The gradual shift away from long-term
contracts in the global Liquefied Natural Gas market has been described
as a threat to Nigeria’s LNG projects, which have over the years been
stalled by a lack of Final Investment Decisions.
Three LNG projects are currently awaiting FID in Nigeria, namely, Olokola LNG, Brass LNG and the Nigeria LNG Limited’s Train 7.
The OK LNG project was stalled because
all the international oil companies (BG, Shell and Chevron) withdrew
from the project, with only the Nigerian National Petroleum Corporation
left.
The Brass LNG project, which was
designed to produce 10 million metric tonnes per annum, was to be built
by the NNPC, Total, ConocoPhillips and Eni Group. But ConocoPhillips
withdrew from the project in 2013. The Minister of State for Petroleum
Resources, Dr. Ibe Kachikwu, was recently quoted to have said that Total
had informed the government that it was pulling out of the project.
The President, Nigerian Association for
Energy Economics, Prof. Wumi Iledare, said in an interview with our
correspondent that with the decoupling of natural gas price from oil
price, the price that would make the LNG dedicated for export viable had
become very high.
He explained, “Also, with competition
from other regions for the LNG market, the only alternative is the spot
LNG market, which is actually what is going to evolve in the
not-too-distant future.
“I think the days of long-term contracts
for LNG investment are coming to an end quickly and so, the investors
in the LNG must be looking at long-term type of investment profile
before the returns will come.”
Iledare noted that the market for LNG
internationally had become saturated, saying, “If we don’t want our
share of the LNG to decline further, the political climate has become
more important than before because we have competing LNG projects.
“Nigeria is farther away from the
LNG-consuming markets than Mozambique, Tanzania and other emerging LNG
producers in the world. So, we must have some incentives to be able to
compete with them, and our politics is not in any way helping matters.”
The Chief Executive Officer, Petrosystem
Nigeria Limited, Mr. Adeola Elliott, who believes that the LNG has a
great future in the country, said it was unfortunate that the price of
crude oil had dropped significantly.
He said the government was working on ensuring that it could provide its share of the funding needed for the LNG projects.
Elliot added, “If we are saying that we
are interested in doing the project and we can’t contribute our own
funding, we will not be taken seriously. That is why you see Buhari
trying to raise funds through different methods.
“I am sure that before January 2017,
there will be some statement about the NLNG project. The ones that are
almost moribund will be activated. If all of these projects come on
stream, they will bring more money into the country, create more jobs
and boost power generation in the country, because some of them will be
tied to electricity.”
The NLNG, in its 2016 Facts and Figures,
reiterated that plans for building the Train 7 that would lift the
total production capacity to 30 mmtpa of LNG were currently progressing
with some preliminary early site preparation work initiated.
“Further work awaits an FID by the
shareholders. Sales and purchase agreements have already been executed
with five buyers,” the company said.
A recent report released by LNG Industry
said even as non-LNG exporting nations led by Mozambique and Tanzania
sought to develop and monetise their recent discoveries, key Nigerian
projects had not advanced in the last couple of years due to
reservations over the country’s long-awaited Petroleum Industry Bill.
It stated, “Even after placing Train 7
volumes in 2014, Nigeria LNG has not yet finalised the date for the
final investment decision.
“Led by the shale gas boom in the US and
substantial discoveries in Australia and East Africa, we are now
entering a period where the market may see many projects compete among
each other to secure buyers and reach FID.”
According to the report, the oil price
decline is likely to stall the LNG market, with spot LNG prices reducing
in line with crude oil prices, and buyers not wanting to sign contracts
quickly.
“The large size of East African
discoveries enables them to be profitable at much lower prices than West
African projects. However, the distance of proposed African LNG
terminals from key markets has eroded their competitiveness, especially
for the premium Japan-Korea-Taiwan market,” the report added.
‘Femi Asu/Punch
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