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Nigeria faces tough competition as LNG prices tumble to historic low

Record low prices for liquefied natural gas (LNG) are roiling the global gas market, creating havoc as traders rush to find alternative locations for cargoes with Chinese buyers rejecting shipments amidst the coronavirus epidemic.

Nigeria is reputed to be a rich gas province producing a little oil. Conservative estimates say the country’s proven reserves of over 202 trillion metric standard metres (TCM) of natural gas outstrip the potential of crude oil equivalent by 10 times over, a development that puts Nigeria among the top 10 largest exporters of LNG in the world, with a capacity of 22 million through Nigeria LNG Limited.

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Sources said traders are struggling to find buyers of LNG in Asia outside China, the biggest buyer of LNG, where spot purchases of LNG and other energy products have almost stopped, leading to glut in the market and its attendant lower price.

Data from Bloomberg terminal showed natural gas price, the benchmark for Nigeria’s natural gas, fell by over 47 percent to $1.87 as at Friday while in Asia, the benchmark Japan-Korea-Marker (JKM) spot price for LNG closed at a low of $3.00 MMBtu for the second consecutive session on Thursday, according to data provided by S&P Global Platts.

Gas export through Liquefied Natural Gas (LNG) provides high returns to the Nigerian government through tax receipts and dividends for an equity stake as global LNG market contends with additionally depressed demand due to the lower industrial and economic activity in China in the wake of the coronavirus outbreak.

Ademuyiwa Adegun, an Abuja-based gas commercial advisor, said lower NLG prices pose risks to major gas exporting countries like Nigeria who might struggle to find buyers which might translate to a loss in revenue.

Nigeria LNG has over the years paid dividends of over $36 billion out of which 49 percent went to the Federal Government courtesy of its shareholding in the company via NNPC, the company said in its 2019 report. Gas proceeds from NLNG as at June 2019 stood at N82.8 billion.

Latest Nigeria National Petroleum Corporation (NNPC) said about 3,190.16 mmscfd or 95.46 percent of the export gas was sent to Nigerian Liquefied Natural Gas Company (NLNG) Bonny for October 2019.

Disruption and curtailment fears in China as a result of the fast-spreading coronavirus have also compounded the pressure on LNG prices, S&P Global Platts said, with China’s biggest importer of LNG declaring force majeure on some contracts on Thursday.

China’s National Offshore Oil Corp (CNOOC) announced it had suspended contracts with at least three suppliers on Thursday, Reuters reported, citing two unnamed sources.

According to sources close to the gas spot market, traders are looking around neighboring countries to Asia with some already spotting India which has scope for more purchase and has recently commissioned an LNG terminal but is restrained by inadequate pipeline infrastructure.

While countries in Europe might also be an option due to their strong seasonal winter gas demand.

“Europe absorbed most of the incremental LNG supply in 2019,” James Taverner, director at research and consultancy firm IHS Markit said.

Major buyers in Japan and South Korea such as Korea Gas Corporation (KOGAS) and Japan’s energy company (JERA) could benefit as they are able to tap demand from utility companies, but overall consumption levels there are also limited due to mild weather, sources said.

In Nigeria, natural gas sector in Nigeria is oriented towards the export market, which is determined by economic fundamentals as against a regulated domestic regime, with LNG being the major revenue earner for the country in the gas industry.

Two months ago, Nigeria LNG Limited took the long-awaited final investment decision on the company’s Train 7 project, after over 10 years of delay.

The Train 7 project aims to increase the company’s production capacity from 22 MTPA to about 30 mpta, and will form part of the investment of over $10billion including the upstream scope of the LNG value chain, according to the company.

 

DIPO OLADEHINDE

 

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