There are so far three major gas markets in the world that differ in their regulatory organisation, structure of supply and pricing mechanisms. There is the fully liberalised US market, where all the gas transactions are made in reference to a trading platform where price is established according to the laws of supply and demand in real time. This means that in the US, there is open competition among several gas sources and gas prices are settled in the same way as the price of oil is around the world. Following this system is Europe, where long-term contracts between gas producers and major buyers is still a dominant practice, but where there is also a parallel exchange platform located in Zeebrugge, Belgium, where natural gas suppliers, industrial firms and large consumers can conclude purchase and sale transactions either on a cash basis or alternate payment terms. Finally there is the Asian market, principally governed by major contracts for LNG, which is indexed, such as the price of oil. The differences between these markets are rooted in history and the fact that the gas economy is dictated by the logistics of LNG. The transport infrastructures of gas represent a very capital-intensive investment that must be backed by long-term commitment.
As global demand for gas continues to soar, Africa is slated to be a major contributor to this growing need. Already occupying a considerable share in the gas market, it is estimated that by 2035 the African continent will be the second-largest exporter of gas in the world. Algeria is currently the biggest producer of gas on the continent at 81.5 bcm (2.8 tcf) in 2012, followed by Nigeria, Libya, Egypt and Equatorial Guinea. Angola, Tanzania and Mozambique are emerging gas producers as well. LNG projects in the region will enable African countries – especially those located south of the Sahara – to become major producers and influence the supply chain of gas and the contractual framework of market supply. In addition to political investments in production facilities and the development of marketing strategies, the role that Africa will play down the line will be largely dependent on the country’s risk and the security policies put in place by the governments to tackle it.
While the level of gas reserves in Gabon do not justify the development of major LNG projects, two clear pillars have driven the project financing market for the gas sector. The first has been structured around public-private partnerships, including investments in the new refinery project in Port-Gentil, driven by Samsung in partnership with the Gabonese government and worth $1.4 billlion, but also focusing on gas industrialisation through projects like the Gabon Fertiliser Company, spearheaded by Singapore-based Olam, or the new gas-based power plants of Port-Gentil and Libreville developed by Israeli firm Telemania, which are each being financed by different pools of international bankers. The second has to do with development of new fields in the offshore and deep offshore, such as Total Gabon’s revamping of the Anguille field, with great emphasis on gas flaring reduction and monetisation, worth $2 billion. However, at this point there is limited access for Gabonese or regional banks to enter this project-financing market. Concretely, the role of these banks has been mainly to act as a bridge for the pool of international bankers involved in project financing.
There is a significant amount of expectation that the ultra-deep offshore exploration in the pre-salt region will not only bring about significant new oil reserves but natural gas as well. If that is the case, the natural gas outset of the country could see a profound shift as LNG developments become economically interesting. However, for the moment, the main source of gas in Gabon is associated gas, and most of it is flared. Since new environmental regulation came into force in 2010, oil and gas operators have been obliged to recycle this large amount of flared gas for use in industrial projects. While the monetisation of this resource is very challenging, inventive solutions could foment development in the sector. In sum, while Gabon represents only a minor fraction of potential opportunities for project financing in the gas sector in West Africa, new developments could turn around that reality as new reserves come to light and gas flaring becomes something of the past.