Nigeria’s goal of becoming part of the top three Liquefied Natural Gas producing country, is now unlikely because of delays in the take-off of the new LNG projects, as well as governments plans to divert gas to the domestic market.
This development is fast fulfilling the predictions of the international energy outlook of 2009, (IEO2009) which states that “security concerns and uncertainty over access terms are expected to inhibit resource development in Nigeria and its contribution to the expected increase in Africa’s natural gas production is more modest than its reserves and geology would imply”. The delays mean that LNG project costs continue to rise amid a global financial downturn that has seen international gas and oil prices, plummet from record highs of more than $13 per thousand cubic feet (Tcf) last year to just above $3 Tcf.
LNG projects affected by the government’s domestic gas pursuit and the lull in global price are of the Nigerian LNG in Bonny Island Rivers State, and the two new projects, the $8 billion Brass LNG in Brass Island Bayelsa State, and the $6 billion Olokola LNG (OK LNG) in Ondo state. The amounts are the initial projected estimates. They are expected to rise as the shareholders of the projects continue to delay the Final Investment Decision (FID).
The FID for the two new LNG projects have suffered perpetual shifts as the shareholders involved in the projects keep postponing the move. During its last Annual General Meeting, Jackson Gaius-Obaseki, the Chairman of the Brass LNG, revealed that it is hoped that “the FID will be achieved before the end of 2010”. When a FID is taken, it implies that the shareholders have taken a legally binding decision to do the project.
A senior official of the Brass LNG told NEXT, that the delay by the shareholders in taking the FID is because of the global price regime of LNG.
“We’re looking towards the end of next year, when hopefully the price of gas will have improved and the global economic outlook will have improved, so that when the project is coming on stream by 2012 or so the shareholders can have something to show for the huge investment.” For the OK LNG, according to Bloomberg reports last month, one of the partners in the Olokola LNG, UK gas giant BG Group said it was reducing funding to the LNG project and switching its investment to a newly acquired asset in Australia.
“We are slowing down our funding of OKLNG to a very low burn rate and are switching priorities to the development of projects elsewhere, most notably the expansion of our new assets in Australia,” BG boss Frank Chapman said. In Nigeria, the government has “refocused its priorities on a number of domestic projects” and that has caused the slowing down of LNG investment Chapman said.
But according to Victor Agbe-Davies, president of the Nigerian Association of Petroleum Explorationists (NAPE), “the key thing here is the price regime. What is important is that one must have the appropriate pricing for gas. The companies doing these projects are in business to make profit. I know that people have started talking about domestic gas, but it is vital that the LNG projects don’t suffer because of this.”
According to the International Energy Outlook of the Energy Information Administration of the U.S.: “Worldwide, total natural gas consumption increases by an average of 1.6 per cent per year in the IEO2009 reference case, from 104 trillion cubic feet in 2006 to 153 trillion cubic feet in 2030.” Its outlook for production puts Nigeria in a very positive spot to help meet the growing global demand. “Nigeria has the most attractive geology for natural gas exploration and development and, in terms of reserves, the greatest potential to increase production.” But with a slightly larger quantity of proven reserves than Algeria, Africa’s largest producer Nigeria still has a long way to go if it wants to become the top gas nation on the continent. 2006.
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