Time running out for Nigeria’s LNG projects


As the delay in reaching the final investment decision (FID) for the triad of Olokola Liquefied Natural Gas (OKLNG), Brass LNG and Train 7 projects continues, Nigeria risks losing a big chunk of the high-demand Asian LNG markets as competition from other exporters grows.

The inability to secure long-term market commitment and delay in the passage of the Petroleum Industry Bill (PIB) continue to constitute a major setback to the projects, BusinessDay has learnt.

Dolapo Oni, energy analyst at Ecobank, says there is a huge demand around the world for LNG, particularly in Asia and Europe, noting that Nigeria is not expanding capacity as much as it should because of domestic gas requirements.

According to global management firm McKinsey, four factors will be the major drivers of future market dynamics and prices in the global gas market. They include the pace and volume of North American LNG exports, demand growth for LNG in Asia, LNG supply from Australia, East Africa, Middle-East and Russia, and the price of oil.

McKinsey explains that North American gas developers are keen to export their plentiful supply of cheap LNG to higher priced markets, adding that by the end of 2013 they had applied for export permits for more than 380 billion cubic metres per year, equivalent to all of the world’s current liquefaction capacity.


Asia’s fast-growing economies will be the main drivers of growth in global gas demand in the next decade, according to McKinsey. Forecasts from the US Energy Information Administration (EIA) suggest that demand in Asian countries that are not part of the OECD will grow 4.5 percent between 2010 and 2035. The countries, which include China, India and Indonesia, would see demand rise from 350 billion cubic metres per year in 2012 to 870 billion cubic metres per year in 2030, accounting for more than a third of gas demand in that period.

Australia, East Africa, the Middle-East and Russia have some of the largest gas resources available for supply after North America, and could potentially supply almost 280 billion cubic metres per year by 2030, McKinsey projections suggest.

“We risk losing our share if by 2020 our LNG projects do not come on stream. Initially, they were conceptualised targeting the American market. But with shale gas, America does not need our LNG. Nigeria needs to get those plants on ground. If we dilly-dally too long on these projects, we risk losing market in Asia. Everybody is focusing on Asia,” Oni told BusinessDay.

“Definitely, if we don’t take the FID on the LNG projects by next year, it means they will not come on line by 2019/2020. In East Africa, countries such as Mozambique and Tanzania are developing LNG. Mozambique has gone so far that Anadarko Petroleum had sold two-thirds of the capacity of the planned Mozambique LNG project to Asian customers. The project is likely to come on stream in 2019. Outside Africa, there are several LNG projects expected to come on stream by 2019/2020 targeting the Asia market. They are facing China, Japan, Taiwan and South Korea,” he added.

Nigeria, Africa’s top oil producer and world’s fifth-biggest LNG exporter, currently has LNG production capacity of 22 million metric tonnes per annum (mtpa), which is expected to increase when a seventh train comes on stream.

The Nigeria LNG Limited (NLNG) in its ‘Facts and Figures on NLNG 2014’ released recently said sale and purchase agreements had already been executed with five buyers for the 8.4 mtpa Train 7 project, which will raise the liquefaction capacity of NLNG to 30mtpa.

“Plans for building Train 7 that will lift the total production capacity to 30mpta of LNG are currently progressing with some preliminary early site preparation work initiated. Further work awaits an FID by the stakeholders,” the company said.

Bonny Gas Transport, the wholly-owned subsidiary of NLNG responsible for the transport of NLNG’s output, has completed plans to acquire six new vessels which are currently being built and will be completed by 2016. The deals for the vessels were signed off on March 26, 2013.

Brass LNG project was designed to produce 10 million metric tonnes of LNG per year, with the FID initially planned for 2006. But it was later rescheduled for 2008 and then 2010. It was expected to happen in 2012 and then last year, but it has yet to be taken by the shareholders, which include the Nigerian National Petroleum Corporation (NNPC), Total and Eni Group. ConocoPhillips withdrew from the project in 2012.  

The withdrawal of ConocoPhillips is a major factor hindering the existing stakeholders in the project from taking the FID on the project as there is need to sell the stake to a new buyer.

Ecobank Research in its recent report said that although there was significant interest from some Asian national oil companies in the gas project, concerns around the economics of these LNG projects were starting to dampen buyer enthusiasm.

“Nigeria needs to accelerate negotiation with LNG partners for the Brass LNG and Olokola LNG, as well as the next train for Bonny,” said Wumi Iledare, president, International Association for Energy Economics and director, Emerald Energy Institute, University of Port Harcourt, stressing the need to pass a progressive PIB with a well-articulated fiscal regime for gas.

The OKLNG project was initiated in 2005, with NNPC as the major shareholder. But other shareholders including BG Group, Shell and Chevron have withdrawn from the project.

NNPC had recently said the OKLNG had inevitably suffered a setback as a result of the exit of Chevron and Shell, adding that effort would be intensified to secure other willing investors.