Challenges and competition
The development of the LNG liquefaction sector in Sub-Saharan Africa will undoubtedly provide numerous socio-economic benefits to the region. But for this to happen, many challenges need to be addressed.
As mentioned, correct and clear regulatory regimes need to be in place to support and encourage foreign investment and secure project financing. In addition, these frameworks should encourage business transparency to reduce corruption and bureaucracy. Companies must also comply with local content requirements to ensure that the development of the LNG sector is beneficial to the country that they are located within. A lack of infrastructure is an additional challenge that must also be overcome. However, with many companies jointly developing projects, this should reduce the financial implications.
Affordable costs of construction must also be maintained. Costs tend to escalate when multiple projects are being built at once, as experienced in Australia. Labour shortages must be avoided and reasonable costs to import a skilled workforce to remote locations must be sustained. Companies are encouraged to utilise the local workforce, and provide training, thus increasing the pool of available workers.
The correct capacity of ships is also required to transport the produced LNG and the shipping industry is responding to this with the construction of many vessels. The cost of transportation is currently the cheapest segment of the value chain, allowing LNG producing nations in Sub-Saharan Africa to take advantage of their close proximity to export nations.
Oversupply of the LNG market may occur if too many LNG liquefaction projects come onstream at a similar time. Consequently, it is vital that projects enter the market before this occurs, with other emerging producers including Australia, the US and Canada also looking to secure their market share.
The LNG liquefaction sector within Sub-Saharan Africa looks set to grow with several new projects under development, in addition to the expansion of existing production capacity. In particular, Mozambique and Tanzania have the potential to emerge as significant players within the global market, due to their huge reserves of natural gas. For any of the developments to progress, a positive FID must be reached, but many companies appear to be delaying this decision due to current market conditions.
The challenges that the LNG liquefaction sector faces must also be addressed with the correct regulatory and political regimes being put in place. Costs of construction must remain reasonable, transportation must be available and a sustained demand for the product must be maintained.
Most importantly, producers must enter the global market and secure LNG buyers before it is too late to do so. The development of the LNG liquefaction sector will undoubtedly have a positive multiplier effect, providing socio-economic benefits to the continent and plentiful opportunities for the global supply chain.
This article originally appeared in the June 2015 issue of LNG Industry. Parts One and Two can be found online in the Special Reports section.
Written by Fiona King, EIC, UK. Edited by Katie Woodward
Read the article online at: https://www.lngindustry.com/special-reports/22062015/eic-africa-article-part-3/