Following completion of a takeover by Savannah Petroleum, Nigeria’s Accugas has signed its first gas sales agreement in five years. The company’s new owners hope further expansion will follow, writes Thalia Griffiths
Nigerian midstream supplier Accugas has signed a new interruptible gas sales agreement with Sahara Group affiliate First Independent Power Ltd (FIPL) to provide gas to the Afam power plant. Savannah Petroleum completed the acquisition of Accugas and stakes in the Uquo and Stubb Creek fields in November, alongside African Infrastructure Investment Managers (AIIM). The complex transaction, first announced in July 2017, involved the acquisition by Savannah of Seven Energy’s assets and the restructuring of Seven Energy’s debt (AE 405/17).
The Sahara deal is Accugas’s first new GSA for more than five years, since the collapse of its former owner Seven Energy International. Afam’s generation capacity is presently 180MW, and the agreement envisages the supply of up to 35mcf/d of gas from the Uquo field for an initial term of one year, with potential for extension. The Accugas agreement represents an additional source of supply for Afam, which is currently supplied by Shell Nigeria. FIPL is developing an additional 180MW as a second phase of the plant.
Accugas owns the main gas distribution and transportation network in south-east Nigeria. Afam joins its three existing clients, the Calabar power plant owned by Niger Delta Power Holding Company, the Mfamosing cement plant in Cross River State owned by Lafarge Africa, and the Ibom Power plant owned by Akwa Ibom State, whose take-or-pay volumes for 2020 total 141.4mcf/d.
“We are confident that this will be the first of several new gas sales agreements signed over the course of 2020 and, through Accugas, we aim to be seen as the gas supplier of choice to the power sector in Nigeria,” Savannah chief executive Andrew Knott said in a statement.
AIIM purchased 20% stakes in Accugas and in Seven Uquo Gas Limited as part of the Seven Energy transaction. “We’ve been looking at the midstream space for a while, particularly investing into an infrastructure asset, which could receive gas, transport it, process it and move it on to areas of high demand, particularly power plants but also industrial plants,” AIIM investment director Sola Lawson told African Energy.
The Accugas investment follows AIIM’s investment in the groundbreaking 459MW Azura-Edo gas-to-power project, Nigeria’s first fully privatised IPP to reach financial close and a trailblazer for private sector involvement in the power sector. Seven Energy had suffered from non-payment for its gas supply to power stations, as well as from the loss of a strategic alliance agreement with Nigerian National Petroleum Corporation that was a major source of income. Lawson said that while it did not come soon enough to save Seven Energy, the introduction of World Bank partial risk guarantees had been a game-changer (AE 307/8).
“There is credit enhancement in place, which made the whole proposition interesting for us,” Lawson said. “We were a development shareholder and a 30% investor in Azura so we knew quite intimately how that process worked, and we’re confident to replicate that investment in the midstream space.”
The original plan was for Savannah to take over Seven Energy’s upstream businesses, which included interests in the Uquo and Stubb Creek fields, while AIIM would acquire a stake in the midstream business, effectively the Accugas business and pipeline distribution network. However, dividing the assets in this way proved impractical, and AIIM ended up taking 20% in Accugas and in Seven Uquo Gas Limited, which has a 40% interest in the Uquo field.
Savannah is also eyeing supply to the Alaoji power station and high-margin industrial customers. Lawson said the partners had identified potential for considerable further expansion of gas production and the client base. “There is spare capacity in the pipeline where they’re using about 40% of capacity, and there’s also some spare capacity in the plant, so the plan is to quite quickly ramp up the number of customers,” Lawson said.
Further expansion options could include virtual pipeline networks, compressed natural gas and small-scale LNG: “There’s a whole range of strategies we can employ.” He said further expansion outside the south-east would depend on the progress of the proposed expansion of Nigeria’s gas pipeline network. “I think it’ll continue to be a south-east business until such time as you have the East-West connection, which is probably with the OB3 pipeline, maybe two, three years away. Before then, it will remain a regional business, but there’s a lot of things to do in that part of the country.”
AIIM is also involved with Proton Energy’s 150MW Proton Delta Sunrise Project, which Lawson said was continuing to work towards financial close, though there have been no new IPP closings in Nigeria since Azura in 2016. “At such time as this government puts new IPPs higher on its priority agenda then this will be one of the first projects to close. It’s still moving, but it’s dependent on wider government policy at the moment which is more focused on debottlenecking existing capacity,” Lawson said.
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