Gas diplomacy heats up as buyers, suppliers juggle interests
Gas is fast becoming a critical piece on the chessboard of energy security as both global buyers and sellers seek strategic realignments to access and sustain supply of the cleaner fossil fuel, this could mean new markets for Nigeria, too.
Market dynamics are changing fast and gas has occupied a prominent place in geopolitics across the world. Gas does not meet the entire energy requirement of many countries, but these nations and others still rely on each other for gas supply and are compelled to cooperate. So, gas provides an energy alternative for the countries that are dependent on oil only.
Global gas demand will grow at an average rate of 1.6 per cent a year, reaching just over 4,100 billion cubic meters (bcm) in 2023, up from 3,740 bcm in 2017, according to the Paris-based International Energy Agency (IEA) annual gas market report titled: Gas 2018.
In recent times some instances where gas demand and supply has reared up its head in determining geopolitical and diplomatic decisions are Pakistan-Saudi Arabia-Iran-United States of America axis and Germany-Russia-USA.
In the case of the first axis, Pakistan is one such country which once heavily banked on oil to satisfy its energy appetite, but started gas imports during the tenure of previous Pakistan Muslim League-Nawaz (PML-N) government.
For decades, Saudi Arabia is considered to have influenced Pakistan’s foreign policy in return for providing Islamabad with vital oil supplies. After the current Pakistan Tehreek-e-Insaf (PTI) government took the reins of power, Imran Khan, prime minister of Pakistan also visited Riyadh, which tried to use oil diplomacy to keep Pakistan away from Iran.
Soon after the premier’s visit, Saudi authorities rushed to Pakistan where they offered investment in an oil refinery and oil supply on an extended credit facility.
Energy experts say in order to avert external influence, Pakistan should go for other fuel sources and learn from the experiences of European countries which have switched to alternative energy resources.
Russia, an oil and gas-rich country, has been supplying gas to Europe since long despite fierce opposition from the United States. Now, it is working on a new gas pipeline through the Baltic Sea and has got the backing of European economic power Germany.
European countries have dismissed the US opposition, arguing that they need gas to feed their economies and Russia is a big supplier.
Donald Trump, the US President has made a verbal assault on Germany for supporting the Baltic Sea pipeline deal with Russia, believing Berlin would become a “captive of Russia”. Trump was of the view that Germany would be paying billions of dollars to Russia for the gas purchase.
Again, Nigeria may miss the opportunity to grab major diplomatic alignment despite its large gas reserves. Africa’s largest crude oil producer has been unable to add new trains to its liquefied natural gas (LNG) plant. The units that freeze natural gas into liquid form for export on ships are known as trains in the natural gas industry.
Big ticket projects like Olokola LNG, Brass LNG and the NLNG’s Train 7 have been unable to reach final investment decision by the stakeholders.
The OK LNG project was stalled because all the international oil companies (BG, Shell and Chevron) withdrew from the project, with only the Nigerian National Petroleum Corporation left.
The Brass LNG project, which was designed to produce 10 million metric tonnes per annum, was to be built by the NNPC, Total, ConocoPhillips and Eni Group. But ConocoPhillips withdrew from the project in 2013.
“It’s time to prepare for the likely demand outlook that’s positive, and has out-performed projections in the last three years. Let’s get back to exploration and production activities,” Tony Attah, managing director and CEO NLNG Limited said at Nigeria International Petroleum Summit in Abuja in February.
Nigeria could struggle to regain prized markets for its long-term contracts due to its unstable regulatory environment, including the moronic decision to amend the NLNG Act by the House of Representatives.
The fact that competitors are offering more flexible terms calls for rethinking the NLNG strategy. LNG buyers receive fixed monthly volumes. Even if a buyer cancels a cargo due to a period of unusually low demand, payment is still due under “take-or-pay” obligations.
Most Asian long-term supply contracts contain “destination clauses” which prevent buyers from on-selling LNG to third parties. To protect buyers and sellers from sharp price swings, the LNG under most long-term contracts is indexed to oil which is prone to volatility.
However the United States has developed destination-free and gas-indexed US LNG exports and this provides additional flexibility to the expanding global LNG market and makes its cargoes more attractive to Asian markets where Nigeria is targeting.
What is more, industry leaders say shorter-term contracts and spot markets will increasingly gain prominence. Charif Souki, chairman at US LNG developer Tellurian Inc., at the Flame conference in Amsterdam on June 26, said long-term contracts in the LNG sector would soon be a thing of the past.
STEPHEN ONYEKWELU