SA gas startup Bluedrop Energy plans dual IPO on NYSE and JSE
Bluedrop Energy, a South African Gas startup company, this week announced its plans to list its shares on the NYSE in New York, USA and the Johannesburg Stock Exchange, South Africa. Bluedrop will first float its shares on the NYSE in 2022, while its JSE listing will follow at a date still to be announced.
In April this year, Bluedrop announced that it has secured a $20 million (R300 million) funding from J. Sassoon Group, a US, Washington DC-based private equity and investment firm for the construction of Bluedrop’s modern state of the art Smart Composite LPG Cylinder manufacturing plant. Export-Import Bank (Ex-Im) of the US has also issued a letter of interest providing $36m (R497m) finance guarantee in support of J Sassoon Group for this project.
Last month, J. Sassoon Group signed a Technical Services Agreement (TSA) with the South African office of a US-based multinational engineering firm, Fluor Corporation, for the development of Bluedrop’s smart composite LPG cylinder manufacturing plant.
Commenting on the listing, J. Sassoon Group Chairman, Mr. David Sassoon said: “We are pleased to continue to advise Bluedrop on its next step in its journey. The South African market is in desperate need of foreign capital infusion and this potential floating of Bluedrop’s shares in New York is going to help Bluedrop grow exponentially through asset acquisitions making it one of the leading LPG wholesalers and composite LPG cylinder manufacturers in Africa.
Unfortunately, there has been a drought of investments in South Africa’s capital market, forcing startups like Bluedrop to seek funding from foreign markets. These are opportunities that should be available for local entrepreneurs and investors, but these opportunities end up being transferred to markets like New York and London.
Government has to re-energise local markets, it needs to offer incentives to local investors to unleash local capital, which will encourage foreign investors to invest in South Africa and reduce risk exposure to foreign investors. Otherwise, local capital will continue to flow to foreign markets, which makes firms such as ours have incentives to co-invest with local partners. Co-investment goes beyond just capital, co-investing with local partners allows for the creation of an intellectual highway of ideas, and unlocks more opportunities, all of which fosters cooperation and helps local economies grow exponentially.”
Sassoon added, “We are in the process of negotiations to secure bulk offtakes for Bluedrop from LPG Suppliers in the US to complement and fulfill critical aspects of Bluedrop’s value chain and strategy. The US is a major producer of LPG therefore in J. Sassoon, Bluedrop has the right partners to help them source product from a market spoilt with abundance of this critical energy source.”
J. Sassoon expects to help raise up to $100 million (R1,4 billion) in private placement funding for Bluedrop’s second round of funding for its pre-IPO campaign before its shares float on the NYSE. J. Sassoon Group is advising Bluedrop on its planned initial public offering in collaboration and consultation with its U.S. based industry partners and a local broker-dealer firm in South Africa.
Bluedrop’s CEO, Mr. Kenneth Maduna remarked, “The listing on the stock market will elevate our profile within the energy sector and investment community. It will surely expand our investor base. It is a value accretive step in the growth of Bluedrop as a relatively new entrant in the energy markets and it fits in perfectly with our acquisitive growth strategy. We have a very good launch project and it gives us leverage to build an impressive asset base within this high growth market of LPG in South Africa and the SADC region. We are also humbled by the outpouring of support from the South African government and various sector entities. It gives us great confidence in our business to know that our government and our partners share our vision of LPG being at the critical nerve-center of the country’s energy future.”
Mr. Bruce Fein, J. Sassoon Group CEO, commented, “Bluedrop is a Cinderella story that is still in the making for South Africa’s markets. We remain committed to our agreement with Bluedrop and its success. This is the time for South Africa to shine and grow.”
Nigeria’s latest gas-related power shortages could have been avoided. Here is why
Opinion Piece by Yusuff Wale, Managing Director, Wärtsilä Marine & Power Services Nigeria Ltd
On 28 May 2021, Nigeria’s national power generation dropped to 3 059MW and for the subsequent seven days remained below 4 000MW, six percent below average production. Low pressure on the Escravos-Lagos Pipeline System (ELPS) left several gas turbine power plants with insufficient gas supply, leading to plant shutdowns and widespread power blackouts.
Unlike gas turbine power plants, gas engine power plants have the flexibility to function during low-gas pressure events. This flexibility significantly lowers power production risk, a supreme advantage in context of gas supply disruptions and systemic power shortages.
Power cuts in Nigeria are a regular occurrence. Data from the Transmission Company of Nigeria (TCN) shows that from 2013 to 2020, the national grid system failed 84 times and partially collapsed 43 times. The World Bank data on countries with the most electricity outages in Africa showed that in 2019, Nigeria suffered outages for 191 days out of 365. The economic cost of power shortages in the country is estimated at around $28-billion annually – equivalent to 2% of its Gross Domestic Product.
Power plants suffer from disrupted gas supply
Gas is used to fuel more than 80% of the power generation capacity in Nigeria, which has the largest gas reserves in Africa. Despite major progress achieved over the past years, gas infrastructures development and maintenance remain insufficient, and this situation combined with infrastructure sabotage results in the country suffering from insufficient pipeline capacity and a lack of pipeline connections. The condition of the gas transmission and distribution system is a major constraint as domestic supply shortages and insufficient pressure severely affect the reliability of the power supply.
What does this mean in practice?
Trunk pipelines like the ELPS require sufficient volumes of natural gas to be fed into the system within a specified pressure range to ensure that gas is delivered to all consumers along the pipeline as per the contracted quality and quantity. A drop in the volumes leads to a drop in the pressure leading to disruptions between the ELPS and end consumers. In such a scenario, high-pressure off-takers such as gas turbine power plants can no longer operate and drop out as consumers, thus freeing up the remaining gas volumes for low-pressure off-takers such as reciprocating gas engine power plants which can continue to operate at full rated capacity.
The flexible power plants, made up of multiple engine modules which can be turned down or fired up instantaneously, offer a large range in power supply availability. In addition to being robust and versatile to manage the current generation and transmission side disturbances, they are also the perfect ally of renewable energies since they can adjust output in response to the intermittent nature of the weather.
Engine-based technologies also provide the best response times to effectively adapt to sudden excess or shortfall in electricity production. Furthermore, their modular format means that they can be sized to meet specific requirements, for a city, for manufacturing industries, or for local micro-grids. This makes them easier and faster to install than larger gas turbine plants and facilitates expansion as energy requirements increase.
Gas turbine power plants on the other hand involve a continuous combustion process. They require a constant energy supply to generate consistent output. They are not adapted to operate on a stop-start basis, nor are they designed to cope with the intermittent nature of renewables. To maintain a balanced system, flexible forms of electricity must be available to ramp up output at the same rate that wind or solar output fluctuates. Using small, modular, combustion engines to provide load flexibility enables larger combined cycle plants to provide a stable base load taking advantage of high efficiencies when operating at full capacity and reducing overall energy costs.
Unlocking the full potential of Nigeria’s power sector
The reality today is that Nigeria’s power system faces several challenges, including blackouts, fuel shortages, financing, maintenance, demanding operating conditions and reduced cooling water availability. The size of the gap between the country’s energy needs and its current provision is daunting but not impossible to close.
As the largest economy in Africa, with huge gas reserves and high solar energy potential, Nigeria has all the natural resources necessary to meet the country’s power needs. To realise the full benefits of this potential, flexible engine technology offers a superior solution over gas turbine technology. Increasing access to electricity ranks as one of the major drivers for business growth. Improving power sector performance, particularly for manufacturing and services, will be central to unlocking Nigeria’s economic growth post-Covid-19.
G7: why major economies are delaying a break with the fossil fuel industry
The climate crisis is certain to be a hot topic at the G7 summit in Cornwall. While the leaders of the world’s richest countries agree in theory on the need to reach net-zero emissions by 2050 at the latest, they remain faithful to a fossil fuel industry reluctant to substantively change its business model.
By George Ferns, lecturer in Management, Employment and Organisation, and Marcus Gomes, lecturer in Organisation Studies and Sustainability, Cardiff University
A recent report by the International Energy Agency, a typically conservative advisory body, argued for an immediate ban on new fossil fuel projects. But investments by oil, gas and coal companies into finding new sources continue, as does industry lobbying to undermine regulation. The environment ministers of the G7 countries committed to end funding for new overseas coal projects by the end of 2021. But 51% of their Covid-19 economic recovery funds – a total of US$189 billion (£133 billion) – paid between January 2020 and March 2021 were earmarked as financial aid for the fossil fuel industry. Worse, US$8 of every US$10 dedicated to non-renewable energy was paid with no conditions on these companies to reduce their emissions.
Why does it seem so hard for G7 leaders to match their words with action when it comes to the fossil fuel industry?
Betting on the long-term business case
Despite setbacks in volatile markets and oversupply risks, there is still a lot of money to be made from extracting, producing and selling hydrocarbons. Demand for coal has plateaued, but oil and gas demand is predicted to rise at least for the next 15 to 20 years, particularly in emerging economies such as China and India.
This puts G7 leaders in an awkward position. On the one hand, governments need to reboot economic growth after the pandemic slowdown – a profitable energy sector nourished by rising demand abroad is welcome, even though hydrocarbon extraction can be especially polluting in developing countries.
Governmental support for the industry in the form of subsidies or tax breaks artificially inflates the profitability of fossil fuels, in turn making renewables a less attractive investment. Put simply, it is less risky and more profitable to – at least for now – invest in oil and gas.
The fossil fuel industry continues to shed public support, but it can rely on the fact that it’s embedded within a complex system of consumers, suppliers and contractors, politicians and the media. The cause-and-effect relations that define such an intricate system often produce unintended outcomes.
This interdependency is referred to as carbon lock-in. Economies have evolved in such a way that they perpetuate an energy landscape dominated by fossil fuels and plagued by an inability to radically change.
Not only does carbon lock-in result in inertia, it causes a tragedy of the commons-type problem. Big oil companies such as BP, Exxon Mobil and Shell are unlikely to make meaningful changes until the rest of the system acts in unison. National oil companies and smaller privately owned fossil fuel companies comprise the bulk of known fossil fuel reserves. But they often evade the spotlight and so can operate with more freedom. For a big oil company to make high-risk changes to its business model while others enjoy a free ride would be seen as a bad business decision.
Lock-in, as the name suggests, is very difficult to break. That said, G7 members are powerful nodes within this complex network. Strong leadership – such as divestment from fossil fuels and strong support for renewables – would cause reverberations throughout the whole system. But strong commitments coupled with counter-intuitive policies only send a signal that meaningful changes aren’t coming.
People working in the fossil fuel industry often stay in the sector for their entire career – starting off as students of engineering or geoscience in departments funded by the industry, working all over the world and then heading into management positions.
The industry’s identity is predicated on certain values that have existed since the early days of hydrocarbon exploration, including, as one study found, a deep trust in the potential of science and technology to further humanity’s control over nature and to drive progress and economic development.
The ideological commitments of leaders in the fossil fuel industry will take a firm challenge from governments to overcome. It’s clear from financial decisions in the lead up to the summit that G7 leaders aren’t quite up to that test yet. But the meeting in Cornwall is their opportunity to signal that that cosy relationship is finally coming to an end.
With the potential of gas as an alternative energy source, the development of the gas-to-power industry anticipates major growth. Green Economy Journal interviews Prashaen Reddy, energy partner at global management consultancy Kearney.
Government has long sought to advance a gas economy in South Africa, and the impetus is now upon us with multiple ‘mega’ gas projects about to be announced as preferred bidders in the Department of Mineral Resources and Energy’s RMIPP Procurement Programme. How many MWs of gas generation capacity are you expecting to be announced, and what will be the split between LPG and LNG?
As part of government’s recent IRP, 3 000MW of gas-to-power will be procured as part of the energy mix. Up until 2024, it is only expected to be around 1 000MW. The procurement process is set to start early in 2021. Without being privy to government’s procurement plan it can be expected that in the next bid window, government will likely be asking for the same MWs from gas. The 1 000MW could also be split over a few bid windows over the year or possibly all at once as the President stated in his 2020 SONA.
Government does not clarify how natural gas will need to be sourced. The best way to transport it is by creating gas-to-power stations close to where there is a supply of natural gas. It is best to produce gas close to where it is naturally available. Where this is not possible, there will need to be ways to move the gas, likely in the form of LNG to plant. In this instance, there will need to be a constant supply of gas and infrastructure to ensure the power station receives gas via LNG, which is a more costly and impractical means of supplying gas to a power station.
Liquified Petroleum Gas (LPG) and Liquified Natural Gas (LNG)
LPG is produced through a chemical process from refineries in South Africa or imported. LNG is merely a way to transport gas around the world, where it is liquified, shipped and transported to where there is demand. Power plants are expected to run off natural gas, which does not mean it will be LNG. For example, pipelines bringing gas from Mozambique is a natural gas, but it is not LNG as it is transported through pipelines.
There are two large LNG projects being bid by DNG that seek to tap into the Republican of Mozambique Pipeline Company (ROMPCO) gas pipeline from Mozambique. Word is that the ROMPCO pipeline capacity is already allocated to Sasol and other industry consumers. Is this true, and if so, how can this capacity be expanded?
It is well known that Sasol is the supplier and majority consumer of gas in the country, supplied from the ROMPCO pipeline. There is room for expansion and investment in the pipeline as has been in the past that has resulted in the pipeline being at the capacity it is now. The pipeline capacity can be expanded – it will just require additional investment. The bigger challenge though will be the source of natural gas.
Sasol will need to access more gas into the pipeline if they are to expand it. They will have to look at how they can partner, or how the role of other players in Mozambique tap into that pipeline. The gas that Sasol uses to bring into the South African market and supply the southern part of Mozambique is sourced from southern gas fields, onshore in Mozambique.
The new gas finds in Mozambique are in the extreme north, offshore and far from the pipeline that will need to be extended to the north to access the gas. This will then be shipped through the pipeline or other mechanisms for supplying the pipeline with LNG will have to be identified. An option that is being considered – bringing in gas from other parts of the world or in the region to the supply the pipeline via LNG, re-gasify the gas fed into the pipeline – will allow for increasing capacity and supporting the current capacity.
Oil and gas have always been politically conflicted. All commodities have this challenge, but we should diversify. South Africa is looking for other sources of gas and want to establish LNG with Coega and Richards Bay as options, which are both LNG re-gasification facilities where gas can be transported to site, re-gasified and put into operations, pipelines, gas-to-power facilities and storage where required. Brulpadda and Luiperd are two finds off the southern coast of South Africa by Total that will see realisation as a source of gas for the market within seven to ten years.
Sasol has enabled the gas marked in the past but moving forward there are more than enough players introduced into the mix with Total, Eni, South African and Mozambican government’s SEO as well as Transnet looking at gas. Sasol is looking to offload certain gas assets so that they are not the most dominant player for gas. This will allow for a shift in the landscape.
How quickly can pipelines be put in place to obviate the impending negative impact of trucking to transport gas on road infrastructure and the environment?
Both Sasol and Transnet already have pipeline networks operating in South Africa. The starting point would be how to leverage existing infrastructure to supply the market. If South Africa is to be successful as a gas economy, we will have to start building pipeline infrastructure. It takes five years or longer to build pipelines depending on the length of the pipeline and the area (as they could go through potential suburbia, communities and industrial areas that require approvals and environmental studies).
South Africa has access to so much gas and studies conducted in the past, including those by the CSIR, clearly show that pipeline infrastructure must be built now and there are economic zones that can take advantage of this. An integrated infrastructure programme for gas including pipelines, LNG, gas-to-power needs to be established. The best option is to get pipeline infrastructure into place and to leverage existing pipeline infrastructure. Trucking is not the solution.
A primary benefit of developing a gas economy is the resulting need for infrastructure development and industrialisation. How are these areas advanced by awarding 20-year PPAs to power-to-ship companies, who simply dock their generators at the port and plug into the grid? Where is the economic development in this model?
Not all power needs will be solved by power-to-ship, which is only an emergency, short-term solution to gain stability and reliability within the power sector. This option is only considered because of South Africa’s massive challenge between supply and demand, and we have a deficit. All solutions should be considered.
The challenge with the economics around power is needed to create a certain level of longevity and companies are not prepared to put in place infrastructure and investments if they have not secured a certain number of years of supply. Shorter timeframes for these types of models are an option but it will still require infrastructure and investments to get this power into the grid. All power agreements, whether power-to-ship or building new power stations, require an agreement upfront of who will be purchasing the power, and these are generally long-term contracts. Funders and investors in this space will only make decisions if it is economically feasible.
Economic development in this model is a bit more limited compared to more stabilised infrastructure but once these models are introduced, it will still require development and maintenance of infrastructure, tying into Eskom, re-maintenance and operations activities. Once stability is created in the power grid, that enables other industries.
It was announced recently that there would be a dedicated gas procurement round before the end of 2021. How do you see this adding to the presence of RMIPPPP projects in terms of scale and strategic location?
Renewables cannot be the only answer to the power mix so gas is a good example of something that can be brought in place to support baseload generation. Other sources of energy are needed in the grid to create a continuous supply of energy and gas is one of those as well as coal that has been used effectively in the past but is now a declining area of investment.
Renewables and gas are very complimentary to ensure sustainability in the grid and to have diversified sources of energy. It is important to have a diversified mix. Having just one source could create a struggle to create consistency within the grid. Until we can get proper battery technology at scale, relying solely on renewables is not possible.
What is the latest position of government on extraction of shale gas?
Shale gas is still on the government agenda but in the current oil and gas price environment it becomes economically unfeasible and as a result investment in these projects has slowed down. The technology required to extract gas from shale rock such as in the Karoo is a specialist technology and hydraulic fracking is controversial. There is an oversupply of natural gas in the market, so the complex route of extracting gas does not make economic sense. Shale gas extraction has been successful in countries like the US. When there is government support and it is attractive to investors, shale gas does offer opportunities.
In the absence of South Africa accessing such gas local deposits, will this ramp up in gas-energy capacity not place an immense strain on the countries balance of payments as we embark on the importation of gas?
A lot of South Africa’s energy needs are transported into the country, but we also export a lot of our production. The manufacturing sector is dependent on energy so if we scale and industrialise faster because we have more gas and gas-to-power, exports will be increased. If we can get more gas and more energy into the country and more capacity and reliability then the manufacturing sector, which is predominantly an export-driven sector, can be scaled. It is not practical to wait to have pipelines and all the infrastructure in place before we have gas in the country. We must work towards creating the demand and start to have the supply, bringing in local infrastructure and gas sources as we grow.
Please summarise the key advantages for the country in pursuing a gas-power strategy within the context of the global energy industry moving rapidly to renewables, and away from large gas-energy projects.
In the last five to ten years, the world has shifted towards gas as its less harmful in terms of emissions compared to that of coal and oil. There has been a shift in the growth of gas and projections into the future still show growth in gas but decline in coal and oil. Gas is viewed as a complimentary source of energy to renewables, not one that is competing.
Sustainability in the grid needs to be created with different sources of energy and having gas in the mix will be useful. We need to move away from the dirtier hydrocarbons. The most balanced way of bringing new energy, while creating and replacing jobs, needs to be navigated.
Read this article in The Green Economy Journal Issue 46
* Prashaen Reddy is partner, energy and process industries africa & digital strategy and transformation Africa