Changing the gas game
Rodney J. MacAlister, Chief Executive Officer of Monetizing Gas Africa, speaks to AOP about gas monetization challenges, the global impact of US shale gas and the rise of LNG in Africa.
What are the challenges to monetizing gas for Sub-Saharan Africa?
There are a number. Gas is worth 10 percent of what oil is worth. Oil is a nice, convenient liquid and gas is a very inconvenient vapor. If to monetize oil you spend $1, to monetize gas you will spend $1.50 for something that is worth 10 cents. The reason that gas has not been monetized much is because of that spread. Companies are looking for the most valuable product for the least cost, and it is oil. Oil also has more energy content pound for pound than anything else, barring nuclear.
Then you get geographic dispersals where in many cases gas is located far from where it is needed. So there is a huge infrastructure requirement, which is of course why we exist, in order to get it from A to B. And gas has to pay for itself.
As you set about the process of converting wasted gas into something useful, in other words reducing flaring and taking the gas to a village to create power, you need a good price and customers that pay, and those are often lacking.
In Nigeria, for instance, the regulated price for gas is lower than the cost to generate it. So no wonder you only have 4 GW of installed power for 180 million people, and even that installed power isn’t always running. You need a regulator that gives you an incentivizing price; you need clean government bureaucracies and ministers who will make timely decisions; you need to back out of “sweetheart deals” where people have been awarded licenses and then they sit on their rights and make no investment. And then of course you need security and stability — why would anyone build pipelines if they are only going to get blown up frequently?
How do you see the abundance of American shale gas affecting Sub-Saharan Africa’s efforts to develop natural gas resources?
American shale gas has created a buyer’s market, which is good because supply generates demand. If you’ve got a lot of cheap supply, then the customers will generally come. It gets back to making sure that you get a fair and stable price for your gas from a reliable customer who is actually going to pay you, and that is Africa’s challenge versus Europe and Asia, where you don’t have the same extent of counter party and currency risk. But that oversupply is going to be here for the foreseeable future, and it is a good thing. I’m not sure I would want to be a producer, but the American producers are showing incredible agility in bringing down their costs. The lower those costs go, the longer that oversupply is assured.
How do you see LNG technology changing the gas game for Africa?
LNG enables economic transport across a growing spectrum of sizes and quantities. There is a limit to how far you can pipe gas before it is no longer competitive with LNG. Floating storage regasification units (FSRU) are enabling a lot of short-term, less locked-in solutions, which also boosts demand, and so we are just going to see more and more LNG. Since the market is so oversupplied, that really encourages growth on the consumer side.
Technology is another factor boosting LNG. The FSRU is a great example, but it is not the sole example, of a number of emerging technologies that are shrinking the economic size of LNG down to a more manageable level. The whole field of cryogenics, allowing for floating LNG, rail cars etc., is evolving really beneficially for the demand side to blossom. Soon floating LNG technology will be proved out in Africa through projects in Cameroon and Equatorial Guinea.
What are your greatest concerns for investment in the coming years?
I am worried about the continuation of resource nationalism that is a holdover from the high price environment, where governments grew accustomed to massive revenue streams and have been slow to adjust both terms and attitudes. They are still trying to slice the pie too favorably to themselves, not shortening decision times, still seeking side enrichments – all to the detriment of inviting investment which they badly need and which we seek. As an investor concern, I think that is ranked highest for me.
Hear more from Rod at Africa Oil & Power 2017, where he will join gas and LNG experts, upstream and finance executives and energy ministers as a panelist at the year’s elite energy gathering.