Brass LNG stirs concern as investors mull renewal of expiring gas contracts

The need to quickly resolve contractual terms hindering the $15bn Brass LNG deal which has been stalled since 2013 has again been brought to the fore, as Nigeria’s LNG trains are up for renewal in less than six years.

Most LNG projects are often negotiated over a ten-year period, with prices hedged in a long-term forwards contract. Already, potential buyers are lining up for new contracts for gas supplies from Nigeria’s three production units, known as Trains 1, 2 and 3 at the NLNG terminal.

The units that freeze natural gas into liquid form for export on ships are known as trains in the industry.

Contracts for gas supplies from Trains 1, 2 and 3 – which together produce nine million tonnes of LNG a year, are being discussed, a senior official of the NLNG told Reuters on condition of anonymity. He was attending the Gastech trade conference in Chiba outside Tokyo.

“Trains 1-3 are coming back to the market, as they are out of contract by 2022. We started to remarket today,” he told Reuters late on April 5 at the conference.

Analysts say this provides a window to restructure the Brass LNG and make a compelling case for new investments while investors are looking to negotiate new contracts on gas projects in Nigeria.

Brass LNG suffered a drawback when United States-based ConocoPhilips left the planned 10 mpta project in 2014, and sold off all its Nigerian assets.

LNG markets are suffering a supply overhang as the long-term nature of the deals encourage producers in Australia, Qatar and Russia to ramp up production above demand thresholds in India and China.

Another factor constraining demand is competition from coal and renewable energy, which a Reuters survey concludes has led to a 70 percent crash in spot markets in Asia, fuelling pressure to grant more flexible contracts, better pricing options and increased spot market activity.

“We firmly believe that there will be a lot more short-term contracting. We think of the market today as roughly 30% of the LNG contracted on a short to spot basis. And short-term can be a tender for 100 cargoes over 12 to 15 months, I believe that by 2020 that will be more like 50%,” Meg Gentle, CEO of Tellurian Investments, an LNG facility development firm told S&P Global Market Intelligence.

Gentle added, “However, that doesn’t mean there aren’t any long-term contracts. It just means that everybody who has long-term contracts is reoptimising that LNG worldwide. The reality is that we are all, both buyers and sellers, going to have to form a portfolio of some long-term contracts, some medium-term, some short-term.”

Oil majors believe that demand will continue to grow, despite currently contraction in demand. In the company’s recent forecast of the LNG market, Shell stated that demand will continue to grow an average of 5 percent annually until 2030.

 

ISAAC ANYAOGU