Investment indecision stalls LNG projects

Nigeria LNG tanker16 July 2013, Lagos – An air of uncertainty hovers around the execution of some major liquefied natural gas, LNG projects in Nigeria, as partners are still undecided on the wisdom of their investments.

At the just concluded business forum of the Nigerian Gas Association, NGA, Mr. David Ige, the Group Executive Director, Gas and Power, Nigerian National Petroleum Corporation, NNPC, said that the Final Investment Decision, FID, on the Brass LNG would be taken soon.

According to him, “Brass LNG is a big project. We are talking of a multi-billion dollar project. This kind of project takes a long time to start. Definitely, this has taken much longer than expected.

“We are doing a multi-billion dollar project in a fast changing business environment. That makes convergence for FID a difficult task. Haven said that, a lot of the angles for FID are being addressed one by one. We are closer now than before to the FID. I believe that we will attain the FID shortly on the Brass LNG”.

Ige also said that the exit of ConocoPhilips from the Brass LNG would not impact negatively on Nigeria, as the company is exiting from some other countries.

“Conoco Philips is exiting Nigeria. It is not exiting the Brass project alone. It is exiting Nigeria as part of the global portfolio rationalisation. Exit of Conoco Philips should not be viewed negatively on Nigeria.

“Global portfolio rationalisation is a good thing. It allows new players to come in and ensure liquidity in the market. The exit of a player is really not a bad thing. It is part of giving reality to the industry going forward,” he said.

Aborted decisions
Recall that the Group Managing Director NNPC, Mr. Andrew Yakubu, while addressing the Senate and House of Representatives’ Joint Committees on Petroleum Resources in Abuja early this year, said the shareholders of the Brass LNG project in Bayelsa State, will sign the Final Investment Decision for the project by April 2013.

Yakubu stated that despite the divestment of ConocoPhillips from the project, discussions were already on with other critical stakeholders to key into the project.

NNPC holds 30 percent equity in Brass LNG, while Bayelsa State Government has 10 percent; LNG, Japan four percent; Itochu Corporation three percent, and a joint venture between Nigerian indigenous company Sahara, and France-based Sempra Energy holds two percent.

The other shareholders are American oil group, ConocoPhillips, Total of France and Eni of Italy, which hold 17 percent stake each.

The Brass LNG project located in Brass Island of Bayelsa State is designed to produce 10 million metric tonnes of LNG per year.

The FID on Brass LNG was initially planned for 2006. It was later rescheduled for 2008 and then 2010. The FID has never been realized till date.Apart from the Brass LNG, other planned LNG projects include Olokola LNG (OKLNG) and Train 7 of the Nigeria LNG Limited, NLNG.

The shareholders of OKLNG signed a memorandum of understanding (MoU) in 2006; FID was billed for 2007 while production was scheduled to begin in 2009.

The project was initiated in 2005, with NNPC as the major shareholder with 46.75 percent shareholding. Shell and Chevron have 19.5 percent a piece, while BG Group, which has withdrawn, had 14.25 percent. Olokola LNG is located between Ogun and Ondo States.

The Nigeria Liquefied Natural Gas, NLNG, facility on Bonny Island, Rivers State, is Nigeria’s only LNG complex. NLNG partners, including NNPC (49 percent), Shell (25.6 percent), Total (15 percent), and Eni (10.4 percent), completed the first phase of the facility in September 1999.

NLNG currently has six trains and a production capacity of 22 million metric tons per year (1.1 TCF).

A seventh train is under construction to increase the facility’s capacity by 8 million metric tons per year. However, regulatory and political issues, particularly regarding the long-delayed PIB, have delayed the project’s start date to beyond 2014.

During a visit to the plant last December, a former Nigerian Military Head of State, retired General Yakubu Gowon, said Train 7 would provide 10,000 construction jobs and also attract over $8 billion in Foreign Direct Investment (FDI).

“It is seven years since activities leading up to Train Seven started in September 2005, five years since sales and purchase agreements were executed with five international buyers, and five years since pre-FID construction activities started in April 2007, with $300 million spent so far on such activities as soil preparation, preloads, and geotechnical investigations on Bonny Island. We can no longer afford to delay or dither,” he said.

International gas price
It was learnt that falling natural gas prices at the global market due to the discovery of Shale gas around the world has threatened the implementation of the three LNG projects in Nigeria.

Sources said that shareholders in the three major LNG projects in Nigeria have failed to reach FID on the projects, which have been in the drawing board for several years because of the drop in gas prices at the international market.

The Brass LNG was believed to have gulped a pre-FID expenditure of $1billion, a demonstration of the faith of the various investors in the project, but the FID for the two-train, 10 million metric tonnes per year (mmt/y) project is yet to be signed.

According to an industry source the shareholders are concerned that the investment may no longer guarantee adequate returns on investment as Shale gas has become a game changer in the global energy dynamics.

Market results indicate that with the discovery of Shale gas in some countries, the Henry Hub reference price of gas has dropped to less than $3 per million British Thermal Unit (MBTU), from $7 within one year. It was also learnt that when the projects were initiated several years ago, the price of gas was over $15mbtu before the current drop.

The United States, formerly a major LNG export destination, will become a net LNG exporter by 2016, starting at 1.1 billion cubic feet per day and rising to 2.2 bcf/d in 2019.Australia has 10 fully sanctioned LNG projects with a total of 20 trains, 81 million tonnes per annum, MTPA, of capacity and USD$215 billion worth of final investment decision.

Also, China and U.S. will soon become major exporters of shale gas. Chinese reserves are estimated at 1,275 trillion cubic metres.

According to the United States Energy Information Administration, EIA, a significant portion of Nigeria’s marketed natural gas is processed into LNG. In 2010, Nigeria exported 17.97 million metric tonnes (875 BCF) of LNG, making Nigeria the fifth largest LNG exporter in the world and the largest LNG exporter in the Atlantic Basin.

Furthermore, Nigeria’s LNG accounted for 8 percent of the total supplied to the world market and 30 percent of LNG coming from the Atlantic Basin in 2010. However, although Nigeria’s market share of LNG trade in the Atlantic Basin has been increasing, mainly due to decreased LNG exports from Algeria.

The latter’s market share in the world has decreased from the 10 percent it once held to 7 percent, as reported by NLNG in 2012.

The EIA also stated that in 2011, U.S. imports of Nigerian LNG significantly decreased to 0.05 million metric tonnes (2.5 BCF), which is the lowest level recorded since Nigerian LNG exports began. Nigeria’s LNG production capacity is currently 22 million metric tons per year, and any major increase is not expected to come online before 2015.

– Sebastine Obasi, Vanguard.

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