Nigeria is unable to meet current orders, let alone compete for future contracts, laying the stage for an impending fiscal crisis. Oil-rich nations are signing multimillion dollar Liquefied Natural Gas (LNG) contracts to lock in supplies over the next 20 years.
Nigeria, which has the ninth-largest natural gas reserves in the world, is trying to replenish gas fields while those that are already producing are shut down as a result of theft from and vandalism of oil facilities as well as administrative problems.
The Nigeria LNG Limited (NLNG) is now operating at 60% of plant capacity, according to the ‘Decade of Gas’ implementation plan that BusinessDay was able to get. Analysts believe that this situation could result in the loss of revenue and market share for the nation as well as further economic problems.
In addition to the billions in taxes paid over the past 20 years, the NLNG has paid the Federal Government over $18.3 billion in dividends through its ownership of Nigerian National Petroleum Company Limited, but these revenues are slowly beginning to seem at danger.
Nigeria is losing market share to rivals at a time when the COVID-19 pandemic and the Russian-Ukrainian crisis have driven LNG prices to all-time highs. At the same time, Nigeria is turning into a textbook example of how corruption and poor leadership can destroy an enterprise.
At an oil conference last week in Abuja, Philip Mshelbila, MD/CEO of NLNG, lamented Nigeria’s inability to fulfill existing commitments. “Contracts are now being signed with Qatar, the US, and other countries; LNG contracts are long-term contracts and now the biggest demand markets are locking themselves in the 20-year market,” he said.
“Are you aware of where we stand? We are unable to fulfill our duties to current clients, let alone be able to sign new clients or contracts, as we are experiencing a case of force majeure, he stated.
Qatar Petroleum and Sinopec (China Petroleum & Chemical Corp.) agreed to a 20-year agreement in 2021 for the supply of 2 million tonnes of LNG annually. Strangely enough, Sinopec abandoned Nigeria after numerous problems.
Other agreements reached in 2021 include TotalEnergies’ 10-year agreement with Angola LNG Ltd. to purchase 1.5 million tonnes of LNG annually and BP’s 15-year agreement with Pavilion Energy to supply 0.8 million tonnes of LNG annually.
Shell and Uniper agreed to a 10-year agreement in 2021 for the supply of 0.9 million tonnes of LNG annually. In addition, Novatek signed a 15-year agreement with Indian Oil Corporation for the delivery of 2.5 million tonnes of LNG annually, while Cheniere Energy signed a 20-year agreement with Petronas for the supply of up to 1.1 million tonnes of LNG annually.From 2020 to 2021, the global LNG trade increased by 4.5 percent, hitting an all-time high of 372.3 MT. Despite the fact that the annual growth rate of 4.5 percent is still far behind the levels of pre-COVID-19 of 13.0 percent in 2019, a robust post-pandemic rebound led to a jump in LNG imports.
However, these were in 2021, after LNG had begun to daydream about the next train and had persuaded investors to put money down for Train 7. It is witnessing itself helpless to argue for new business as competitors close in as sabotage increases and its capacity to fulfill current orders is hampered.
Demand for LNG has increased even further by 2022. In accordance with a WoodMackenzie analysis on LNG Trends, “in 2022, the annual volume signed under new long-term agreements was at its highest level since 2018, with more than 80 mmtpa of LNG SPAs and HOAs signed.”
Considering that more than 12 mmtpa of LNG SPAs were signed in less than two months, this dynamic trend is anticipated to continue in 2023. According to the analysts, it includes multiple contracts inked in the last few weeks by Qatar and Oman.
“US LNG, which accounted for more than 75% of the total volumes signed, also saw significant growth last year. As these projects approach FID in 2023, we anticipate the return of Brent-linked contracting with a wave of Qatar LNG contracting as well as prospective contracts to be signed from Tortue FLNG phase 2 and Papua LNG.
Nigeria is likely to miss the current LNG trend because of the drastic decline in circumstances.
“Over the past two years, the supply of gas has been steadily declining; at that time, COVID and the Russia-Ukraine crisis occurred. Demand has reached previously unheard-of heights. Prices reached previously unheard-of heights in August. We experienced the lowest gas supply levels ever during this time. Therefore, we weren’t there to compete in that market, the NLNG boss explained.
Fixing the security problems, according to him, will address the problem in the short term and allow the NLNG to close the remaining 30 percent of its 40 percent gap.
There is also a need to jump-start abandoned projects. “A lot of the fields and reservoirs are going into decline, fields are turning up water, and how we address the decline is that a lot of the upstream producers have projects to backfill the decline but a majority of those projects are delayed or suspended for one reason or the other,” Mshelbila said.
The Nigerian government developed a ‘Decade of Gas’ plan but concrete actions to develop projects under the plan have stalled. While the government has passed the Petroleum Industry Act into law, its framework is inadequate to address the challenges with natural gas production and stimulate gas development in offshore fields, industry operators say.