NLNG as catalyst for other LNG projects

Tuesday, 03 March 2009 00:16 OLUSOLA BELLO

Without a doubt, the renewed interest in Liquefied Natural Gas (LNG) liquefaction projects in Nigeria is hinged on the surge in global LNG energy demand and the success of the nation’s LNG projects in the early part of this decade. In this connection, several projects have been proposed, including a floating LNG project for the Nnwa/Doro fields by a Shell/Statoil partnership and a second Bonny island plant by ExxonMobil. However, there is some amount of scepticism because earlier proposals have so far not evolved into any concrete projects.

That notwithstanding, the NLNG Train 7 expansion project, Brass LNG and OKLNG, are now the major LNG projects under consideration for investment by the various shareholders. Also in progress are LNG projects being floated by Flex LNG and Peak Petroleum, which are however facing financial constraints owing to the global financial crisis.
For this reason, and taking into account the industry’s current cost level, the uncertainties associated with the nation’s gas supply due to upstream funding constraints, among others, there is a need for an in-depth re-evaluation of all existing projects to determine their economic viability and profitability.
The Nigerian LNG in 2007 was 16.4 million tons (MT), equivalent to nearly 10 per cent of the global total, making the country the world’s fifth largest LNG producer after Qatar, Malaysia, Indonesia and Algeria. The current NLNG capacity at Bonny Island is 22MTPA, besides which there is much space for growth.
Interestingly, on the basis of the proposed LNG projects in the country—NLNG Train 7, Brass LNG and OKLNG, there is much potential for a total additional export capacity of 40 mtpa. This would bring Nigeria’s LNG export to 62 mtpa, the equivalent of about 11.5 percent of the estimated world supply requirement. Needless to say, at current pricing regimes, 62 mtpa would represent annual export revenues amounting to $15 billion or thereabouts.
Meanwhile, both government and industry experts have come to an agreement that Nigeria is blessed with over 100 trillion cubic feet of gas (TCF) reserve. On this basis, they are projecting another 180 TCF. The latter number includes stranded gas and gas caps required for oil reservoir management, which may be excluded from the immediate gas availability consideration. With all these indices, the industry would seem to contend that there is an existing adequacy of gas to meet the foreseeable, planned domestic demand for power generation and domestic industrial consumption. Already, the possibility of additional gas exports is being explored for the Nigerian oil and gas province, which is acknowledged to be gas-prone.
Industry observers hope that despite constraints on gas supply, rebalancing the upstream gas pricing will ensure the economic viability of gas supply projects and resolve the crisis in upstream funding, so that upstream development projects (both domestic and export) will proceed.
Although analysts observe that there may be some amount of uncertainty regarding LNG project estimates following the usual market disconnect between what is forecast and what actually happens, the project timetable as published in the most optimistic case predicts that LNG production capacity will increase to a plateau in 2021, at about 540 million tons per annum (MTPA). However, it is felt in some quarters that the projection may be overoptimistic as it does not take into account factors that might delay or prevent projects from materialising, thus reducing the rate of growth.
Moreover, the current deepening global recession will certainly impact capital investment decision plans in the oil and gas industry, both internationally and domestically. Projects which require high prices to surmount investment hurdles will be the first to experience cuts.
There also reports of commensurate falls in drilling rigs’ rates in some oil provinces. Besides, some basic elements like steel, aluminium and cement have declined, but the industry will require a dramatic downward readjustment in the cost of gas development projects, which are currently on the drawing board in Nigeria and elsewhere.
Gratifyingly, the oil industry has weathered recession and energy price dynamics for decades, and the expectation is that through innovations, cost-consciousness and inherent optimism, the industry will be able to forge a sustainable way forward which will eventually be beneficial to all stakeholders.
As things stand, there is robust demand for LNG as the fuel of choice across the world, and the nation rightly requires domestic gas for power generation and other industrial applications like the production of chemical products, both for the domestic and export markets.
There have been and may continue to be opportunities in Nigeria for LNG to grow so that the country can join the ranks of LNG exporters. It has therefore become compelling that appropriate policies for this sector be formulated so as to make the Nigerian market attractive for investment while optimising returns to the nation.