A Review of the Nigerian Energy Industry

Absence of new partner stalls Brass LNG’s FID

LNG24 July 2014, Lagos – The search for a new technical partner to replace Conocophillips after its exit from the Brass LNG Venture is stalling the Final Investment Decision on the project.

Concerns over technology specification, inadequate funding and relative uncertainty in the oil and gas terrain, among other issues, are also delaying the FID on the project located in Bayelsa State.

Since the exit of ConocoPhillips from the venture, the project has continued to face some difficulties in the areas of expertise, funding, drive and market, according to industry sources.

At the moment, a replacement for ConocoPhillips has yet to be found, and this has left 17 per cent stake of the over $20bn project hanging.

The shareholding structure of the Brass LNG provides that the Nigerian National Petroleum Corporation holds 49 per cent; Eni, 17 per cent; ConocoPhillips, 17 per cent; and Total, 17 per cent.

Aside its financial stance in the project, ConocoPhillips was said to be the technology provider and licensor of the Brass LNG progress.

At the point of the firm’s exit, the implication, experts said, was that they were going to pull out their technical partners that were supporting the project and packaging the technology.

The Group Managing Director, NNPC, Mr. Andrew Yakubu, while addressing newsmen recently on the performance of the petroleum industry in recent times, said the corporation and the project’s partners were at the verge of concluding negotiations for the prescribed technology, when ConocoPhillips exited.

Commenting on the project’s delay, he said aside from acquiring a technology, there was the need to get a full support guarantee for the technology to be used; hence, the need to exhibit some form of patience.

The NNPC GMD said hope came alive as regards the project when it was discovered that the Angolan LNG was being driven by ConocoPhillips technology.

This, he said, had informed the setting up a committee to review the technology, “and ensure we do not make a mistake.”

Yakubu said, “So, if you were a partner in this project, you will want to be reassured. I don’t want to lead the country into a 49 per cent of a multi-billion dollar project, only for us to run into a hitch or go into litigation. It is better we don’t even take the FID. That’s where we are.

“So many conditions are precedent to the FID. Nobody takes a major investment decision like this when there is one iota of doubt. That is how projects are all over the world. So, you continue to develop your project.”

He said although all partners to the project were done with the engineering and technical packaging prior to the exit of ConocoPhillips, it was impossible to continue in that pace when such major such major stake (17 per cent) was dropped.

The NNPC boss explained, “We were at the point of taking the FID when ConocoPhillips gave us the notice. As shareholders and investors, you just can’t ignore that. Where will you get the money from? It is over $20bn, and if you take 17 per cent of that out, you know what that means.”

Yakubu stressed the need to be sure of the new player that would take over the stake of ConocoPhillips, saying, “You cannot take the FID when you are in doubt.”

ConocoPhillips exited the deal last year when it announced the intention to divest its Nigerian assets. Though it signed a purchase agreement for the Brass LNG in a $1.5bn asset acquisition deal with Oando Plc, the latter had terminated the deal, leaving the 17 per cent shareholding interest held by ConocoPhillips hanging.

On the plan to get a replacement for ConocoPhillips, he said, “Since last year, we have been discussing. It was wise we didn’t rush into taking the FID.”

Our correspondent gathered that the shareholding of ConocoPhillips had been marketed globally and no company has shown interest in it yet.

“The Brass LNG and OK LNG projects are still registered in the global business opportunity window, and we are working very hard to ensure that the FID is taken so that the country can benefit from the business window,” Yakubu added.

Every shareholder involved in the Brass LNG project was said to have a gas supply commitment. Agip and Chevron were expected to provide about 5.0 trillion cubic feet and 2.3TCF of gas, respectively.

Total is expected to supply about 3.2TCF of gas, while ConocoPhillips is also to provide about 2.3TCF.

The exit of ConocoPhillips from the two-train, 10 million-metric tonne per year project had significantly altered the gas supply template of the venture.

Before ConocoPhilips’ exit, the Chairman, Board of Brass Liquefied Natural Gas, Dr. Jackson Gaius-Obaseki, had expressed hope that the project would commence on or before the end of the first quarter of 2013.

The Managing Director, BLNG, Mr. Lorenzo Di Lorenzo, had also said contracts for the construction of gas trains engineering and procurement, onshore and offshore works, including loading facilities, had been awarded to Bechtel.

The FID for the project had suffered several postponements, first from December 2006 to December 2008. It was also postponed to the first quarter of 2011, with construction expected to start by mid-2011. It was subsequently postponed to 2012 and again to the first quarter of 2013.

There are insinuations in the industry that the attractiveness of the project in terms of expected returns was fast diminishing, hence the reluctance of financiers to commit funds in the form of loans.

Even at the last World Petroleum Congress in Moscow, Russia, experts raised the alarm that the LNG projects in Nigeria, which had experienced continuous postponements, might lose market for gas.

The inability of stakeholders in the oil and gas sector to get the two Liquefied Natural Gas plants – Brass and Olokola – off the ground soon, they said, might result in the plants not having market for their products.

This, therefore, may mar Nigeria’s desire to expand its market share in the global gas supply, as the failure of the projects will be a serious setback for the oil and gas industry.

The Chairman/Chief Executive Officer, M E Consulting Limited and former Chief Financial Officer, Nigeria LNG Limited, Mr. Victor Eromosele, was quoted as saying, “The market windows available for these projects now may soon disappear because by 2020; it is possible we will find a situation where significant funds have been spent by other countries on their gas projects and these countries will now become new sources of supply of gas to the market.”

He said another problem that would confront the gas from Nigeria plants if they ever take off would be the increasing drop in the price of gas at the international market, as Shale gas from the United States of America and other gas discoveries elsewhere might make the gas from the plants unattractive to other markets.

He stated that the price of gas at the international market had started dropping and this, coupled with major discoveries of gas across Africa and the world, might sooner or later impact negatively on the revenue from Nigeria LNGs.

Eromosele said, “We do have our three LNG plants, what are we doing with them? Nigeria should just get serious and fix those two other LNG projects. I mean, they have three LNG projects, get them started, and get them running and then compete, otherwise, that window will soon disappear because by 2020, we will find a situation where significant funds have been spent by other countries and those Capex are actually converting to new sources of supply to the market.”

He said prices would tend southwards to around $9 because there were about six exporters with licences in the US, and it was expected that this would continue going forward.

“This simply means that the market will change,” he stressed.


– The Punch

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