Furthermore, the main limitation for these buyers is infrastructure. Hence, there is an opportunity to use spare capacity in the market to help stoke demand from these buyers. At the Solomon Peter Group, we work with clients in Latin America, the Caribbean and Africa who are extremely price sensitive, but have ambitions to use LNG to both save money and provide supply security.

However, the big question is, if demand globally has taken a downturn, then demand in these countries would have been adversely impacted as well?

FAST MOVING CONSUMER GOODS

The answer is yes; demand as a whole has declined, however some individual sectors have not. Globally, demand from sectors like Fast Moving Consumer Goods (FMCG) has been growing as consumers line up, 2 meters apart, to buy, and in some cases over-buy, groceries and supplies.

To service this demand, stores are consuming more power due to increased refrigeration, lighting and longer opening hours, which in turn increases energy intensity.

Furthermore, in certain developing nations, reduced public services such as transportation has resulted in people flocking to local stores for goods, increasing off-grid energy usage.

INTERNAL INFRASTRUCTURE

In places with limited internal gas and/or electricity grid connectivity, diverting fuel and power from one sector to the next or one region to the next is not always possible. Hence the switch in demand must be addressed as organic, incremental demand.

Admittedly, one could increase domestic gas output where possible. Yet, in some cases the domestic gas network doesn’t have the necessary infrastructure to service these demand centers. Moreover, in this low oil price environment, where producers are seeking to manage their finances, supply from associated gas fields are likely to be reduced because of lower oil production.

For example, in sub-Saharan Africa, thermal generation is the secondary source of electricity generation, second to hydro. Despite available generation capacity within some countries in the African sub-continent who solely rely on gas fired thermal generation for their energy needs, growth is being stymied. The main reason for this under-utilisation is a lack of feedstock due to insufficient gas-processing and pipeline infrastructure. Adding to this challenge is low domestic gas prices, which result in new investments in gas infrastructure being uneconomical.

However, on a micro, intra-country level, depending on the location of the power plants and transmission lines, some power plants could be used promptly to generate additional electricity if they had access to additional gas.

SOLUTION

In the short term, LNG could be utilised to supply incremental demand in the FMCG and power sectors via utilising excess pipeline capacity, where possible, and small-scale LNG trucking to supply off-grid demand.

Similarly, in the mid-term post-Covid-19 pandemic, LNG could be used to supply more power plants with excess capacity; however, this would depend how much gas prices adjust upwards.

CONCLUSION

To conclude, the opportunities outlined above will not apply to every country in the sub-Saharan African block; rather that some countries possess mutually beneficial fundamentals that could be capitalized on immediately. Excess power capacity and growing demand both on- and off-grid present an opportunity not only for LNG suppliers, but also for Floating Storage Regasification Unit (FSRU) and distribution infrastructure providers.

As mentioned in our previous article, flexibility will be key to unlocking these markets. Flexibility in terms of duration, charter rate, payment terms and send out capacity. More specifically, suppliers with existing FSRU or distribution capacity would be most suitable.

In general, when growing a gas market, it is essential to reliably meet existing demand in order to instill confidence in gas as a secure, economical source of supply. In turn, this will incentivize domestic market participants to switch to gas in the short-mid-term or prompt governments to commence discussions about developing their domestic gas markets.

At Solomon Peter Investments we are engaging with interested parties to further discuss the opportunities. To find out more, reach out to Zavier.francis@solomonpeter.com

LNG prices have collapsed over the past couple of months due to concerns of oversupply and weaker-than-expected demand. This situation has been exacerbated by the coronavirus outbreak, which has further dampened global demand, pressuring prices below $2/MMBtu.

Many Asian LNG buyers have attempted to call force majeure on their term, mainly oil linked, LNG contracts; however, as demand reductions do not typically constitute a force majeure scenario, many of the cargoes are instead likely to be deferred or rescheduled. Furthermore, given the time lag in the pricing mechanism of these contracts the full decline in oil prices probably hasn’t fully “priced in” making term LNG significantly more expensive than spot LNG.

This fundamental situation has pressured global gas prices, except US gas prices. Henry Hub has risen 10% over the past month due to concerns that shale producers will curb production and as such reduce the gas by-product.

Moreover, the recent rise in Henry Hub prices amid record low LNG prices, has resulted in US LNG being the most expensive LNG on the spot market.

Despite some US LNG cargoes heading to China following Beijing waiving the 25% tax on US LNG for some buyers, last week it was reported that at least 21 buyers have cancelled May and June loading cargoes. In fact, this optionality is inherent in most US LNG contracts as buyers could cancel loadings and pay the liquefaction fee.

US LNG producers are now facing the conundrum of whether to carry on producing or to “shut in” if the projects cannot cover their variable costs.

THE OPPORTUNITY

In every crisis there are always opportunities. As buyers and producers mull over what to do with US LNG, for other market participants there may be an opportunity to develop new markets to sell into, which could provide more optionality and flexibility. These new markets indeed will require a new approach. In this environment, new builds are not viable; however, companies with existing underutilized assets, such as Floating Storage and Regasification Units (FSRUs), may be able to assist.

At the Solomon Peter Group, we work with clients in Latin America, the Caribbean and Africa who are extremely price sensitive, with affordability ranging between $3 – 5/MMBtu, some higher. This price variation is driven by the competing fuels in each market; in some markets LNG will compete with domestic gas, whereas in others LNG will compete diesel and oil products.

THE SOLUTION

The main barrier to entry for these buyers is import infrastructure. Although existing onshore infrastructure such as a jetty, maybe available, the exact onshore infrastructure requirements will need to be determined once the import solution is identified.

Accordingly, from our buyer engagements we are certain that LNG prices at this level are attractive for some of the buyers that we work with. However, they will require flexibility. Flexibility in terms of duration, charter rate, payment terms and send out capacity.

To discuss the possibilities, we are inviting FSRU solution providers and LNG suppliers with existing assets to engage with us. If this opportunity is of interest, email us at contact@solomonpeter.com, drop me a private message on LinkedIn and Follow Solomon Peter on LinkedIn

With advancements in technology and increasing investment, harvesting renewable energy sources has become more cost-effective and accessible, allowing for greater adoption of renewable energy around the world and helps to mitigate the impacts of climate change.

SPI has been involved in a number of initiatives to help connect supply with burgeoning demand centers. Please find some examples below:

MOZAMBIQUE

The discovery of large natural gas reserves in Rovuma Basin in northern Mozambique has positioned the country for more than $30billion of investment to produce 20MT of LNG per year, the revenues from which is like to underpin robust economic growth going forward. Furthermore, the Mozambican government is also putting much needed reforms in place to formulate a domestic gas-based economy and improve gas utilisation in the industrial sector as well as for power generation. Crucial to this endeavour, is improving distribution. SPI is leading a project that aims to create a virtual pipeline system to connect growing supply in northern Mozambique to key demand centers in the south and organically grow gas demand. The project entails shipping iso-containers of LNG via barge to in key demand centres throughout the country. Further some iso-containers could be loaded onto trucks for delivery to neighboring countries. This project is still in the planning phase.