The trillions hiding in plain sight and the BPC deal to unlock it all
Mbongeni Mguni | Monday October 25, 2021 06:00
Local Coal Bed Methane (CBM) developers have dreams of replicating the phenomenal success of the Gladstone Liquefied Natural Gas (GLNG) project in Queensland, Australia.
Gladstone, established in 2011, has created 6,000 jobs, generating US$42.45 billion (P473 billion) of income tax revenues for the federal government. Exports from the project are expected to top US$9.55 billion annually for the next 25 years.
Those who have seen the Gladstone super complex in Queensland have come away over-awed at its sheer size, mechanisation and contribution to the economy.
One such visitor is Gabaake Gabaake, former Minerals Ministry permanent secretary and, since 2010, executive director of Tlou Energy. Tlou is one of the country and the region’s most advanced CBM producers, with investors having pumped in an estimated P600 million since 2009 studying the resource and establishing the project economics.
The minerals’ sector veteran believes if properly exploited and supported by infrastructure and policy, the country’s trillions in CBM resources could eclipse diamonds in terms of economic impact.
“You have heard the numbers about the potential of CBM in Botswana and you should go to Queensland and see what CBM has been able to achieve for that economy,” he said this week at the signing ceremony with the BPC. I’m confident that if we can achieve a fraction of what Queensland is doing, that would be a significant contribution to the country.
“We could see the contribution of CBM matching if not exceeding diamonds in this country,” he said.
“Matching or exceeding” diamonds is no mean feat. Even with the pandemic downturn of last year, the precious stones made up the majority of the P9.5 billion the country earned from minerals in 2020. This year, diamonds will again anchor the rebound in mineral revenues to P20.3 billion.
The confidence in CBM players comes from a combination of factors. Firstly, the country boasts one of the world’s largest untapped CBM resources, at an estimated 200 trillion cubic feet. Of this figure, the Minerals Ministry says, up to 40 trillion cubic feet is available for commercial development. To have an appreciation of that resource, consider that Australia, where Gladstone is pumping out billions of dollars in value, had an estimated 33 trillion cubic feet in resources by 2014.
The five-year, 10MW deal may appear a drop in the ocean when compared to the 41 billion cubic feet of CBM the Australian firm holds in central to eastern Botswana. However, for Tlou, the deal enables the company to pioneer the commercial extraction of CBM for electricity generation, paving the way for expansion. The handful of other players involved in the local natural gas industry will also use the deal as an example of the possibilities of commercial production on the local gasfields. And while the 10MW is a fraction of the near 600MW peak national electricity demand, it will earn the Australian company US10 million (P110 million) annually, indicating the potential economic value hidden in the natural gas.
Tlou’s expansion to 10MW will also result in the employment of 300 people during construction and another 100 for the operating stage. “Don’t underestimate this milestone,” Gabaake said. “Those of you in the power sector know the money that we are investing in importing power into the country. “If we invested that money into the economy of Botswana, one wonders what we could achieve in terms of jobs and generation of wealth for Batswana.” The major reason for the developers’ confidence, however, is the fact that through the BPC deal signed this week, government has put its money where its mouth is, in terms of facilitating the development of the CBM sector. Those who have dared to enter the CBM sector have found offtake a major issue. CBM has numerous uses from electricity generation, to industrial cooking, domestic energy and synthesis gas, the primary raw material for products such as ammonia.
However, due to the lack of a domestic market or the infrastructure that would help developers access the broader market, most players in the local market are restricting themselves to CBM for electricity production. Of necessity, this means government is the buyer targeted by the local CBM industry. However, as Tlou Energy found out the hard way, securing off take from government is not a walk in the park.
“Years ago, I remember colleagues at the time who told me to my face that I was dreaming if I thought Independent Power Producer projects would happen in Botswana,” Gabaake said.
“They even had the data to show what had happened in the country since the laws for such producers were passed, but I said I have faith that things can happen.”
As Tlou investors pumped in millions, the company witnessed frustrating delays in getting government to put ink on paper. Tenders for supply projects delayed and in some cases, the project specifications were changed at the last minute.
A tender for 100MW supply for CBM was cancelled in 2016 and another for a similar amount of power issued in 2019, remains pending. Ministers and top officials in government were switched around, making it even more difficult to continue pressing for dialogue towards offtake. Tlou’s investors were getting frustrated, a fact seen in the performance of the company’s stock on the London Stock Exchange’s Alternative Investment Market where it has fallen 45% since 2016. One faithful investor has been the Botswana Public Officers Pension Fund, which is Tlou’s single biggest shareholder. “Unfortunately the procurement process was very challenging and took a long time but with the grace of God, we had the new Minister and the new permanent secretary who wanted to see things done. “We now have a clear route to market and we will be able to raise funds. “I’m confident that in the next couple of weeks, we will reach financial close.” Mineral Resources, Green Technology and Energy Security minister, Lefoko Moagi is spearheading the renewed confidence in the CBM industry. Government, under the Integrated Resource Plan, plans to procure up to 100MW from CBM in the next few years as a pilot project. The plan means government is committing itself to procuring CBM from players in the market as quickly as they can make it available. “The private sector had indicated that they were facing some challenges regarding resources and securing firm power purchase agreements,” Moagi said this week. “This is why government has decided to facilitate and assist private companies, which are engaged in CBM prospecting to develop CBM fuelled power plants aggregating to not more than 100MW, while BPC guarantees the power off-take from the plants.” He added: “As government, we will be most obliged if the pilot plants can graduate to fully-fletched power plants.”
According to Moagi, CBM resources still remain largely unexplored and thus not yet available for base-load generation. “However, I am pleased to inform you that further prospecting work is on-going to prove commercial viability of CBM, with the method of extracting being one of the main areas of focus.” For players in the industry, government’s commitment to take up 100MW in supply is a bankable promise that can be taken to financiers and other investors, in order to aggressively push projects. Establishing supply to government, will provide a financial and operational anchor enabling developers to expand to CBM’s other uses, depending on the availability of supportive infrastructure and policies.
At the “Promised Land” of Gladstone, for instance, developers there built a 420km-long gas transmission pipeline from the gasfields to the coast, as well as liquefaction trains, processing plants and export facilities.
Tlou’s 10MW and the incomes of P110 million each year, however, hold the promise of what the trillions of cubic feet could mean for the economy in terms of value created, jobs, opportunities and the opening up of a new, clean industrial sector.