Potential opportunities lost to non-execution of NLNG Train 7
The Nigeria Liquefied Natural Gas Limited has been a frontline global gas supplier but its inability to get Train 7 off the ground as planned is a major concern to most stakeholders both in Nigeria and across the globe. In this write up Olusola Bello, Energy Editor, examines potential loses Nigeria has incured through this inaction.
Nigeria is losing opportunities to earn herself more revenue and creating employment opportunities through the window created by the high demand for the liquefied natural gas across the world. And unless urgent steps are taken to get Train 7 off the ground by signing the Final investment Decision (FID) we might also lose out not only in terms of revenue but also in market share.
Aside from the threat created by the discovery of shale gas in the United States and China, there are other new discoveries of oil and gas in many parts of African countries.
Australia, one of the countries that started their LNG programme long after Train 7 was conceived is set to produce 50 metric tons annually in 2015 and about 100 million metric tonnes thereafter. Revenue earnings from LNG by Australia will increase five folds to more than $60billion by June 2018.
The Australian project would boost its government share of the revenue by $11billion. Australian LNG is targeting Japan which consumes about 22 percent of the world LNG. Last year, NLNG supplies about 50 percent of the country’s need.
The contractual agreement signed for Train 7 is being reviewed every year may be because certain clauses in the agreement allows this. But for how long would the customers continue to wait?
Part of the next phase of the company’s growth programme is the addition of a seventh train to the existing six train NLNG infrastructure. When achieved, this will enable NLNG add some eight million metric tonnes to its current production capacity, and increase annual output to 30 million metric tonnes.
This is potentially capable of mopping up and exporting some more of the currently flared gas, and yielding an estimated $2.5 billion in revenues.
On balance, it is clear to any discerning mind that Train 7 is an enterprise which all shareholders and stakeholders should support and pursue with vigour, for the simple reason that its outcome will be good for Nigeria and good for our business.
Already, the country has lost about $10 billion in terms of revenue owing to delay in the execution of Train 7 projects.
The Train 7 was supposed to have been completed about four years ago was capable of earning the nation about $2.5 billion per annum and reduced drastically the level of gas flare in the Niger Delta.
The contractual agreement entered into with those that intend to buy the product from train 7 has been extended by one more year.
Babs Omotowa, managing director and chief executive of the Nigeria LNG, said the company which is one of the leading suppliers of LNG in the world has taken proactive steps by moving its traditional market from Europe to other places like Asia.
wwwOn what the company is doing to mitigate the effects of shale gas and other major gas discoveries in Africa, he explained that the company has repositioned itself to meet the challenges posed by shale gas and other gas discoveries around Africa in order to maintain a fair share of the world market of LNG.
He admitted that shale gas is global and it is in the market but added that the demand for LNG still outstripped supply in the world market today.
Threat from Shale Gas
Faced with realities of shale gas and other new discoveries around Africa, countries such as Mozambique and Tanzania decided to be proactive by entering into the Asia markets.
One of the terminals where the NLNG product was usually received in Louisiana United State of America has been converted to export terminal for shale gas.
Joseph Alagoa who represents the managing director of NLNG during the flag off of the 3000 cargo sail to Turkey, however disclosed that the company has found new markets in China, Japan, Malaysia and even India where the product is also in high demand.
Japan, which now controls 22 percent of the world market demand of LNG is now the major customer of the NLNG following the nuclear power plant accident of the 2012. At least about 50 percent of the Japanese demand were supplied by NLNG in 2013.This is followed by Europe which mostly use it for powering its plants and industries.
With a net worth of more than $24 billion dollars, Nigeria LNG Limited remains the single biggest private sector investment in sub-Saharan Africa.
Petroleum Industry Bill
Perhaps one of the greatest threat to execution of Train 7 is the non-passage of the Petroleum Industry Bill(PIB). The national assembly has refused to pass the bill which has new fiscal regime for gas and the project is most likely to remain comatose. This could weaken the ability of the joint venture companies to supply the much need gas for the train.
Emi Membere-Otaji, managing director, Elshcon Nigeria Limited, said that the effect of the non-passage of an acceptable PIB cannot be ruled out. “Delay in making the much desired investment decision on Train 7 by the oil majors could be a function of the inability of the national assembly to passage the bill into law.”
He said the delay on the take-off of NLNG Train 7 is unfortunate, adding that there is need to know the status of investment fundamentals which include the market for LNG before one can take position.
“If these are good then it is sad that the economic, social and development gains have been side stepped for relatively unimportant reasons,” he said.
From all indications those that are to supply gas for the plant have not shown any commitment to that effect because of PIB. This a major factor for delaying FID for the project.
Revenue generation
Since the commencement of full operations in 1999, NLNG has generated over $53 billion dollars for its shareholders within the first 10 years. The Federal Government also earned more than $9 billion as dividends, during the period.
Gas flaring
According Babs Omotowa, the NLNG boss, before the commencement of operations, 75% of the 2.6 billion cubic feet of associated gas produced by oil companies operating in Nigeria was flared. This trend has changed. Nigeria LNG Limited currently converts over four trillion cubic feet of associated gas to liquefied natural gas (LNG) and natural gas liquids (NGLs) for both export and domestic uses.
In doing this, the company has positively impacted on the country’s gas flaring status, thereby helping to improve the environment whilst converting a previously wasted resource into wealth for the nation.
Exports of landmark 3,000th cargo
A landmark 3,000th cargo of Liquefied Natural Gas (LNG) was exported by Nigeria LNG Limited (NLNG) from its Bonny Island Terminal in Rivers State recently. Its destination was Marmara LNG Terminal for Botas Petroleum Pipeline Corporation in Turkey. The cargo which arrived Turkey recently was shipped onboard one of NLNG’s vessels, LNG Lokoja.
The company successfully recorded the loading of its 3,000th cargo for export. This a commendable milestone that is worthy of celebration.
“We believe it must not go unnoticed that this vessel is manned by a workforce which is about 95% Nigerian, in line with our aggressive pursuit of technology transfer and our Nigerianisation policy,” the managing director said.
NLNG is owned by four shareholders, namely, the Federal Government of Nigeria, represented by the Nigerian National Petroleum Corporation, NNPC (49%); Shell Gas BV, SGBV, (25.6%); Total LNG Nigeria Limited (15%); and Eni International (N.A,) N. V. S. a. r. l (10.4%).
Babs Omotowa, the company’s chief executive and managing director said of the company’s achievement: “I am naturally delighted by NLNG’s attainment of this important production milestone, especially because it demonstrates what is possible as a result of a shared vision within our company, the hard work and dedication of staff, and cooperation from government and our shareholders as well as other stakeholders including our loyal customers.
“NLNG currently processes for export and domestic use, more than four trillion cubic feet of associated gas which was previously flared, thereby helping to preserve our environment and support Nigeria’s economic growth.”
From the export of its first LNG cargo on October 9, 1999, which was delivered to Montoir LNG Terminal, France, Nigeria LNG has grown to what has been described as Africa’s largest single private sector industrial investment, safely and reliably supplying about seven percent of total world LNG demand.
In addition to this, the company also contributes significantly to national wealth and the economies of states in which it operates, through payment of 30 percent Company Income Tax and other applicable taxes and tariffs, bringing Nigeria’s total share of NLNG’s profit to about 70 percent.
The company has also set aside supplies of about 250,000 tonnes of cooking gas for the Nigerian domestic market, and has helped re-invigorate the cooking gas value chain with increased investments and job creation.
Within its first 10 years of operation, the company had established a global reputation for being a reliable supplier. It has also maintained plant reliability level of 97 percent, considered to be a remarkable accomplishment in a challenging environment, thereby projecting NLNG as an inspirational business model for Nigeria.
Currently, NLNG has 24 LNG carriers which together constitute by far the largest shipping fleet in the country. This is in addition to six new vessels under construction in South Korea, due for delivery in 2015 and 2016.
This milestone transaction highlights NLNG’s long-standing contribution to the sustainable reduction of gas flaring in Nigeria, monetisation of the nation’s gas resources and revenue generation, all in fulfilment of the company’s vision to help build a better Nigeria.
Nigeria LNG’s near term expansion plans include construction of a seventh train to complement the existing six train structure, which when in operation will up the company’s total production capacity to 30 million tonnes per annum (MTPA) of LNG and potentially increase Nigeria’s supply of world LNG demand to 10%, bringing more value to government, shareholders, communities and local businesses among others
Operational trains
The NLNG has six operational trains and the entire complex is capable of producing 22 million tonnes per annum of Liquefied Natural Gas and five million tonnes per annum of NGLs (Liquefied Petroleum Gas and condensates) from an intake of 3.5 billion Standard Cubic Feet Per Day of natural gas.
Under long term gas supply agreements with three joint ventures, the NLNG receive natural gas (feedgas) supply from Shell Petroleum Development Company of Nigeria Limited, Elf Petroleum (Nigeria) Limited now Total Exploration Production Nigeria and the Nigerian Agip Oil Company Limited.
Niger Delta Petroleum Resources, an indigenous marginal field operator, also supplies 35mmcf/d of NLNG daily feedstock under a special supply arrangement with the SPDC-JV.
According to Emmanuel Nnabuife, head, gas supply at the NLNG, feedgas is produced by the JVs from various concession areas in the Niger Delta, from on and offshore fields and supplied to NLNG under a long-term gas supply agreement with each JV.
“Some of the pipelines used in transporting the gas were vandalised in 2013, costing the NLNG about 20 cargoes. NLNG currently processes for export and domestic use, more than four trillion cubic feet of associated gas, which was previously flared, thereby helping to preserve our environment and support Nigeria’s economic growth.”
Challenges
The company had its liquefied natural gas export reduced by 45 cargoes in 2013 due to pipeline vandalising and the face-off it had with the Nigerian Maritime Administration and Safety Agency.
Nnabuife, during the loading of the company’s 3,000th LNG cargo at the Bonny Terminal recently said 280 LNG cargoes were loaded in 2013.
According to him, this was 45 cargoes lower than the target for the year. However the NIMASA blockade in June/July 2013 was said to be responsible for more than half of the losses.
“NLNG loaded 280 cargoes in 2013. Though, we had planned 325 cargoes, the NIMASA problem took about 25 cargoes off our loading plans,” he said.
NIMASA had on June 21, 2013 barred LNG cargoes from entering or leaving the loading bay at the Bonny Terminal over non-payment by NLNG of a three percent levy estimated at $158m.
The company was said to have lost over N64bn ($396m) in gas exports to the blockade, which lasted for 18 days, and was said to cost the company $22m daily.
Another factor responsible for the shortfall in supply of its 2013 loading target was pipeline vandalism, which is one of the biggest scourges plaguing the oil and gas sector.