Small-Scale LNG as an Off-Grid Power Solution

Read more about African gas potential in the upcoming African Energy Series Special Report: Africa LNG 2021 – as key liquified natural gas projects for domestic use and export advance across the continent. Download other AES Special Reports here.

Small-scale Liquefied Natural Gas (ssLNG) represents a niche but nascent industry – one that has already demonstrated high potential profitability by attracting investor interest globally. In a similar way in which fracking has transformed the U.S. energy landscape, ssLNG has the potential to transform the role of gas in a number of key energy markets throughout Africa. With Africa’s rapidly growing population spurring demand for increased power generation sources – and the global progression from traditional fuels to cleaner sources of energy – LNG demand is expected to rise, as more countries optimize the resource for electrification objectives. The realization of ssLNG projects in particular can enable a post-COVID-19 recovery through sustained economic growth; 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.

Identifying Key Benefits

Despite market dynamics that include lower commodity prices, a temporary oversupply and emphasis on cost reductions, the opportunities that ssLNG present – specifically compared to large-scale LNG projects  have rendered it an increasingly viable industry. Unlike large-scale LNG projects, ssLNG projects offer investors more immediate returns, given lower investment requirements and accelerated commissioning schedules. Secondly, ssLNG is readily scalable, in that operators can easily tailor capacity to serve increased demand while gaining supply chain synergies. This is a significant factor in light of market volatility initiated by COVID-19.

Moreover, ssLNG presents a key opportunity to address off-grid power generation solutions for both industrial and residential requirements across Africa. Such plants generally have a production capacity of less than 500,000 tons per year, and can supply end-users in locations where traditional infrastructure does not reach. 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. Nigeria’s Greenville, for example, is operating a ssLNG plant, which 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.

Additionally, ssLNG acts as 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. Due to increasing environmental awareness and global pressure to transition to lower-carbon energy sources, ssLNG is attracting attention as a commercially viable and attainable energy source for the African continent.

Overcoming Challenges

One of the primary challenges hindering the expansion of ssLNG in Africa is the lack of a complete supply chain in selected markets. According to Gas Processing News, ssLNG development is dependent on the development of a comprehensive supply chain, in which only a handful of companies have been successful. Subsequently, ssLNG can be made feasible when all segments of the supply chain are operating collaboratively and profitably. Additionally, ssLNG involves high costs of shipping, which is generally higher when compared to large-scale LNG transportation. However, reduced capital expenditure and shorter rates of return associated with ssLNG can potentially offsets these costs.

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