“Bad news has good legs.” So says renowned British novelist Richard Llewelyn.
The penman’s words succinctly capture the agelong affinity for bad news among the majority of people, the media and public analysts inclusive. This affinity is readily obvious in the pervasive penchant to amplify the negatives over the positives on any socio-economic or political matter. Of course, an indiscriminate and illusionary adoption of utopia is not in any way appropriate for true and reliable intellectual analysis. The reliable analysis does require a balanced approach, where both the negatives and positives are equally examined and brought to light, equipping the observer with balanced information to enable intelligent decision-making. As with every other sector, this observation applies to the liquefied natural gas (LNG) sector in Nigeria.
According to the United States Department of Energy, LNG is natural gas cooled to a liquid state (about -260° Fahrenheit). Natural gas in its liquid state is several times smaller in volume than when in gaseous state. Hence, the liquefaction of natural gas enhances shipping and storage and enables its transportation to places inaccessible by pipelines. LNG ensures the supply of natural gas to market locations too distant from production regions to be directly linked via pipelines. The condensed liquid form of natural gas (LNG) is shippable in tankers to terminals dispersed across the world, where it is reverted to gas and subsequently transported via pipelines to users, including distribution companies, industrial consumers, power plants, etc.
The history of LNG in Nigeria follows closely the exploration and discovery of crude oil in the country. Precisely on Sunday 15th January 1956, crude oil was first discovered by Shell-BP in commercial quantity at OIoibiri, a near obscure village in the Niger Delta. This discovery followed fifty prior years of oil exploration by various international companies and discoveries of oil in non-commercial quantities within the country. Exploitation immediately commenced after January 1956 and by February 1958, exportation began.
These were the first significant steps that launched Nigeria into the mainstream global oil and gas market and started it off on its journey to being an oil behemoth. In May 1989, just a little above thirty years after the discovery of oil in commercial quantity, Nigeria LNG Limited was incorporated to produce natural gas liquids (NGL) and liquefied natural gas (LNG) for export. By 1999, ten years after incorporation, NLNG made its first shipment from its production base in Bonny Island. Since then, the Nigerian LNG industry has witnessed relatively consistent growth.
By the year 2020, just about twenty years after its first shipment, NLNG became the fourth largest LNG exporter in the world, with six fully operational trains and a seventh train underway. With six trains operating, Nigeria produces 22 million tonnes of LNG annually (over 6 million tonnes above Indonesia, the fifth largest world exporter). The seventh train, which currently secured a multi-billion dollar Final Investment Decision (FID), is projected to increase production to 30 million tonnes annually. At its current production rate, Nigeria supplies nearly 10% of the world’s LNG consumption, holds over 7% of the global LNG market share, and produces more LNG than other African countries.
The challenges encountered by Nigeria’s LNG industry are worth noting. First, there is the challenge of inadequate exploitation of the country’s abounding natural gas reserves. PWC puts the country’s natural gas estimate as of 2018 to about 200 TCF (trillion cubic feet), making it the largest in Africa. Most of this reserve is however yet to be exploited at a commercial level and daily gas production remains low in proportion to the reserve. Secondly, a significant proportion of the gas produced is still being flared or injected for more crude oil recovery. Gas flaring is notoriously accompanied by both economic and environmental ills. In 2018 alone, flaring cost Nigeria N233 billion (761.6 million USD, as of then).
More specifically, the National Environmental, Economic, and Development Study (NEEDS) for Climate Change in Nigeria put the environmental cost of gas flaring to an annual sum of N28.8 billion (94 million USD). The country still ranks among the top ten gas flaring countries globally and accounted for nearly 7% of the total amount of gas flared by the top ten as of 2018. Another notable problem is that of underutilization. LNG’s potential as a viable multifaceted energy source, cleaner (lower-carbon) energy source, electricity generation source, and job creation avenue are far from being realized in Nigeria.
The evident problems make it imperative for government and stakeholders to further seek ways to better exploit and utilize the country’s natural gas mega reserves and harness them for economic development. The challenges notwithstanding, Nigeria’s LNG sector has managed to keep an upward trajectory since its inception, through all the transitions in government experienced by the nation. The first ten years of NLNG’s operation (1989 – 1999) were under military rule and has since then increasingly prospered under civilian rule.
Despite a dip in revenue reported by NLNG in 2015 due to declining oil and gas prices globally, the LNG sector remains attractive to investors and partners across the globe, an indication of its revenue generating viability. The year 2015 was the same year that NLNG recorded a threshold of 85 Billion USD of LNG exports in 15 years of business. Moreover, it cost a total of 9.348 Billion USD to build the currently operational six LNG trains and the funds for this were mostly provided by shareholders, internally generated revenue and re-invested revenue.
Third-party loans (acquired for trains 4 & 5) have so far contributed a smaller amount (1.06 Billion USD) in comparison to the other sources. In 2013, NLNG signed an agreement with Hyundai Heavy Industries and Samsung Heavy Industries for the delivery of 1.2 Billion USD worth of four LNG carrier ships. The agreement increased NLNG’s total fleet to 23 ships.
A good number of such deals, partnerships and investments keep pouring in. In December 2019, top range global energy and commodities company, Vitol, signed a ten-year deal with NLNG to offtake 500,000 tonnes of LNG annually, beginning from October 2021. The volumes will be purchased from Trains 1, 2 and 3 of the currently operational six trains. More recently, precisely in May 2021, century old global engineering giant, KBR, received the contract to develop Nigeria’s first ever floating liquefied natural gas (FLNG) facility , a pioneer project in most of Africa.
The FLNG technology is expected to help harness more of the natural gas reserves by enabling the exploitation of smaller “stranded” reserves which hitherto did not make economic sense within the context of onshore development. The FLNG technology will also promote gas monetisation (as against unchecked flaring), consequently leading to decarbonisation in the country. Also, on the 19th of May 2021, NLNG commissioned a new 126,060sqm corporate head office building in Port Harcourt.
The world class edifice, which combines state-of-the-art facilities and cutting-edge work-place technology, is a bold and outstanding move, especially in the era of COVID-19, when most of the world is under lockdown and experiencing the biting effects of a major economic downturn. The commissioning of the building indicates a vote of confidence by key global stakeholders and international investors in NLNG and the Nigerian LNG sector in these trying and very uncertain times.
By extension, the move also points to significant confidence by foreign investors and the broader international community in the Nigerian economy. It must be noted that currently, major shareholders in NLNG are world leading energy companies who have not only maintained their shares for decades, but have kept pouring in massive investments in the company and in the LNG sector.
The series of activities of NLNG within the last 36 months, ranging from the multi-billion dollar FID on “Train 7”, the new Corporate Headquarter complex in the heart of the Niger Delta and more investments by enthusiastic international investors are proof of a long-term commitment to the political stability and progress of Nigeria’s energy industry by international corporate entities and the global community.
The recurring investments and giant moves all point to one glaring but often unheralded fact – that the daunting local and global challenges regardless, Nigeria’s LNG sector is thriving and it is outrightly unnecessary to uphold an anxious, despondent or fatalistic disposition towards the sector and the Nigerian economy as a whole. In addition, the current Nigerian government has continually plowed in efforts to boost the oil and gas industry. In 2016, the Federal Government kickstarted the “7 Big Wins Agenda”, a regulatory move to help maximize investment opportunities in the sector and procure increased and sustainable growth for the nation’s economy.
Some of the consequent tax and regulatory developments include: Back Duty Tax Assessment for Production Sharing Contract (PSC) Operators, Tax Deductibility of Gas Flare Charges, Multiple Tax Audits and Aggressive Tax Collection Drive, Accelerated Lease Renewal Programmes for Oil Mining Leases (OML) grant holders, Launch of Oil and Gas Production Volume and Vessels Movement Systems, Commercialisation of Flare Gas and Restructuring of Joint Venture (JV) Operations. The level of commitment by the government and the attendant innovations are noteworthy and are a testament to the fact that the LNG sector in Nigeria is grounds for consistent positive development.
In all, Nigeria’s LNG sector is a good example of another Nigerian success story that is scarcely celebrated, or worse still, overshadowed by the proclivity of the masses for negativity. Interestingly, while spectator critics and analysts keep tending towards naysaying, actual key players keep pouring in resources into the game and keep reaping returns; they clearly know something that most do not. Hopefully, the information provided by this piece will contribute to the much-needed reorientation and also provide an untainted view, fresher perspective and a new paradigm to aspiring investors, stakeholders and critics alike.
Indeed, the best is yet to come.