Gasol looks to floating storage vessels in bid to bring gas to Africa

Gasol’s strategy to bring gas to the power-hungry nations of Africa using floating storage and re-gasification vessels reflects the experience and acumen of the company’s backers. 



Gasol’s (LON:GAS) strategy to bring gas to the power-hungry nations of Africa using floating storage and re-gasification vessels reflects the experience and acumen of the company’s backers.   

Gasol is one of two listed companies backed by the Liberian mining entrepreneur, Bert Cooper, who was also one of the guiding hands behind Afren (LON:AFR), which is now worth £1.5 billion.

The FTSE 250 oil exploration group is a 15% shareholder in Gasol, while Cooper owns another 65%.  

These significant and influential backers provide a stable cornerstone for long-term investment in the company.  

The long-term Gasol plan revolves around harnessing the trillions of cubic feet of gas in Nigeria and the Gulf of Guinea that is flared as a waste product by the oil industry every year or is sent for export to faraway countries such as Japan.

Although the company has arrangements in place with Afren to develop significant reserves, it is unlikely Gasol will be able to take control of its upstream supplies until 2017/18, according to chief operating officer, Alan Buxton.  

In order to secure early cashflow and profits, therefore, the company is focusing on its short and medium term strategy of supplying gas from re-gasified liquefied natural gas through the use of FSRUs.

An FSRU is essentially a large storage ship, often an old LNG carrier, that has been refurbished and upgraded with re-gasification equipment.  

Depending on its size, an FSRU can store anywhere from 80,000-145,000 cubic metres of LNG.  

When gas is needed, the FSRU re-gasifies the LNG through a series of heat exchangers and pumps the gas onshore directly to an industrial user (such as a power plant) or into the local gas distribution network.  

When the supply of LNG is depleted, the FSRU can be restocked via a ship-to-ship transfer from an LNG carrier.  

The LNG can be sourced from large LNG suppliers, such as Shell or BP (LON:BP.), and from smaller producers via LNG traders.  

The company has worked hard to develop relationships with both suppliers and traders and has signed several MOUs to secure its sources of LNG.

Although gas from re-gasified LNG is significantly more expensive than pipeline gas, the business model works because even at an LNG-to-gas price of $16-18 per MMBTU, the gas is still cheaper than the liquid fuels, such as diesel and heavy fuel oil, that are commonly used to generate power in many countries. 

Re-gasified LNG also offers significant benefits over liquid fuels in the form of substantially reduced pollution emissions and lower quantities of greenhouse gases.

While Africa is key to Gasol’s plans, the company also expects to employ  the model in the Middle East where it has signed an MOU with a national government to begin providing gas   from an FSRU in the first quarter of 2014. 

Although the capex costs for an FSRU project are generally low (compared to land based facilities), the leasing charge for the FSRU for the Middle East project is estimated to be in the region of US$180,000 a day, or US$65 million a year.  

But even when factoring in this huge cost, this FSRU project still has the potential to generate substantial EBITDA each year.

The relatively low capital cost of the project means in all likelihood it will be equity funded, though the local banks may be in a position to lend some of the money, Buxton said.

“The idea is very, very straightforward, while the project is [financially] attractive,” says Buxton. 

“We are really just entering gas supply agreements. We are not going to take any price risk on the LNG.  We will put our margin on top of the LNG cost. 

There is the cost of leasing the vessel, which we pass through. And then the only final bit is the infrastructure charge.”

There are examples in the region that show this is not merely an idea dreamed up by an aspiring project manager with an over-vivid imagination.  

The emirate of Jebel Ali already has an FSRU supplying gas, while Fujairah, also in the UAE, is looking at an identical scheme. 

Gasol’s next project increases in complexity, but still offers significant investment returns.  

The company is in advanced negotiations with an African government to supply between 150-400 million cubic feet of gas per day from an FSRU.  

Because the country’s main port is too shallow and overcrowded, the FSRU will be parked two or three kilometres off the coast and will deliver the gas via subsea pipelines.  

Although the subsea work adds to the capex needed to get the project up and running, the project realises significant savings in berthing fees and has no infrastructure costs associated with upgrading/preparing a pier or jetty.

One feature of this project is that the current gas demand in the country is too small to justify the cost of leasing the FSRU.  

Gasol plans to solve this problem by installing additional gas-fired generation equipment (approximately 125MW), which will have the double benefit of increasing the gas demand and decreasing the country’s chronic power shortages (not to mention an additional income stream for the company).  

A third project will see Gasol utilise the West African Gas Pipeline (WAGP), which runs from Nigeria in the east, via Benin and Togo, and terminates in Ghana.  

The WAGP was built to carry up to 460 million cubic feet a day, but is currently carrying less than a fifth of that volume.

Gasol plans to utilise an FSRU, moored in or near the port of Cotonou, Benin, or Lome, Togo, and pump gas into the pipeline, which can also be distributed further west to Ghana.  

The company is currently applying to be only the second approved shipper for the WAGP.

Gasol has already signed an MOU with BenGaz in Benin to supply gas into Benin.  

However, Benin’s current gas demand is modest so Gasol will have to sell gas to users in Togo and Ghana to hit the 120-150 million cubic feet of gas a day that  is needed to make the project economics work, says Buxton.

“The company has been created to develop gas from Nigeria and send it to through the West African gas pipeline and to develop gas markets here,” the Gasol chief adds.

“However it is going to take time until we get hold of the upstream gas.  So in the meantime we are looking to develop gas markets through LNG imports.

“Now this may sound a little counter-intuitive given that gas from the region has traditionally been liquefied and sent to markets such as Japan, but we see LNG as a cheaper and better alternative to the liquid fuels currently being used.

“Thanks to the experience of our backers, we have a proficient understanding of the market and the contacts in the region to make these projects happen."

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