…As NLNG Act amendment threatens investment
By Sebastine Obasi
NATURAL gas global consumption increased by 1.5 percent, to about 63 billion cubic metres, bcm, quite a bit weaker than its 10-year average of 2.3 percent, while global gas production was essentially flat at 0.3 percent, 21 bcm, the weakest growth in gas output for 34 years, other than in the immediate aftermath of the financial crisis, BP Statistical Review of World Energy 2017, shows.
The sub-par growth is said to have gone hand-in-hand with falling gas prices. Henry Hub prices were 5 per cent lower than in 2015, while European and Asian gas markers were down 20-30 per cent as prices continued to adjust to increased liquefied natural gas (LNG) supplies.
The report stated that much of the lacklustre performance can be traced back to the United States, particularly on the supply side where falls in gas (and oil) prices caused US gas production to fall (-17 bcm, -2.5 percent) for the first time since the US shale gas revolution started in earnest in the mid-2000s.
Outside of the US, on the demand side, gas consumption in Europe was said to have risen strongly (6 percent, 28 bcm), helped by both the increasing competitiveness of gas relative to coal and weakness in European nuclear and renewable energy.
The Middle East (3.5 percent, 19 bcm) and China (16 bcm, 7.7 percent) both also recorded strong increases aided by improving infrastructure and availability of gas.
The largest falls were in Russia (-12 bcm, -3.2 percent) and Brazil (-5 bcm, -12.5 percent) both of which benefited from strong increases in hydropower.
On the supply side, Australian production (19 bcm, 25.2 percent) was the stand-out performer as several new LNG facilities came on stream.
Looking at the growing market for LNG, although China continued to provide the main source of growth, it’s striking that the increasing availability of supplies has prompted a number of new countries, including Egypt, Pakistan and Poland, to enter the market in the last year or two.
These new entrants were helped by the increased flexibility afforded by plentiful supplies of floating storage and re-gasification units (FSRUs). Nigeria LNG was not mentioned in the report.
According to the report, 2016 was the first year of the growth spurt expected to see in LNG, with global supplies set to increase by around a further 30 percent by 2020.
That is equivalent to a new LNG train coming on stream every two-to-three months for the next four years. This is quite an astonishing growth. It explained that as the importance of LNG trade grows, global gas markets are likely to evolve quite materially.
“Alongside increasing market integration, we are likely to see a shift towards a more flexible style of trading, supported by a deeper, more competitive market structure. Indeed, this shift is already apparent, with a move towards smaller and shorter contracts and an increase in the proportion of LNG trade which is not contracted and is freely traded,” it stated.
The report also stated that a particularly interesting market in the context of the growing LNG supplies is Europe.
“On the one hand, Europe’s large and increasing need for imported gas, combined with its relatively central location amongst several major LNG suppliers, means Europe is often highlighted as a natural growth market for LNG. On the other hand, Europe’s access to plentiful supplies of pipeline gas, particularly from Russia, means LNG imports are likely to face stiff competition,” it added.
But Nigeria may not reap much from the global rise in demand without the implementation of the LNG trains 7 and 8.
The Bill for the amendment of the NLNG (Fiscal Incentives, Guarantees and Assurances) Act, Cap N87, Laws of the Federation of Nigeria 2004 was sponsored by Leo Ogor (PDP), Delta State in order to compell the NLNG Limited to pay three per cent of its total annual budget to the Niger Delta Development Commission, NDDC Fund, in line with the provisions of section 14(1) and (2)b of the NDDC Act, 2000.
But the Nigeria LNG Limited noted that the amendment will subject the company to more than just the 3% Niger Delta Development Commission (NDDC) levy due to the removal of the Guarantees and Assurances in the Act.
Dr Kudo Eresia-Eke, General Manager, External Relations, Nigeria LNG Limited, disclosed in a statement: “The complete removal is a huge error and it is inimical to the growth of Nigeria and a direct collision with the Federal Government’s drive to attract Foreign Direct Investment, FDI. The main thrust of the Guarantees and Assurances were to assure the foreign Investors that their investments would be protected by the non-amendment of the NLNG Act.
“Owned by four shareholders, namely the Federal Government of Nigeria, represented by 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), Nigeria LNG Limited commenced operations in May 1999, three weeks after the enactment of the NLNG Act after over 30 years of unsuccessful efforts by successive Nigerian administrations to attract foreign investors to the LNG sector.
“From an initial investment of US$6.0 billion, the company now has an asset base of over $11 billion, generated over $90 billion in revenues, grown from one to a six-train operation, with a nameplate capacity of 22 million tonnes per annum (mtpa). NLNG is also on the verge of achieving a seventh and eight trains to bring the production capacity to approximately 30 mtpa.
“Any amendment will also mean an immediate potential loss of foreign investment of US$25 billion in respect of Trains 7 and 8 investments (US$15 billion by the gas producing and supplying companies [Upstream], and US$10 billion for construction of the project). The expected 18,000 construction jobs for Trains 7 and 8 will also be lost if the Act is amended. This is at a time when the Niger Delta, and the country at large, is in dire need of jobs. Needless to mention the impact of such a huge number of jobs on the peace of the Niger Delta region and the economy of the country.”