Oil-rich countries are signing multimillion-dollar Liquefied Natural Gas (LNG) contracts to lock in supplies over the next 20 years but Nigeria is unable to meet current orders, let alone fight for future contracts, setting the stage for a looming fiscal crisis.
Home to the world’s ninth biggest natural gas reserves, Nigeria is struggling to replenish gas fields, even as producing ones suffer shut-ins due to sabotage on oil facilities by thieves and vandals, as well as administrative disputes.
According to the ‘Decade of Gas’ implementation plan seen by BusinessDay, the Nigeria LNG Limited (NLNG) is currently running at 60 percent of the plant capacity, a situation analysts say could translate to loss of revenue, market share, and more economic woes for the country.
The NLNG has paid over $18.3 billion to the Federal Government as dividend through its shareholding in Nigerian National Petroleum Company Limited in the last 20 years, apart from billions paid in taxes, but these revenues gradually appear at risk.
At a time when the COVID-19 pandemic and the Russian-Ukraine crisis have driven LNG prices to record highs, Nigeria is ceding the market to rivals as it increasingly becomes a case study for how corruption and inept leadership can cripple an industry.
“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,” said Philip Mshelbila, NLNG’s MD/CEO, as he bemoaned Nigeria’s inability to meet existing obligations at an oil conference in Abuja last week.
“Do you know what our status is? We are under force majeure, meaning we cannot meet our obligations to existing customers, not to talk of being able to sign up new customers or new contracts,” he said.
In 2021, Qatar Petroleum signed a 20-year deal with China Petroleum & Chemical Corp (Sinopec) for the supply of 2 million tonnes of LNG per year. Interestingly, Sinopec left Nigeria after a myriad of issues.
Other deals signed in 2021 include TotalEnergies deal with Angola LNG Ltd for the purchase of 1.5 million tonnes of LNG per year for a period of 10 years and BP’s 15-year deal with Pavilion Energy for the supply of 0.8 million tonnes of LNG per year.
In 2021, Shell signed a 10-year deal with Uniper for the supply of 0.9 million tonnes of LNG per year. Cheniere Energy signed a 20-year deal with Petronas for the supply of up to 1.1 million tonnes of LNG per year and Novatek signed a 15-year deal with Indian Oil Corporation for the supply of 2.5 million tonnes of LNG per year.
“Global LNG trade grew by 4.5 percent from 2020 to 2021, reaching an all-time high of 372.3 MT. A strong post-pandemic recovery resulted in a surge in LNG imports, even though the annual growth rate of 4.5 percent remains far from pre-COVID-19 levels of 13.0 percent in 2019.
But these were in 2021 after the LNG has managed to convince investors to plunk down cash for Train 7 and had begun dreaming for next train. As sabotage increase and its ability to meet current orders is impacted, it is watching itself unable to make a case for fresh orders as rivals close in.
By 2022, demand in the LNG market has grown even further. A report by WoodMackenzie on LNG Trends said: “In 2022, the annual volume signed under new long-term agreements was at its highest since 2018, with more than 80 mmtpa of LNG SPAs and HOAs signed.”
This dynamic trend is expected to continue in 2023, with more than 12 mmtpa of LNG SPAs signed in less than two months. It includes several Omani and Qatari deals signed in the past few weeks, the analysts said.
“Last year was also a strong momentum for US LNG, which accounted for more than 75 percent of the total volumes signed. In 2023, we expect the return of Brent-linked contracting with a wave of Qatar LNG contracting and potential contracts to be signed from Tortue FLNG phase 2 and Papua LNG as both projects head towards FID.”
Nigeria is set to miss the coming LNG momentum as conditions have deteriorated badly.
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“The decline in gas supply got really bad in the last two years; during that time, we had COVID and then the Russia-Ukraine crises. Demand has soared to levels we have never seen before. Prices last August were a record never seen before. This is the period we were having the lowest gas supplied ever. So we were not there to play in that market,” said the NLNG boss.
He said the solution in the immediate term is to fix the security issues as it has the ability to unlock 30 percent out of the 40 percent gap that the NLNG had.
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.
