NLNG-Gas-Ship

NLNG-Gas-ShipThe rate of development of various LNG projects, namely the Olokola LNG, Brass LNG and Nigeria LNG Train 7 projects have been a particular source of concern among various experts and stakeholders in the oil and gas industry. This piece reviews the current state of these projects which appear to have stalled over the course of the past few years.

 

The OKLNG project

The OKLNG project was initiated in 2005, with the Nigerian National Petroleum Corporation (NNPC) as the major shareholders with a 46.75 per cent stake, BG with 14.25 per cent, Chevron with 19.5 per cent and Shell with 19.5 per cent. The Memorandum of Understanding (MoU) and shareholders’ agreement for the company were signed by parties in 2005 and 2007 respectively. The Final Investment Decision (FID) was billed for 2007, production and first shipment of LNG from OKLNG was scheduled to commence in 2009, while phase 2 of the project was scheduled to conclude in 2010.

However, nine years after the Olokola Liquefied Natural Gas Project begun, it has been relegated to the back ground. One of the reasons for the comatose state of OKLNG located between Ogun and Ondo States as gathered from certain sources, has been as a result of the push for the development of The Brass Liquefied Natural Gas (LNG) project located in Brass Island of Bayelsa State. OKLNG also experienced major setbacks following the massive pull out by the oil majors, first by BG in 2009 and then subsequentlyby Chevron and Shell from the project in July 2013. The companies cited a number of factors, ranging from non-commitment on the part of the Federal Government to pursue the completion of the project to the non-passage of the Petroleum Industry Bill (PIB) among others.Furthermore, discovery of shale gas in the United States and LNG developments in other African countries such as Angola, Mozambique and Tanzania may have also contributed to the withdrawal.

Other factors leading up to the stalled state of the project could be linked to the various controversies around it during former President Olusegun Obasanjo’s regime. During Obasanjo’s regime, Niger Delta militants, under the aegis of the Joint Revolutionary Council, had in 2006, threatened to sabotage the OKLNG, if it’s FID was taken ahead of the Brass LNG project.

The Joint Revolutionary Council was made up of the Dokubo Asari-led Niger Delta Peoples Volunteer Force (NDPVF), Movement for the Emancipation of the Niger Delta (MEND), and the Martyrs Brigade. The groups had called for the cancellation of the OKLNG project and the termination of the MoU, or else face the “fiercest showdown” yet by their forces.

All in all, efforts over the last nine years to mature the project have not resulted in a Final Investment Decision (FID). Had the project been allowed to come on stream, it would definitely have served as a major contributor to Nigeria’s economic development and put Nigeria at the forefront of African LNG production. Currently, a number of projects already undertaken at the site risk being abandoned, such as the pioneer camp among others. It would also appear that the frustration and eventual pulling out of the oil majors from the project stems from the fact that many years after the memorandum of understanding (MoU) was signed, nothing concrete has been recorded on the project.

Reacting to the pull out of Chevron and Shell, Nigerian National Petroleum Corporation (NNPC) allayed fears that the decision of the two IOCs to withdraw from OKLNG, will not derail the President Goodluck Jonathan’s Gas Revolution Agenda launched in March 2011. NNPC stated that the Gas Revolution Agenda was not only intact but has since taken off with significant progress in gas supply for power generation and industrial usage.

NNPC said “The Gas Revolution Agenda which is an integral part of the gas master plan cannot be derailed just like that. NNPC can confirm that the exit of Shell and Chevron will not impact on Mr. President’s Gas Revolution Agenda. In fact, very good progress is being made with domestic gas supply which has reached the highest level of 1500mmcf/d from about 500mmcf/d about three years ago.” According to NNPC, more than 70 per cent of the gas was being directed to the Power sector pursuant of the Gas Revolution Agenda adding that “All these are very much under way and unaffected by the recent exit of Shell and Chevron from OKLNG. Similarly the Brass LNG project is unaffected by this exit as shareholders of the Brass LNG are different.”

 

The Brass LNG Project

The Brass Liquefied Natural Gas (LNG) project located in Brass Island of Bayelsa State is designed to produce 10 million metric tonnes of LNG per year. The Nigerian National Petroleum Corporation (NNPC) holds 49 per cent equity in the project, while United States oil company, ConocoPhillips; French oil giant, Total and Italian company ENI hold 17 per cent stake each in Brass LNG Ltd.

Initially conceived during the administration of former President Olusegun Obasanjo, the Brass LNG project suffered neglect and was virtually relegated, especially after the departure of Dr. Jackson Gaius-Obaseki as the Group Managing Director of the NNPC. Upon his return to Brass LNG Ltd as Chairman however, Obaseki, together with the other shareholders in the project have pushed the project to an enviable height, despite the lack of a FID. It is notable that a lot of early work has been completed on the site, and also that there is a loose commitment from different buyers for a projected 10million metric tonnes of LNG. Construction-wise, the contractors’ selection stage is virtually completed and also appears to have been done in accordance with internationally-accepted standards.

However, despite the above; the same slow pace of realizing a FID currently hovers round Brass Liquefied Natural Gas (LNG). A possible reason for this could lie in the fact that an election year is fast approaching and it is usually the case that International Oil Companies (IOCs) are not prone to committing to large scale projects with general elections looming. Furthermore, the potential the impact of the Petroleum Industry Bill (PIB), which according to the gas suppliers recommends harsh fiscal regimes which could make gas development very challenging could be another possible reason. The Federal Government’s ambivalent nature towards the project is also another factor. Some shareholders of the project believe that President Goodluck Jonathan and the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke (both coming from the host state, Bayelsa), should know the importance of the project to the state and the country at large and also that the pace of progress towards the realisation of the FID ought to have been much faster than it is currently.

The FID also suffered major setbacks when ConocoPhillips, in 2013, announced its intention to divest its Nigerian assets. Apart from having 17 per cent stake in the project, ConocoPhillips also owns the Cascade Process, which is the technology used in the implementation of the project. Consequently, the board raised the alarm that the project may suffer further haemorrhage as ConocoPhillips rescheduled its final exit from the company to March 2014. A source confirmed that, “With the exit of ConocoPhillips from the Brass LNG project, it has been challenging finding who will replace ConocoPhillips and take over its shareholding. The shareholding of ConocoPhillips has been marketed globally and no company has shown an interest.”

Before ConocoPhillips’ exit, Dr. Jackson Gaius-Obaseki, had expressed the hope that the project would take off on or before the end of the first quarter of 2013. It was, however, not to materialise as the exit of ConocoPhillips created a vacuum that has to be filled before the project can take off. The FID on the Brass LNG project had suffered several postponements as it should have been taken in December 2006 and later in December 2008. It was also postponed to the first quarter of 2011 with construction expected to start by mid-2011. It was later postponed in 2012 to the first quarter of 2013.

 

Nigeria LNG’s Train 7 Project

Though the $12bn NLNG Train 7 project is considered by some analysts as the most economical of all the three LNG investments, government interest in Brass NLNG located in Bayelsa State has been identified as a key factor delaying its execution as well. Experts have indicated that the President Goodluck Jonathan-administration might be more disposed to having Brass LNG take off before NLNG’s seventh train. NLNG is jointly owned by the Nigerian National Petroleum Corporation (49 per cent), Shell (25.6 per cent), Total LNG Nigeria Ltd (15 per cent) and Eni (10.4 per cent).

Babs-OmotowaThe Chief Executive Officer/Managing Director, NLNG, Mr. Babs Omotowa, had recently said that $10bn had been lost to the delay in reaching a final investment decision (FID) for the train seven project. When completed, he said the seventh train would enable the company to add some eight million metric tonnes to its current production capacity and increase annual output to 30 million metric tonnes.  “The Train 7 is potentially capable of mopping up and exporting some more of the currently flared gas, and yielding an estimated $2.5bn in revenues” he said.

The NLNG CEO, however, has not given any specific details as to when the FID for the seventh NLNG train would be taken.  Some experts have stated that the non commitment by gas suppliers is also one of the major factors delaying the FID for the project. “We’ve not got any commitment from our gas suppliers and there is no way the Train 7 project can take off without long-term gas supply agreements. The agreements will ensure efficient gas supply to the train,” an anonymous source at NLNG was quoted as saying.

Analysts have also ascribed the delay in the project takeoff to the non-passage of the PIB. The International Oil Companies on the gas supply end are apparently unprepared to invest any further on gas related projects due to certain fiscal terms proposed in the bill which they see as particularly  unattractive and a disincentive to commit to major oil and gas investments.

 

Federal Government Must Move Urgently

Hence, Nigeria, which used to supply 10 per cent of the global LNG demand, is currently supplying only seven percent largely due to the failure of the government and other stakeholders to strengthen the country’s position by taking action on the OK LNG project as well as signing the FID for Brass LNG and Train 7 of the Nigerian LNG Limited.

Former president Olusegun Obasanjo, appears to have understood the serious ramifications of these unfortunate developments and captured the prevailing mood as he said in his recent open letter to Jonathan; “Please, do not frustrate Brass LNG and in the interest of what is best for the Nigerian economy, bring back the OKLNG into active implementation. The major international oil companies have withheld investment in projects in Nigeria. If they have not completely moved out, they are divesting. Nigeria, which is the Saudi of Africa in oil and gas terms, is being overtaken by Angola only because necessary decisions are not made timely and appropriately.”

Given the foregoing, it therefore stands to reason that, having lost her influential position in the global LNG supply chain, Nigeria cannot afford to wait any longer for action to be taken on the outstanding projects.

 

 *Kunle Kalejaye is a writer and journalist with a special focus on Energy issues.

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