Brass LNG: A re-awakening at wrong time?

Recently, the shareholders of the multibillion-dollar Brass Liquefied Natural Gas (LNG) project, Nigerian National Petroleum Corporation (NNPC), France’s Total and Italy’s ENI, reaffirmed their commitment to go on with the project. To this end, a “seniors’ meeting” has been scheduled for early October, usually amongst the heads of the shareholder companies, to take “irrevocable decisions” on the embattled natural gas project.

Brass LNG led by the company’s chairman, Jackson Gaius-Obaseki, met with the NNPC’s Group Managing Director (GMD), Ibe Kachikwu and made a presentation to him on the status of the project. Kachikwu assured the stakeholders’ that the project would get priority attention from the federal government.

Kachikwu, also acknowledged that Brass LNG has a good business case and that actions on its conclusion would be pursued swiftly.

“The president is very open to LNG generally, he has a nostalgic feeling about it and so very early in this government before the difficulties of financing begin to set in, and to the extent that we are going to allow more latitude for the oil sector generally to find a funding scheme outside of the government. This is quite frankly one of the easy sells that you can put on the table and I do encourage you to go forward. Let us put a lot of energy around this and see what we can get.” Kachikwu said.

Right thinking, wrong timing?

The latest decision to re-ignite the Brass LNG project could be seen as right thinking but the timing seems to be wrong. The year-long decline in oil prices has taken its toll on new LNG projects worldwide as upstream petroleum firms reduced capital expenditure (CAPEX), including delaying or even cancelling greenfield developments.

Currently, at least 46 major projects, holding approximately 20 billion barrels of oil equivalent in resources, have been deferred due to the market downturn, Wood Mackenzie’s Head of Gas and Power Consulting Rajnish Goswami said at 7th World LNG Series: Asia Pacific Summit in Singapore.

Pessimism shrouded the industry, affecting upstream investments, as global oil prices have shown little signs of recovery after falling below the psychologically significant $100 a barrel mark just over a year ago. US crude and global benchmark Brent oil futures are just under half their values from the previous year, settling September 18 at $44.68 a barrel and $47.47 a barrel, respectively.

Future still bright

Despite the gloom surrounding the near-term market outlook, prospects for the LNG industry looks bright, with global natural gas demand forecast to grow 1.9 percent annually to 490 billion cubic feet per day (Bcf/d) in 2035, according to BP’s projections as indicated in its Energy Outlook 2035 in February.

Increased demand for LNG in the long term is supported by a few industry drivers. These, according to BRG’s Goncalves, include LNG’s relatively lower price compared to oil, heightened environmental and air quality concerns as well as a shift towards carbon reduction globally.

BP pointed out in Energy Outlook 2035 that Asia, already the world’s top consuming region, will remain the primary LNG market in 2035, accounting for more than 70 percent share of the world’s demand. In Asia, China’s imports are likely to rise to 12 Bcf/d as the country closes the gap with Japan – the world’s top consumer at 13 Bcf/d. Meanwhile, Europe’s share of worldwide LNG imports is projected to grow by 10 Bcf/d between 2013 and 2035, up 3 percent to 19 percent.

Better late than never

While global LNG supply is set to rise over the next few years as several projects come on stream, particularly Australia and the United States, and long term demand growth is expected to continue increasing, there are some uncertainty on whether near-term investments in new developments would materialize in the current sub $50 a barrel oil market.

But then, it is better that Brass LNG is making move to finally get the project to come on stream. “I think we need to find a home for this very quickly, so I do welcome the proposed meeting that ENI is trying to host and the quicker we do that, the better,” said Kachikwu.

“Ultimately if you look at what is happening with oil, nobody needs to tell you what to do with your gas and so in many ways, it is a script that has written itself and I am very committed to ensuring that whatever that needs to be done to deliver this and flag it off successfully, I will do.

We are lucky to have a president who believes in the industry and remembers with nostalgia when the first LNG was being conceived and he knows very much about what we need to do to replicate the Nigeria LNG”, the NNPC GMD added.

According to Gaius-Obaseki, the two shareholders still on board had showed their commitment to the project. ConocoPhillips, the fourth shareholder, pulled out of Brass LNG two years ago when it divested from its operations in Nigeria.

FRANK UZUEGBUNAM