– Engr. Derefaka, J.O.
The method of converting natural gas from a gas to a liquid by chilling it to minus 260 degrees Fahrenheit and reducing its volume by 600 times spawned a new industry. Now, stranded natural gas resources might be monetized by delivering gas in special-purpose vessels to new markets hungry for fresh energy sources to fuel growth and diversify supplies. The LNG trade began in the early 1960s, with resource-rich countries such as Algeria sending LNG to the United Kingdom and Abu Dhabi shipping LNG to Japan.
Liquefied natural gas (LNG) has been viewed as a game changer and catalyst for the establishment of a fungible and switchable global gas market that connects volumes, demand, and prices across regional markets for many years. LNG commerce now accounts for more than a quarter of all natural gas imports, and its share is expected to skyrocket in the coming years. These developments are likely to cause global energy trade patterns to shift and new geopolitical realities to emerge. Regional gas markets, which were previously fragmented, are gradually taking on the features of a global market. Natural gas is easily available, low-risk, and has a lower carbon footprint than other fossil fuels, thus its position in the transition to a sustainable energy future will be bolstered as LNG markets develop.
The LNG industry’s features are well recognized after more than 50 years of shipping, but they will not necessarily remain the same. Key changes in the business landscape will change the equation, potentially expanding the market and shifting the underlying foundation, plus, quadrupling in size, doubling its share of global natural gas trade, and emerging as one of the fastest growing segments in the energy industry. Furthermore, the LNG industry is in flux even as it expands, with a variety of possibilities and risks confronting the market’s primary business models. These business models were made possible by contracting structures that addressed the crucial financial risks involved in connecting distant sources of supply with growth markets. Businesses will need to be nimble and flexible in order to expand not only volume but also value. This article looks at how these business models might adapt to a complex industry environment and how that environment might change in the future, such as how new trading hubs could expand and deepen spot markets, allowing for more physical and financial trading, and how novel financing options and floating LNG (“FLNG”) technologies could lead to more flexible contracts with shorter durations and creative pricing. A typical Floating LNG and an LNG carrier
In a related twist, oil and gas markets are rapidly changing, owing to rising demand, especially from emerging economies. The system has insufficient spare capacity to be shock proof. New supplies and delivery systems for consumers, who will become increasingly reliant on energy imports, would necessitate significant investment. To produce more challenging resources, larger, more complicated, and riskier projects will be required. Financial, technological, project management, and downstream integration are some of the issues that these provide. With their resources, technologies, and global expertise, oil and gas firms may play a key role in such projects. However, they will only be welcomed as partners in the development of national resources if they can demonstrate that they provide actual value and can collaborate with national companies.
Connecting the above narrative, gas will play an important part in addressing our future energy needs and will be developed in a complementary manner to oil, benefiting both resource owners and energy users. The potential for sustained large rise in gas demand is obvious and liquefied natural gas (LNG) will be a crucial driver in meeting that need. That growth in LNG, alongside the emergence of gas to liquids, will drive the development of a bigger, more dynamic, and more complex gas market. There are clear challenges ahead in that market, not least in providing the new infrastructure and massive investment that will be necessary to deliver gas over ever longer distances. Meeting those challenges will require action from all those involved. However, the energy industry has a strong record of successfully overcoming these kinds of challenges and there is every reason to be confident that the potential of gas will be realized, hence this piece –
They say: “Necessity is the mother of invention.”. Is there a more pressing need than to give energy to a society with a rapidly rising population? Furthermore, the energy industry is at the center of a massive worldwide shift in reaction to climate change, and this paper argues that evolution is about positive change that is unavoidable and should be welcomed. Society is evolving, and the energy industry must adapt or risk becoming obsolete. It involves cooperating with other industries on a massive scale and discovering green ways to invest in a sustainable future. In all of these cases, creativity will be vital to solving the problems of the global energy transition.
The ‘Global Gas Outlook 2050 Synopsis’ published by the Gas Exporting Countries Forum (GECF) confirmed that population increase will be the primary driver of future energy trends. Surprisingly, the majority of growth would come from countries and regions with underdeveloped energy infrastructure and access, implying that gas will have a large market. Africa will lead the way in population growth, accounting for half of the overall rise between now and 2050.
According to experts, worldwide energy demand will be roughly 60% more in 2060 than it is today, and as the world’s population rises and people want to improve their quality of life, the world will use at least 50% more energy by 2070 than it does now. A reform of the national, regional, and global energy systems is required as a result of the above. Without a doubt, this will happen at varying rates depending on a variety of circumstances, ranging from national policies, regulations to consumer preferences for technologies and products. Many more people will have access to power for lights, refrigeration, and cooking all around the world. As a result, total energy demand is predicted to more than double from the turn of the century. Most analysts, including those at the International Energy Agency, feel that in order to solve the energy equation and have future supply equal future demand, we will need to use a variety of energy resources. Among the alternatives, natural gas stands out. While coal and oil demand are expected to peak and then drop between 2010 and 2050, gas demand is expected to go only one way: up. There are three major reasons for the increased use of natural gas as a source of energy. Gas is acceptable, inexpensive, and abundant.
Africa is predicted to play a key role in future global gas supply growth, increasing from 250 billion cubic meters (6.4 percent of global production) in 2019 to about 600 billion cubic meters (just over 10% of global supply) by 2050. Africa is predicted to make a significant contribution to the future of global gas supply due to its abundant energy resources, particularly oil and gas. Onshore and offshore, from shallow to deep sea, the region has a significant amount of gas deposits. However, due to a multitude of factors including a lack of investment, transportation and export infrastructure, and technological challenges, the majority of these deposits have yet to be produced.
Nigeria and Mozambique are expected to emerge as the top and second-largest producers by 2050. Nigeria, in Sub-Saharan Africa, has already shown to be a big producer, with annual gas production hovering around 50 billion cubic meters in 2019. Nigerian production was higher than Egypt’s in 2015 and 2016. The ‘Global Gas Outlook 2050 Synopsis’ study from the Gas Exporting Countries Forum (GECF) confirmed that Nigeria’s prediction shows an average annual growth rate of 3.2 percent throughout the forecast period, resulting in a significant increase in gas output to more than 130 bcm by 2050.
Although oil remains a critical component of the world economy, natural gas has provided some of the most exciting advancements and commercial discoveries in recent years. These include the massive Grande Tortue Ahmeyim gas field, which is located in offshore waters between Senegal and Mauritania; Egypt’s massive Zhor gas field; Tanzania’s $30 billion Lindi LNG project; and the Saipem’s $20 billion Mozambique LNG project. Many natural gas experts believe that the global energy sector is entering a new “golden age” for natural gas development in Africa, as a result of these major projects and the need for Sub-Saharan African countries to increase access to energy in order to accelerate industrialization and economic growth.
Taking a cue from the above, at the virtual Nigeria International Petroleum Summit (NIPS) 2021 Pre-Summit Conference and official launch of the #DecadeofGas, President Muhammadu Buhari said:
“When we declared 2020 as “The Year of Gas” in Nigeria, it was a bold statement to demonstrate our Administration’s resolve that gas development and utilization should be a national priority. Now we’re going a step further to dedicate this decade to industrializing Nigeria using gas.” “…The rising global demand for cleaner energy sources has offered Nigeria an opportunity to exploit gas resources for the good of the country. We intend to seize this opportunity…’’ “ To stimulate economic growth, further improve the energy mix, drive investments, and provide much-needed jobs for our citizens, gas development and utilization must be a national priority” “The major objective of this administration is to transform Nigeria into an industrialized nation, with gas playing a major role.” “We must deal with the energy poverty in the country. We must find a way to unlock the natural gas potential of Nigeria and drag over 120 million of our people out of energy poverty”.
Government cannot do it all alone, we need to collaborate across broad spectrum and dimensions, i.e., government and industry to make this happen. In recognition of the Decade of Gas Initiative, the recently passed PIA2021 has kick-started tremendous changes in the Industry. It has also created a critical foundation for the much-desired industrialization and economic development of this Country. Generous incentives to enable development, distribution, penetration, and utilisation of gas. In terms of investment, at least $40 billion in Foreign Direct Investments (FDI) is necessary to achieve the decade of gas. This investment will be used in the upstream, midstream, and downstream industries.
As you may be aware, the PIA2021 was part of the FGN’s resolve and commitment to building a competitive and resilient petroleum industry that will attract investment, improve revenue base, create jobs, and support the economic diversification agenda. The PIA2021 became necessary because until late Nigeria runs a petroleum industry that is governed largely by laws enacted over 50 years ago such as the principal legislation; the Petroleum Act of 1969 and other outmoded legislations.
The PIA2021 is a supply-side enabler, capable of provoking and triggering commercial interests and investments in gas utilisation. It treats gas as a stand-alone commodity, Plus, it creates a distinct midstream decoupled from upstream gas. The PIA2021 will also promote gas distribution pipelines in gas-scarce areas, delivering massive volumes of gas daily to industrial demand centres and commercial clusters, and bolstered by a thriving and cost-effective virtual pipeline delivery system that enables flexible, remote, and micro-volume delivery to gas consumers across the country.
The #DecadeOfGas is a decade of elimination of gas flaring, a decade of more domestic Liquefied Petroleum Gas (LPG), and a decade of fully gas-powered economy and LNG export. Gas is power and energy. It is transport, as in Auto-gas. It is petrochemicals-feed stock. Gas is manufacturing and industries, it is also food, from fertilizers. Lending credence to Mr. Presidents declaration of the decade of gas initiative, H.E. Joseph McMonigle (the International Energy Forum Secretary General) noted at a conference that:
As a cleaner alternative to other fossil fuels, natural gas offers the developing world a real chance to meet the twin goals of reducing emissions and widening popular access to power. Nowhere is this more relevant than Nigeria, Africa’s most populous nation, which has had abundant gas resources but has also faced challenges on the power side of the equation,”
The world is poised at the dawning of and on the verge of entering a “Golden Age” for natural gas. At a Clean Energy Ministerial conference in Vancouver in 2019, Fatih Birol, executive director of the International Energy Agency (IEA), informed guests that natural gas and LNG had
entered a golden age. This puts Nigeria with approximately 206.53TCF of gas proven and potential upside of 600TCF of gas, the most extensive in Africa, and in the top 10 globally and home to the largest gas reserves in Africa at the heart of the debate. The benefits of natural gas are well documented. It is flexible. Its supply is abundant and diverse. Its range of uses is still expanding. And it makes economic sense
Africa currently has 71.1 mtpa of LNG liquefaction capacity. There are currently initiatives in the works to boost Africa’s LNG production in order to capitalize on the large natural gas discoveries made in the countries with huge gas deposits. There are now 18.8 million tons per year of capacity under construction, 25.2 million tons per year of capacity in various phases of FEED, 65.9 million tons per year of proposed projects, and 30 million tons per year of potential and delayed projects that are scheduled to come online by 2050.
With USD 3 billion in corporate funding in 2020, the Nigeria LNG (NLNG) Train-7 project was the largest financing project in Africa to some extent. The project will expand LNG production capacity by 35%, from 22 million tonnes per annum to around 30 million tonnes per annum, transforming and maintaining Nigeria as one of the world’s largest LNG exporters.
By 2050, the region’s overall liquefaction capacity is expected to reach roughly 218.5 mtpa, more than triple Africa’s current export capability. Consequently, the region will become a major LNG hub in the long run. As a result, LNG exports from Africa are expected to reach 110 bcma (80 mtpa) by 2030 and 215 bcma (160 mtpa) by 2050 hence the need to unlock our huge natural resources and driving investments in Africa with Floating LNG Technology even with the latter serving as a game changer for Nigeria in sync with the Decade of Gas initiatives of the FGN.
The number of offshore gas finds has surged in recent years around the world, with liquefied natural gas (LNG) and floating LNG (FLNG) becoming even more important in terms of satisfying the world’s future energy needs. However, if land-based LNG extraction facilities become more expensive, FLNG may become a viable alternative for unlocking trapped resources as demand for fuel rises. An FLNG facility, according to experts in the gas sector, has an economic benefit over typical land-based systems.
Floating LNG (FLNG) has been investigated for over 45 years but has remained a concept until recently. Since Shell made the final investment decision (“FID”) on its Prelude FLNG project in 2011, a number of operators and FLNG solution providers have followed suit, and many units are currently operational or under development. The Shell FLNG project is the first of its type intended to liquefy stranded gas offshore without having to connect it to a land-based liquefaction facility via an expensive undersea conduit. At that time, with Shell’s proof of concept/technology and operational excellence many onshore-sourced greenfield LNG projects around the world – especially the ones still in FEED (Front End Engineering Design) – faced at the very least economic viability questions.
FLNG was conceptualized and developed to help realize the potential of natural gas by bringing gas to the global market from small offshore fields and nearshore terminals in locations where infrastructure, particularly pipelines, was inadequate. And the LNG market is trapped with outdated models that do not answer the global desire for low-cost, flexible LNG to replace coal and liquids as the preferred fuel of choice. With huge projects of 10+ million tonnes per annum (MTPA) requiring several long-term offtake contracts to underpin the funding, the traditional model is pursuing “Economies-of-Scale.” The world’s markets want low-cost, flexible LNG supplies, and the capacity to support huge conventional projects is restricted. With FID thresholds of just 2.0 – 2.5 MTPA, the solution is a standardized Floating LNG that allows costs to be 20-40% lower.
A floating LNG plant (FLNG) is an LNG plant built on a ship or barge with LNG storage and offloading capabilities. The FLNG performs gas treatment and liquefaction (the production of LNG) from natural gas produced in offshore gas fields, as well as storage and offloading of product LNG into LNG carriers for ocean transit. FLNG has the following advantages over onshore LNG plants: (a) it reduces the length of long subsea pipelines that must be built from offshore gas fields; (b) it reduces the infrastructure and environmental impact on onshore because FLNG does not require coastal development; and (c) it can be built in fabrication yards with well-established facilities and practices for construction of topsides modules and hull without regard to country or region constraints.
Industry operators and resource holders alike must focus on new techniques and novel concepts for FLNG as the market needs lower-cost LNG facilities with quicker delivery times in response to low LNG pricing. To increase project economics, the essential point for FLNG planning is to optimize the facility arrangement and specifications, considering the specific feed gas composition, LNG production rate target, metocean conditions, and at shore/near shore/open sea arrangement. FLNG’s optimization work necessitates a high level of skill. There are numerous PreFEED/FEED/EPC contractors who can provide FLNG with a complete line-up of services. Any consumer can get the greatest FLNG solution from these service providers. Most, if not all, FLNG service providers are also flexible when it comes to contracting, including leasing FLNG. In addition, service providers use FLNG safety design and analysis procedures for mishaps inside a plant, such as explosions, fires, or leakages, to protect the safety of operators in the limited space on a ship.
FLNG technology is being used to monetize mid-sized offshore gas resources without having to build a subsea gas connection to a land-based LNG production and export terminal. The influence on the local community/indigenous peoples, as well as terrestrial flora and fauna, is reduced by limiting the processing to an oceanic environment. Over the life of the facility, FLNG facilities have the ability to serve numerous offshore and nearshore fields within its corridor, reducing the minimum size field that can be economically monetized.
FLNG units are classified into two groups: offshore and nearshore. Offshore units must operate in open ocean circumstances and draw reservoir gas from subsea wells directly. Nearshore units, on the other hand, operate in relatively calm inshore waters and often receive treated or partially treated gas from an onshore pipeline.
Pretreatment, liquefaction, and driver technology options are three significant decisions for FLNG topsides, having major implications for safety, weight, space, maintainability, and motion sensitivity. A fourth decision is whether to build a new hull or renovate an LNG carrier. The key takeaway from this article is a better knowledge of the tradeoffs involved in these decisions, which will help asset owners/operators/investors build an FLNG facility to their specific needs. Many players operating onshore plants are adopting FLNG because it lowers production costs and increases profit margins. FLNG, which provides opportunities to many participants in the energy industry, is likely to increase rapidly in the future years, having a favorable impact on the total gas market.
Other advantages diagnosed over conventional onshore liquefaction plants are shipyard construction which provides a higher confidence in delivery date than many onshore construction locations, avoidance of onshore permitting issues which can be expensive and often result in delays, as well as FLNG can be leased avoiding the initial capital outlay; it can be redirected to another field when gas production declines enabling the asset to be reused and avoiding the full sunk cost experienced with an onshore plant which cannot be relocated as well as circa 90% of the commissioning can be completed in controlled shipyard conditions prior to installation.
Overall, this article opines and believes FLNG may lead towards a faster-moving, more diverse and more flexible global LNG industry. And this is partly true because FLNG showcases good business case because it meets a vital need, stimulates engineering ingenuity, opens up exciting commercial opportunities and stands to create real value on so many levels for Nigeria, even as it offers resource-holding country like Nigeria – a way of extracting value from its vast natural resource and aligns with the Federal Government of Nigeria “Decade of Gas” initiative.
The constant rise in total installation costs of traditional onshore liquefaction projects (some surpassing $3000/t) is forcing the industry to investigate alternate design options. FLNG and modular onshore approaches, for example, look to provide cost, schedule, and quality advantages over traditional onsite, stick-built techniques. Floating LNG plants, in particular, are projected to be more financially competitive. Some of the expenses associated with typical LNG production are instantly reduced because there is no conduit from the field to the coast. As a result, businesses can immediately see considerable cost reductions. Furthermore, FLNG systems offer a cost-effective way to monetize smaller natural gas reservoirs (below 1.0 trillion cubic feet of proven reserves), with the ability to move the floating plant to a new production location if reserves are depleted.
Because the bulk of the facility may be developed concurrently in the controlled work conditions of a shipyard and fabrication yard, FLNG might possibly give an “early start-up” advantage. FLNG will also drive more competition during the fabrication and construction stages, resulting in better delivered pricing, quality, and schedule. FLNG also offers a major benefit in terms of time. Traditional LNG projects have shown to require a long time to build. For example, the Gorgon project, one of the world’s largest natural gas projects and Australia’s largest single resource natural gas project, has taken nearly two decades to construct.
Oil and gas firms do not have to worry about lengthy site selection processes or extensive environmental evaluations when using FLNG production. Furthermore, in the case of FLNG projects, the normal environmental impact associated with land-based LNG terminals is decreased, which is an added benefit. In order for an FLNG project to be economically feasible, it must first cross the bare minimum of economic hurdles that will allow the facility owner to earn a risk-adjusted return on investment that is acceptable. Furthermore, even if an FLNG project fits the aforementioned criteria, it will still require a solid supply contract, offtake contract, and/or leasing services contract in order to be funded.
FLNG vessels are well-suited to assist in the monetization of gas sources that are frequently too far away from a good onshore production location to be economically viable. For about 20 years, an FLNG facility capable of producing 1.0-2.0 million tonnes per annum (mtpa) of LNG may be committed to a 1-2tcf field. The same FLNG might be utilized for many, smaller fields, with each field functioning for five years before moving on to the next. Another benefit of the FLNG plant design is future site mobility.
The problem with the multi-use situation, as stated above, is that gas compositions are rarely identical from one well to the next. This implies that the pre-treatment equipment on a multi-use FLNG must be able to handle a wide range of pollutants, including CO2 and perhaps H2S, as well as various percentages of LPG and condensate products.
Shipping and market alternatives are another challenge that tiny FLNGs face. The smallest FLNG boats, by definition, will not be able to store as much LNG as today’s standard LNG carrier, which can contain anywhere
from 125,000m3 to over 200,000m3. Existing LNG import facilities may not be viable clients if smaller carriers or shallow-draft barges are utilized to convey the LNG to market, since they may not want to use their precious dock space for relatively modest LNG loads.
Smaller FLNGs are more likely to sell to a new market: tiny import ports, which are typically located in shallow water where traditional LNG carriers are unable to operate. A scenario in which a dedicated small FLNG and one or two LNG shuttle barges feed one or more small import terminals within a few hundred miles of each other – a notion known as “small scale, short haul” – is a viable possibility.
CONCLUSION
In wrapping up, author has advocated the relevance of investment, and technological innovation in today’s debate over what the next game changer is. But let’s not forget about the ‘game-changing’ breakthrough right in front of our eyes: floating LNG technology.
The FLNG market is estimated to increase at a compound annual growth rate (CAGR) of 27.14 percent, reaching USD 88.99 billion by 2024, according to Energias Market Research. Increased investment in the LNG industry, a shift toward cleaner burning fuel, cost savings from reduced upstream infrastructure, and less operating downtime to develop a gas field are all factors driving the FLNG market forward.
Africa has a lot of potential to become a significant LNG supplier. Several floating and onshore projects in the region, particularly in Mozambique and Tanzania, have benefited from new offshore dry gas discoveries. Like the Nigeria’s PIA2021, other African governments have aggressively sought to build gas-specific legislation and have backed the construction of liquefaction facilities. Furthermore, West Africa is becoming a key region for small-scale floating liquefaction deployment. In a short period of time, certain FLNG projects in the region have made significant development. Because of the success of these ventures, more FLNG boats may be used to monetize future discoveries, thus a game changer for Nigeria in the Decade of Gas.
The critical role that this source of energy and technology should play in the global energy transition must not be overlooked by our industry. Over the last decade, gas has been increasingly important in meeting global energy demand and alleviating energy poverty. We must make certain that this trend continues. That is the most environmentally friendly approach of meeting future demand growth. You do not necessarily need pipes to connect supply and demand with FLNG. FLNG’s adaptability is one of the reasons for its bright future. Because of the enormous number of offshore gas reserves, the offshore West African regions are considered high-potential sites for FLNG development, and several African countries have committed to or are seriously contemplating deploying and investing in FLNG facilities. In West Africa, one advantage of FLNG plants versus onshore facilities is better security. Because of their position, FLNG plants are less accessible to would-be attackers or saboteurs, and they can be strengthened with various protective measures like remote monitoring and safety barriers.
As a result of the FLNG technology, Nigeria and Africa as a whole might become an even more appealing location for risk-averse Western oil and gas corporations looking for long-term viable income streams. The FLNG idea might be a game changer in this regard. Most crucially, at a time when oil majors and indigenous operators are reducing capital spending in order to emphasize on profitability and return on investment (ROI), new development options such as FLNG are expected to be in high demand. It is at this juncture that the floating LNG concept can exhibit several advantages over land-based LNG projects on a case-by-case basis. Often overlooked but invaluable, it allows the operator/investor to leverage its FLNG project experience and utilize it in other potential offshore opportunities globally, thereby tapping previously considered economically unviable offshore reservoirs.
In sum, to revert back to the above discussed potential for future FLNG deployment in Nigeria, this technology seems to be ideal to deal with many Nigeria’s Petroleum Industry specific aspects of risk while also allowing for the development of big but far offshore and nearshore/swamp gas fields
Finally, our sector must work together to ensure gas competitiveness in order for it to reach its full potential in propelling improvements in people’s lives and playing a significant part in the energy mix.
Let’s work together to make this happen
Engr. Justice O. Derefaka is the Technical Adviser (TA) on Gas Business & Policy Implementation to the Honorable Minister of State, Petroleum Resources. He is the pioneer Program Manager (PM) of the Nigerian Gas Flare Commercialization Programme (NGFCP); and Chairman – Capacity Building Development (CBD) Subcommittee as well as Program Manager (PM) – AutoGas Subcommittee, of the National Gas Expansion Program (NGEP) in the office of the Honorable Minister of State for Petroleum Resources.
