Morocco—this year, next year, sometime...
Morocco's LNG import plans, part of a wider strategy to diversify its energy mix, are taking time to get off the ground
Morocco is often described as a success story by international observers when it comes to economic performance and diversification efforts, contrasting with many other countries in the Middle East and North Africa. Testament to this is the kingdom's push towards renewables in recent years, and ongoing efforts to boost their share of power generation fuels to 52%, up from 34% today.
However, plans to build a 5bn cubic metres a day liquefied natural gas terminal in the Atlantic deep-water port of Jorf Lasfar keep slipping back, despite the efforts in recent years of key energy ministry and other government figures to attract international investors.
Morocco wants to give natural gas a bigger role in its energy mix in order to address intermittency issues associated with renewables and reduce both the share of imported oil in power generation and the country's exposure to external shocks in oil markets. Such a strategy makes sense given the growth of global LNG supplies and their weakening effect on prices.
The kingdom's plans to become an LNG importer have been on the drawing board for many years, but were resurrected in 2014, when the energy ministry drafted the roadmap for a national plan to construct a $4.6bn LNG receiving facility, as well as a wider integrated gas-to-power project at the terminal. In addition to the associated jetty and storage facilities, new pipeline and transmission infrastructure would be added to transport gas to other power plants.
According to the roadmap, the terminal was scheduled to come online in 2021, eventually supplying gas to generate a total of 2.4 gigawatts capacity of electricity at four 600-megawatt combined-cycle gas turbine plants. These were slated to start operations by 2025.
The plan also envisaged the Jorf Lasfar terminal helping to increase the share of gas in the electricity generation mix to 23% by 2030, squeezing heavy fuel oil down from 25% to 4%. As total generation capacity is projected to rise to 25GW by 2030 (from 8.3GW now), coal is expected to retain a significant share of 21% by 2030, albeit down from 31% in 2016. This somewhat contradicts Morocco's declared ambitions to champion clean energies, and is at odds with the climate-friendly image it's been carving for itself, notably through hosting the latest UN Climate Change Conference, COP 22, late in 2016.
An end to Algerian imports?
The import of LNG would also widen Morocco's gas supply options. Algeria supplies more than 90% of the kingdom's gas demand, while Morocco's own production remains limited at some 8m cubic feet a day (227,000 cm/d), from the Sebou field located north of the capital, Rabat. The country's state-owned upstream entity, ONHYM, also produces small amounts from the Meskala field near Agadir on the Atlantic coast.
The 2021 target date for first imports coincides with the end of Morocco's long-term supply contract with Algeria's Sonatrach. In 2011, Morocco reached a 10-year deal with Algeria to take 0.64bn cm/y, from the 11bn cm/y Gazoduc Maghreb Europe (GME) pipeline, which transports Algerian gas across Moroccan territory to Spain and Portugal, in return for transit rights. The imported gas feeds two power plants-two 400MW units at the al-Wahda facility and a 385MW combined-cycle gas turbine at Tahaddart.
The timing and structure of the LNG project signal Morocco's intention to reduce its dependence on Algerian gas from 2021. But the venture is already facing delays. In January 2017, state-owned power utility ONEE selected HSBC Middle East and law firm Ashurst as financial and legal advisors on tenders and contracting for the development of the LNG facility and the gas-to-power infrastructure.
However, the deadline for pre-qualification tenders designed to select a consortium of developers has been put back to end-2017. "The tender was delayed for optimisation reasons," Tarik Hamane, head of power-generation projects at ONEE, told Petroleum Economist. "We want to take our time to properly define the project. There will probably be delays, but we are working on possible scenarios to limit these delays."
Indeed, progress has been limited due to Morocco's relative inexperience in developing a large-scale gas-and-power value chain, from designing the infrastructure projects to assessing the risks and creating a solid commercial and regulatory framework that would give confidence to financiers and investors. The scheme is extremely ambitious in a country where the gas industry remains almost embryonic (the fuel only represents 6% of primary energy use). In this sense, possible "optimisation" may result in plans for the terminal being downsized and recalibrated.
The project has certainly attracted the attention of investors and potential suppliers (such as Gazprom, Cheniere, BP and Shell) looking to diversify their investments away from mature markets and secure new customers in emerging ones. France's Total was the latest foreign heavyweight to express interest in integrated projects of the kind planned in Morocco. In June, Laurent Vivier, the company's head of gas and power, told Reuters: "Morocco wants to launch an onshore LNG terminal along with the power (infrastructure) behind it, and it wants the same company to be involved in all of this."
But for some potential investors, the lack of clarity on the development work highlights the opacity of the decision-making process at the highest level, with final decisions made behind closed doors. The LNG import project was also side-lined during six months of political deadlock following parliamentary elections in October 2016 and start-up is unlikely before 2023 at the earliest.
Morocco imports 90% of its gas from Algeria
The Moroccan authorities still regard the onshore LNG venture as the best option. But given the minimal progress thus far, installing a floating storage and regasification unit may be a cheaper and quicker solution. For there's no certainty that the current Morocco-Algeria deal would be renewed in 2021, given that the two neighbours are at loggerheads over the disputed territory of Western Sahara (the Moroccan-Algerian border has been closed for two decades) and Morocco is keen to lessen its dependence on Algerian gas.
Aside from LNG imports, Morocco hopes to discover more of its own gas through onshore and offshore exploration efforts and replicate successes at the Tortue field off the coast of neighbouring Mauritania, in which BP recently invested. While offshore exploration efforts have also focused on Morocco's adjacent geological structure, hopes of a discovery were boosted this year when UK-based Sound Energy announced successful well results from the onshore Tendrara reservoir near the Algerian border. Including preliminary estimates at the Meridja licence, Tendrara could potentially yield some 9-31 trillion cf of gas. If confirmed, this could be a game-changer for Morocco and even potentially turn the country into a gas exporter-the field could easily be linked to the GME pipeline, according to Sound Energy.
It's not just in the energy sector that Morocco is trying to capitalise on its reputation of political stability to attract investors as it pursues its policy of economic liberalisation. Considerable emphasis has been placed on manufacturing sectors with high export value such as automotive and aeronautical industries in order to reduce dependence on agriculture and tourism.
But this image has been recently tarnished by social protests in the Rif region in the far north. The kingdom avoided the popular protests that shook the Arab world in 2011 by changing the constitution and promising more social and infrastructure reform. But the country has been experiencing its own turmoil since October 2016 when a 31-year-old fish seller named Mouhcine Fikri from the town of al-Hoceima was crushed to death in a garbage truck trying to save his stock of swordfish. These had been confiscated by the authorities on the grounds that he was selling them illegally out of season.
Fikri became a symbol of dissent as widespread protests erupted against systemic corruption, as well as the lack of genuine political reform and opportunities—unemployment is estimated at around 10%, with the level among young people in 2016 at 22%, according to the IMF. In the view of Riccardo Fabiano, lead analyst at Eurasia Group, a consultancy, "the Moroccan economy is doing better than in other countries in the region indeed. But this is also part of the PR image it likes to project to the outside world." Fabiano added that "the strategy to develop the country is very much a top-down strategy. This has failed to benefit the wider population and translate to strong GDP growth as well as jobs and education opportunities."
Pressing ahead successfully with the planned LNG project would boost both Morocco's international reputation and the domestic economy—and thus potentially contribute to efforts to improve social conditions.