A Review of the Nigerian Energy Industry

Nigeria loses N600bn gas revenue in one year

15 May 2015, Lagos – Nigeria has lost about $3bn (N600bn) in revenue from liquefied natural gas in the past one year, the Nigeria LNG has said.

LNGAccording to the firm, the loss is as a result of the slump in the global prices of crude oil, adding that the United States had completely stopped importing gas from Nigeria.

The General Manager, Commercial, NLNG, Mr. Patrick Olinma, in a presentation he made during the firm’s Commercial Week 2015 in Abuja on Thursday, said the impact of the oil price fall had not only resulted in the devaluation of the naira by about 30 per cent, but had affected the country’s revenue earnings from gas supply.

Explaining that the cost of importation had risen by about 30 per cent, he said the fall in the price of Nigeria’s Brent crude had led to a reduction in foreign revenue earnings for the country, stressing that this would affect projects.

Olinma said, “In Nigeria, I haven’t heard of big announcements but clearly, it will affect the ability to reach investment decisions for those projects on which we haven’t had investment decisions taken.

“And for Nigeria LNG, as of the end of April, we had seen 30 per cent reduction in our revenue. And the reason why we are still where we are is that we do have what we call the lag effect on our prices.

“Normally, our prices are not based on Brent of the day but are an average of six months’ Brent. So, we still carry over some of the high Brent prices. But even with that, we have lost 30 per cent of our revenue as of end of April compared to 2014.

“And of course, in terms of revenue, our portfolio generates a revenue of over $10bn on the average. So, when you look at the fact that we are losing 30 per cent of that, you will agree that it is quite a lot of reduction in revenue for the country.”

Olinma stated that one way to mitigate this kind of revenue reduction was to increase volume and gain market share.

He, however, regretted that the company had lost some of its market share due to stiff competition in the global gas market.

“We use to pride ourselves that we supply eight per cent of the global LNG but I think we’ve gone down to about five per cent today. And if we manage to do Train 7, which will add extra 8.5 million tonnes of production, we should be able to, maybe not get back to eight per cent, but at least move up beyond the five per cent where we are today,” he noted.

Olinma observed that a lot of countries were making massive investments in the LPG market and stated that Nigeria’s domestic market had good potential.

He said, “There is a lot of demand for gas in-country and we are looking at that and we are trying to expand because we believe that the market has potential consumption rate of about one million tonnes.

“But we are very far away from that. Last year, we did 150,000 tonnes and we have guaranteed volume supply to the domestic market at 250,000 tonnes, and that’s not our production capacity. We can do a lot more if the market is there and ready.”

The Deputy Managing Director, NLNG, Mr. Isa Inuwa, outlined some of the bottlenecks in the domestic gas market.

He said, “From 2007 to date, we have placed in the market over 700,000 metric tonnes of LPG and we have the capacity today to put into the market 250,000 tonnes every year.

“But we do understand that the domestic market has been limited over time by several factors, including limited infrastructure; high start-up cost for consumers; government policies, especially in the area of kerosene subsidy, which is a substitute; discriminatory import tariffs; access to and cost of finance; inefficient and inadequate supply as well as lack of publicity and advocacy on the benefits of LPG.”

Speaking further on the effect of the plunge in crude prices, Olinma stated that the company’s portfolio was indexed to the price of Brent crude

He said, “Brent has a huge impact on our business for about 55 per cent is indexed to Brent. And, indeed, today, it is actually about 100 per cent of the portfolio.

“Because what we’ve done with the gas that we originally contracted to be delivered to the US, some of you that are following the gas business would have noticed that the US has become a net exporter of gas. They don’t import gas anymore.

“The impact of that is that not only are we now shut out of that market, the US will also step in and become part of the competition. So, that has a huge impact on our business.”

– Punch

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