Energy

<p><strong><u>Background</u></strong>: The small-scale LNG market is a collection of niche demand segments that serve either stationary energy end-user (industry &amp; residential), or mobile energy end-use (transport), via two products: LNG or CNG from LNG (L-CNG). Several countries in West Africa have targets to reduce consumption of biomass, solid fuels, diesel, gasoil and HFO for transportation, industrial or cooking fuel as a means of both reducing air pollution and the cost of energy. Such current fuel use could be viably substituted with LNG, by using a small-scale LNG business model.</p><p><strong><u>Business proposition</u></strong>: Setting up an LNG-as-fuel value chain in West Africa to substitute current liquid fuel (diesel/gasoil and HFO) consumption of large industrial &amp; residential players, contribute to GHG emission reduction and increase market share, revenues, and margins. The small-scale LNG market has a potential to grow by around 7% p.a. in the next 5 years and generate returns above 15%, driven by both price advantage and environmental benefits when compared to alternative oil products.</p><p><strong><u>Target Market</u></strong>: The market for LNG in West Africa is certainly existing, however, market aggregation and market penetration efforts are certainly needed. Three demand segments can be identified: (i) <em>mining</em>; (ii) <em>power generation</em>; and (iii) <em>industrial</em>. Both fuel-switching of existing, oil-fired generation, and incremental, greenfield demand, should be considered. The key mines in Guinea are bauxite operations in the Kamsar-Boke corridor; currently there is a market for LNG in power and ore drying operations, and this may grow significantly as operators invest in alumina refining.</p><p>&nbsp;</p><p><strong><u>Action Plan/Schedule</u></strong><strong>: </strong></p><ul><li><u>Concept evaluation</u> (3 months) &ndash; on-the-ground effort to:</li></ul><ol><li>Assess demand in Guinea, Sierra Leone, Liberia and Ghana identifying energy requirements of target markets, competitive fuel economics, LNG supply chain options from the LNG terminals (Freetown LNG and Tema LNG) to satellite LNG storage facilities in Guinea (Kamsar, Conakry) and Liberia (Buchanan, Monrovia) where there will be the capability to load LNG trucks and ISO containers (already part of the Sierra Leone and Ghana projects);</li><li>Raise the profile of the FSRU terminals locally,</li><li>Assess LNG bunkering and financing requirements,</li><li>Attract new LNG users by participating in various miners and LNG users <em>fora</em>.</li></ol><ul><li><u>Concept selection</u> (3 months) &ndash; detailed assessment of:</li></ul><ol><li>Industrial and mining demand in Sierra Leone, Guinea, Liberia and Ghana;</li><li>Requirements for the establishment of the LNG logistic chain;</li><li>Select initial target markets (Guinea and Ghana most probably);</li><li>Enter into MoUs with LNG suppliers and off-takers for target markets.</li></ol><ul><li><u>Concept definition</u> (6 months):</li></ul><ol><li>Site selection of the ssLNG storage facilities;</li><li>Obtain firm offers for the construction of an LNG storage facility of around 2,000tons of LNG in Guinea and/or Ghana;</li><li>Identify potential buyers for at least 70% of the target 100,000tpa;</li><li>Finalise LNG supply agreements and LNG sales agreement (preferably on a Take-or-Pay basis);</li><li>Finalise logistic contracts (ship bunkering and truck transportation) and permitting licenses for Construction of facilities (inc. EIA, land lease)</li><li>Obtain approval by the Board for final investment</li></ol><ul><li><u>Development phase</u> (9-12 months):</li></ul><ol><li>Execute remaining contracts (Offtake, LNG sale and purchase, vessel charter, EPC, O&amp;M, shareholder agreements);</li><li>Build the small-scale LNG terminal in Guinea and further opportunities in Ghana;</li><li>Start of commercial operations.</li></ol><p><strong><u>Stakeholders/Partners</u></strong><strong>:</strong></p><p>Local Authorities, IFC, Gaslog, K&amp;M, Flex-scale LNG, Reganosa, W&auml;rtsil&auml;, Karapower, LNG suppliers, Industrial and other LNG offtakers</p><p><strong>&nbsp;</strong><strong><u>Costs and Funding</u></strong><strong>:</strong></p><p>The<strong> </strong>capital cost of an LNG receiving/storage facility varies as a function of a number of parameters: storage capacity, send-out capacity, send-out pressure, unloading facilities, local conditions (supply of equipment and raw material, manpower cost), etc.</p><p>An order of magnitude capital cost estimate for a typical (non-marine) receiving/storage facility with the following characteristics:</p><ul><li>Storage capacity of 7,500m&sup3; or 3,000 tons of LNG (6 days of storage)</li><li>Jetty &amp; marine facilities</li><li>Unloading systems</li><li>Ambient air vaporizers</li><li>Boil-off gas handling</li><li>Export systems: 2/3 truck unloading bays (up to 36 trucks loaded per day)</li><li>Utilities and buildings</li></ul><p><strong>Would be around 45-50 MMUSD</strong>.</p><p>The operating cost of an LNG small-scale storage Terminal is mainly composed of:</p><ul><li>Personnel (salaries, training, consultant, etc.-)</li><li>Consumables (water, nitrogen, oil, dry powder, emulsifier, electricity, etc.)</li><li>Maintenance (outsourcing, spare parts, etc.)</li><li>Other costs (insurances, customs and taxes, etc.)</li></ul><p>Being the consumables (mainly electricity) and personnel the most important components. Both strongly depend on the local conditions. In general, the annual OPEX of LNG importing/storage facilities can be estimated between 3 to 5% of the CAPEX.</p><p><strong>Given the relatively small amount on Capital Investments necessary, the project could be financed completely by equity.</strong></p><p><strong>Conclusions</strong>: Small-scale Liquefied Natural Gas (ssLNG) represents a niche but nascent industry &ndash; one that has already high potential profitability by attracting investor interest globally. Due to increasing environmental awareness and global pressure to transition to lower-carbon energy sources, ssLNG can become a commercially viable and attainable energy source for the African continent. There are<strong> </strong>three<strong> </strong>main growth drivers for the small-scale LNG market: (1) price competitiveness of LNG compared to other liquid fuels, (2) availability of small-scale LNG infrastructure and (3) environmental advantages.</p><p>With faster returns, lower costs and the potential to provide attractive alternative liquid fuel solutions to off-grid locations, there is a strong opportunity for a Company to enter the small-scale LNG market forecasted to grow strongly in the next five years and<strong> </strong>create significant value for first-movers. In particular, LNG for the industrial, mining and large residential sectors have the highest potential for growth. West Africa is expected to be the main area for the development of retail LNG on the continent in the short-term, with Guinea, Senegal and Marocco being the fastest growing markets until 2025 (in volumes). Subsequently, land locked countries in West Africa, as well as Eastern and Southern Africa, can become additional medium-to-long term growth markets.</p><p>Unlike large-scale LNG projects, <strong>ssLNG projects offer more immediate returns, given lower investment requirements and accelerated commissioning schedules that allow a faster time-to-market</strong>. Secondly, <strong>ssLNG is readily scalable</strong>, allowing to easily tailor capacity to serve increased demand while gaining supply chain synergies. Due to the flexibility of ssLNG, the resource can stimulate demand in areas of the market that were previously unsuited to LNG as a fuel source, such as off-grid and remote areas.</p><p>In the mid-term, ssLNG can also be a viable source for the transportation industry, serving markets in the marine, rail and trucking sectors, aiming to reduce costs from oil and diesel sources and transition to cleaner, cheaper sources of fuel.</p><p>The main challenges for the development of the market will be to overcome the resistance to change of most consumers (or stickiness) not yet willing to switch, despite the discount and relatively low switching CAPEX, obtaining the necessary support of local government in prioritising LNG solutions over the more traditional liquid fuels, and overcoming the lack of a complete supply chain in selected markets. Overcoming these challenges will require: (i) significant marketing efforts to promote and reassure consumers, while (ii) maintaining the<strong> </strong>fast pace of infrastructure development (ship bunkering, small-scale LNG deposits along the coast, truck loading for LNG and offtake agreements with large industrial players); (iii) increasing standardisation of contracts to simplify consumers&rsquo; market understanding; and (iv) developing a comprehensive supply chain (i.e. ssLNG can be made feasible when all segments of the supply chain are operating collaboratively and profitably).</p><p>Deloitte projects the ssLNG market to account for approximately $49.66 billion by 2026, growing at a compound annual growth rate of 6.81% between 2019 and 2026.</p><p>IFC commissioned Tractebel to do an initial demand assessment that concluded that the market for LNG in 2022 in Guinea, Sierra Leone, and Liberia is about 625,000 tons of LNG</p><p>The envisioned facility is comprised of an FSU, a mooring system, two small LNG carriers, and a small onshore facility with regasification, truck and ISO container filling capabilities, thus already capable of providing LNG and natural gas in Freetown without the need of further infrastructure investment. The company can offer both infrastructure services and bundled LNG services to gas market aggregators, power generation firms, LNG suppliers, or large industrial consumers.</p><p>The construction of the 2MTPA Tema LNG Terminal is completed and operations are to start by Q1 &lsquo;21.</p><p>Within Sierra Leone, there is potential for broad uptake of LNG by industrial users in the food &amp; beverage, agribusiness, cement, hospitality, and other segments, most of which would be served via LNG trucking.</p><p>Detailed work would be required to understand the depth and breadth of demand from the Kamsar-Boke bauxite corridor in Guinea as well as potential thermal power and industrial demand in and around Conakry. In the mining sector, we should assess both short-term demand for LNG-to-power and medium-term demand related to mining equipment (diesel to LNG conversion) and alumina refining. The recent installation of a Karedeniz power ship in Conakry as well as existing thermal generation suggests that there is also potential demand for gas-fired power generation (using LNG as feedstock) or HFO/Diesel-to-gas conversions in and around Conakry. There may also be some level industrial and commercial demand for LNG in the Conakry area. &nbsp;</p><p>Assessment of LNG demand in the Liberian mining sector, starting from the significant Arcelor-Mittal operations in the country.</p><p>The mining industry of Ghana accounts for 5% of the country&rsquo;s GDP and minerals make up over 37% of total exports of which gold contributes over 90% of the total mineral exports. Ghana has 23 large-scale mining companies producing gold, diamonds, bauxite and manganese, and, there are also over 300 registered small scale mining groups and 90 mine support service companies.</p><p>It would sense to build the project around an anchor customer that can bring large volumes to the table. Energy producers that have gas turbines or engine power plants, mines, refineries, fertilizer plants or metal processing plants are excellent candidates. Additional volumes can be found by investigating any other manufacturing industries requiring large amounts of heat or steam.</p><p>Final size to be defined on the basis of the offtake market and other considerations: optimization of the logistic chain might show that choosing a higher investment in CAPEX leads to lower costs of delivered LNG</p><p>Although the footprint of the site and the LNG carriers that will deliver to it are smaller, similar safety and availability requirements as for large-scale terminals apply.</p><p>For ssLNG projects a sensible approach to marine infrastructure is crucial since these projects are not able to absorb CAPEX-heavy infrastructure costs. It is especially important to pay attention to site selection and not to overscale the installation, as this will significantly add to costs and damage project economics.</p><p>Cost of LNG storage for bullets is roughly 2,500 USD /m&sup3; (for a storage volume of 1,000 to 15,000m&sup3;).</p><p>Small LNG vessels are a range in size from 1,000 m&sup3; to 18,000 m&sup3; (the smallest current LNG carrier is the Knutsen Pioneer with a capacity of 1,100m&sup3;), but the high cost of small LNG carriers (between 25,000 to 40,000 USD/day), make the use of very small vessels difficult/uneconomical to use.</p><p>BoG can be reused as a source of energy for the plant itself and local communities.</p><p>For reference the Higas ssLNG terminal in Oristano (majority-owned by Avenir LNG and operated by Reganosa) comprising a jetty, an unloading arm, six horizontal cryogenic holding tanks (1,500cbm each for a total of 9,000cbm), two LNG truck loading bays, and a natural gas captive power generation system, cost around 45MUSD.</p><p>Nigeria&rsquo;s Greenville, for example, is operating a ssLNG plant that aims to deliver gas to industries and companies across the country that are not linked by pipeline. Accordingly, the ssLNG plant will ensure a reliable energy source for those in inaccessible locations.</p><p>Sales and Purchase Agreements (SPAs) for small-scale LNG retailing and LNG bunkering are still far from being harmonized between players and regions, allowing for significant margins to be made if the commercial and contractual structure is appropriately designed.</p>