Focus on Liquified Natural Gas (LNG) in Southern and Eastern Africa – KPMG

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LNG is a key component of the global energy supply mix and it is a core strategic focus area for global oil and gas companies.

LNG is seen as a high growth market set to last for the next decade and beyond. East Africa and Mozambique are emerging as key players as it is expected that it would be very competitive in specific the Asian gas markets.

According to a report by KPMG the complexity and high costs associated with offshore projects combine with constructing LNG trains in remote locations in East Africa and Mozambique pose the following potential top 5 major challenges.

These problems include: Large number of complex contractual arrangements between partners, contractors and governments results in risk of cost overruns, cash flow forecasting reliability, missing key milestones and may ultimately result in off-take agreement implications.

Secondly the remote locations without adequate infrastructure results in risk of logistical ineffectiveness, supplier constraints, safety concerns, lack of skilled labour and may ultimately result in unforeseen costs and time delays.

Multiple stakeholders in Africa projects (government, owners, contractors, workforce etc) place an even greater focus on governance and results in risks that should be carefully managed, for example local content rules, taxation regimes, cost allocations, legal compliance, developing/changing legislation.

Sovereign ratings of many emerging African countries are not at investment grade levels resulting in higher financing costs when compared to traditional Western and Middle Eastern projects. Construction of new liquefaction and storage facilities is very costly and requires a stable positive long term investment.

And finally some countries are still forming policy and governance structures to facilitate the development of their oil and gas assets, this policy vacuum often results in delays in monetising resources.

To manage this risks KPMG recommends the following five solutions including managing capital projects, contract processes and providing assurance are the focus of our Major Project Advisory group.

Risks are mitigated through tools and methodologies that address demand planning, supply and inventory management,strategic sourcing and contract management.

Designing or improving current business processes including implementing technology focussing on logistic, supply chain and procurement management are services our advisory teams have delivered successfully. Implementing appropriate size

Human Resource strategies along with the right enabling technologies is a key focus area to address labour related risks.

Environmental and safety are the focus areas of our sustainability teams.

Management of relationships between international oil companies (IOC) and national oil companies (NOC) is critical to ensure there is a balance between political and commercial objectives i.e. royalty and taxation, security of supply, employment and infrastructure development.

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Author: Samuel Kamau Mbote

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