Nigeria lags as global LNG now power 500m homes yearly   

Global demand for liquefied natural gas (LNG) reached 265 million tonnes (MT) in 2016 – enough to supply power to around 500 million homes a year, a new Shell Global outlook finds but growth in Nigeria struggles.

At the same time, Nigeria’s lawmakers are angling to amend the Nigeria Liquefied Natural Gas (NLNG)Act – a legal instrument that is responsible for over $40billion worth of investments and government tax income of $22billion.

NLNG is positioning for US25billion investments in Train 7 (which seems to be taking forever) with the goal of lifting production capacity to 30metric tonnes per annum (mpta). But Final Investment Decision (FID) cannot progress with the spectra of legislative retribution hanging on the company’s success.

However the lawmakers while not inspired by vendetta struggle are not employing the cold often detached mien required to evaluate commercial agreements. Emotive position rarely works.

For over 16 years since NLNG was formed they have contributed nothing to both the Niger Delta Development Commission (NDDC) and the Ecological Fund office which are statutory provisions for oil and gas companies operating in Nigeria. The national assembly say it is fragrant abuse of Nigeria’s laws.

“It is not whether they contributed certain percentage to Nigeria, the point is that they had refused to obey the law since year 2000,” said Peter Nwaoboshi, chairman of the Senate Committee on Niger Delta.

However, Nigeria signed a contract with NLNG shareholders …. Which forms the NLNG Act sections 2 and 3 of the schedule state as follows: “The venture shall be subject to the fiscal regime contained in the provisions of this Act. Such fiscal regime shall not be amended in any way, except with the prior written agreement of the government, the company and each of the company’s shareholders.”

The fiscal provisions in the NLNG Act did not include provisions for NDDC Act, Ecological Act or taxes to Nigerian Maritime Administration and Safety Agency (NIMASA).

 Worse still, a contract involving foreign countries and their company representatives elevates it to the status of a treaty, is Nigeria right to violate the sanctity of the contract it signed with countries like United Kingdom, Netherlands and others because  it is now uncomfortable with some terms?

Lagos-based lawyer Olu Akinola said these attempts to amend the act “will only affect investors’ confidence but we must also understand that in other lands, legislatures change business contracts in national interest, so this should be discussed and agreed by the parties.”

LNG investments could not progress for about 30 years in Nigeria due to high risk of investments and the huge capital outlay required. Nigeria could not afford both hence it struck a deal that granted generous concessions to multinationals who risked their capital and reputations to invest in a volatile environment such as Nigeria.

So the NLNG Act provides assurances that these incentives will not be tempered with. Second Schedule paragraph 1 adds: “The Government shall do nothing to render invalid [or] unenforceable [any] rights and obligations arising from the contract….”

While a thousand tonnes of noise is being generated over the agreement, China and India have become the world’s fastest growing buyers of LNG.

The bulk of growth in LNG exports in 2016 came from Australia, where exports increased by 15 MT to a total of 44.3 MT. It was also a significant year for the USA, which delivered 2.9 MT from the Sabine Pass terminal in Louisiana, says the Shell report.

“Global LNG trade demonstrated its flexibility time and again in 2016, responding to shortfalls in national and regional gas supply and to new emerging demand,” says Maarten Wetselaar, Integrated Gas and New Energies Director at Shell.

“The outlook for LNG demand is set to grow at twice the rate of gas demand, at 4 to 5% a year between 2015 and 2030.”

Shell outlook publication says that from 2020 to 2030 most new LNG demand growth will be driven by: policy, floating storage regasification units (FSRUs), replacing declining domestic gas production, small scale LNG and transport.

Dissipating energy fighting to fix what is not broken distracts lawmakers from critical issues affecting gas utilisation in the country.

There are no gas terms for production sharing contracts Nigeria has with Interatinoal Oil Companies hence they flare still flare gas or reinject into the ground or use it as fuel. Also the local gas markets needs to be fully liberalised with the urgency of yesterday.

The absence of gas terms in Nigeria’s PSCs has forced down by 19.6 per cent gas production in deep offshore between January 2015 and September 2016 according to a recent Nigerian Extractive Industries Transparency Initiatives (NEITI) report.

Monthly gas production fluctuated between 250 and 255 billion cubic standard feet (BCF) with the highest production of 255 BCF attained in January and July while the lowest production of 215 BCF was recorded in February. In 2016, gas production ranged between 247.9 BCF in January to 173.9 BCF in August.

Ironically, Joint Ventures are now the largest gas producers accounting for about 70% of gas production, even though deep water offshore where PSCs prevail has vast gas reserves.

“A possible explanation for this is that the signed PSCs do not make any provision for how the parties should treat gas available for commercial exploitation; except that the parties define a separate agreement. No such agreements have been concluded,” NEITI says.

The new draft gas national policy by the ministry of petroleum resources has drawn up gas fiscal terms to fix these issues; this is where legislative vigour should find an outlet.

Nigeria’s power generation capacity dropped from about 3,000 megawatts recorded for most of last year to less than 1,6000 for most of January 2017 on account of dearth of gas.

Local gas consumption is clearly not at pace with supply as the bulk of Nigeria’s gas finds its way to markets in Europe.

Baru said that measures have since been activated to ensure that the industry responds adequately to the new wave of demand necessitated by the power sector massive investments in new power plants and rehabilitation of existing Power Holding Company of Nigeria (PHCN) power plants which has increased total gas requirement to 3bn standard cubic feet of gas per day.

“With Nigeria’s current production averaging at 8.0bscfd, of which 1.3bscfd is for domestic consumption, 3.5 bscfd for export, 2.5bscfd for re-injection/fuel gas use and about 0.7bscfd is flared, the need to encourage gas production to meet with the demand becomes paramount,’’ he said.

Nigeria’s national oil company boss outlined pipeline infrastructure intervention projects that have been completed to include: the Oben-Geregu (196km), Escravos-Warri-Oben (110km), Emuren-Itoki (50km), Itoki-Olorunshogo (31km), Imo River-Alaoji (24km) and the Ukanafun-Calabar (128km).

As for projects like the strategic East-West Obiafo/Obirikom to Oben (OB3) pipeline (127km), he said they are scheduled for completion by the end of 2017 while the looping of the Escravos-Lagos Gas Pipeline System from Warri to Lagos is scheduled for completion by July 2017.

“The Ajaokuta-Abuja-Kaduna-Kano pipeline (650km) is currently on tender. This project will soon be awarded under a contractor financing scheme.’’

However to get the most value from the investments, experts say Nigeria needs to address fiscal, governance, commercial issues in the gas sector.

“Stability in policies and a legal framework is the critical consideration here. Although security is a big issue, uncertainty in the legal and fiscal framework makes it impossible for capital to flow. Investors and entrepreneurs can model risks but not uncertainty,” said Isreal Aye, oil and gas consultant and managing partner of  SterlingPartnership.

Chuks Nwani, energy law and vice president Powerhouse International Limited, told BusinessDay that because gas infrastructure require huge capital outlay over a period of as much as five years, Nigeria’s policy inconsistences does not give investors’ confidence. Worse still, there is no synergy among related government ministries.

 “When government came up with this policy (national gas policy), we felt that so many things needs to be addressed, especially having a synergy between the ministries of power, petroleum resources and Nigerian gas company. They are working at cross purposes and none understands what the other is doing,” he said.