Reviving abandoned LNG projects needs pragmatic ideas

Ibe Kachikwu, minister of state for petroleum resources over the weekend said the government might ask the NLNG to help get two delayed LNG projects in the country – the 10mtpa BrassLNG and 20mtpa Olokola LNG – off the ground through either minimal investment or expert advice.

Kachikwu said this when he visited the Bonny Island base of the NLNG, which currently produces 22 metric tonnes per annum (mtpa) of LNG, with plans to invest about $7 billion on the Train-7 project to expand its production capacity to 30mtpa.

Since the development of the NLNG, new projects have been too few and far between. Three LNG projects in Nigeria: Olokola LNG, Brass LNG and the NLNG’s Train 7 have been unable to reach final decision by the stakeholders as investors have pulled out.

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 (NNPC) 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.

The minister said, “We have opportunities that are stranded everywhere – BrassLNG in terms of shareholding and financing; OKLNG in terms of even taking off the ground – I am saying, as the grandfather of this business, they built six trains, looking at seven, hopefully potentially more, let’s begin to look at where through minimal investments, through structures and designs and reconfiguration and expert advice, you can actually hand-hold some of those trains that are beginning to lag behind so that the whole founding father concept of ‘take this all over the place’ can happen.

“We are going to be reaching out to them, not from an imposition point of view, but from a collaborative point of view, to see what we can do and learn from what they have done well.”

According to NLNG’s shareholding structure, the Nigerian government through the Nigerian National Petroleum Corporation (NNPC) owns 49 per cent of its shares; Shell Gas B.V. has 25.6 per cent; Total Gaz Electricite Holdings France, 15 per cent; and Eni International, 10.4 per cent.

It is not clear how the government will get the NLNG to invest in these projects considering its shareholding structure. Nigeria’s own dividend from the project is used to finance the budget and other critical sectors of the economy so it is difficult to use only its share. With moves to amend the NLNG Act, Nigeria will have a difficult time convincing other investors of its seriousness to respect contracts.

Rather than urging NLNG who is facing a threat to its market share in Asia from prolific production from Australia, the United States to invest in new projects, whose investors pulled out because there is no clear path to profit, Nigeria should be thinking of making generous concessions, similar to ones granted to NLNG to attract investments.

Locally the need for domestic gas is huge, perhaps it makes more economic sense to liberalise gas pricing, enact competitive gas terms in production sharing contracts to ramp up production that will give the plants feedstocks and develop these projects for local consumption through public private partnerships.