such as the BW Group, Hoegh and Excelerate. The barriers to entry into the FSRU market are high. Operating FSRUs comes with a different risk profile to traditional shipping and may involve significant costs associated with the supporting infrastructure of the FSRU project. Many of the FSRU contracts recently awarded went to vessels that were ordered speculatively, however not many companies can commit to speculative new-buildings.
It is also highly likely that different parts of an FSRU project will have different financing arrangements associated with it. Financiers of different parts of the project also typically seek to limit the exposure of the borrower to project risk, all of which can lead to protracted and complicated project negotiations.
The AfDB has recently launched a New Deal on Energy for Africa which has as its priority to achieve universal electricity access by 2025 with a strong focus on encouraging clean and renewable energy solutions. This will require 160 GW of new capacity, 130 million new on-grid connections, and 75 million new off-grid connections. With the intermittent nature of solar and wind, there will need to be concerted efforts to harness these sources of energy.
Energy access has been slow in Africa and many continue to remain without access to electricity. In many cases electricity grids simply do not connect to all dwellings. Significant strides towards achieving Africa’s energy objectives will not be made without close cooperation between governments and a focus on the depoliticization of energy.