NLNG dividend to NNPC hits eight-year high

The dividend paid by the Nigerian LNG Limited (NLNG), the biggest gas exporter in the country, to the Nigerian National Petroleum Company Limited (NNPC) has risen to the highest in eight years, official data show.

The NLNG, owned by the federal government of Nigeria (FGN) and three international oil companies, saw its revenue increase by more than a third in 2022 to $7.59 billion, the highest since 2014.

The dividend paid to the state-owned NNPC jumped by 52 percent to $1.10 billion from $722.44 million in 2021, according to the NLNG’s latest Facts and Figures report. The last time the national oil company was paid more than that amount was in 2014, when it received $1.39 billion.

The NLNG currently has over 70 spot liquefied natural gas (LNG) master sale agreements with various counterparties across major LNG markets and emerging demand centres to “enable the prompt sale and optimisation of production volumes”, it said.

“Given the constantly evolving and volatile nature of the energy market, exemplified by the demand destruction during the Covid pandemic and then the spike in European LNG demand/global gas prices due to the ongoing Russia-Ukraine war, the ability to remain a consistent and reliable supplier to our buyers will continue to be a key success factor going forward,” it said.

Output decline threatens record revenue

The company has seen its output decline owing to gas supply constraints, which triggered a force majeure that has remained in place for over a year and threaten to drive down its revenue this year.

The NLNG had on October 17, 2022 declared a force majeure on product supplies from its production facilities on Bonny Island, following the declaration of force majeure by all its upstream gas suppliers. It said the notice by the gas suppliers was a result of high flood water levels in their operational areas, leading to a shut-in of gas production that caused a significant disruption of gas supply.

Ayodele Oni, an energy law expert and partner at Bloomfield Law Practice, pointed out that the declaration of a force majeure event by the NLNG implies that it would not be able to perform its gas delivery obligations (completely or partially) to the parties it has LNG sale and purchase agreements with.

He said this would mean the suspension of its performance obligations as well as financial benefits under such agreements.

“If the NLNG’s financial benefits are suspended, it means the revenue (or a part of) that should ordinarily accrue for the period of time when the force majeure event subsists would not be received,” he said in response to questions from BusinessDay. “This no doubt has a negative impact on NLNG’s financial projections, and by implication, the NNPC/FGN’s expected revenue (especially in the form of dividends) from the NLNG.”

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Oni said the declaration of force majeure for a long period of time could give the counterparties who are supposed to take gas from the NLNG the right to terminate the agreement with the company and even disincentivise such counterparties and other third parties from entering into similar gas delivery arrangements with it.

“During this peculiar time, when the FGN is pressed to make decisions that affect the Nigerian economy, this even makes the task more difficult for the FGN, as it means less foreign exchange and revenues, generally,” he added.

Last year, Nigeria’s LNG exports totalled some 14.7 million metric tonnes, according to data from S&P Global Commodity Insights, and so far this year have reached 12.5 million mt, according to a November 8 report by S&P Global Platts.

With six trains currently operational, the NLNG has a capacity to produce 22 million tonnes per annum (mtpa) of LNG, and 5 mtpa of natural gas liquids from an intake of 3.5 billion standard cubic feet of gas per day.

“The building of Train 7, which will lift the total production capacity to 30 mtpa of LNG, is currently progressing,” the company said.

The final investment decision for Train 7 was taken in December 2019 after being delayed for over a decade, while the signing of engineering, procurement, and construction contracts with SCD (Saipem, Chiyoda, and Daewoo) JV Consortium was completed in May 2020. The ground-breaking for the project was done on June 15, 2021.

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The Nigerian Content Development and Monitoring Board, in a statement on November 7 after an engagement session with the management of NLNG, said the ongoing construction of the $5 billion Train-7 project had reached 52 percent.

Philip Mshelbila, managing director of NLNG, was quoted as saying that the output from the six-train plant had fallen below 50 percent of its nameplate capacity due to gas supply shortage.

According to him, feedgas to the NLNG plants comes mainly from some its joint ventures (JV) partners, including Shell Petroleum Development Company Limited, TotalEnergies and Nigerian Agip Oil Company, but their supply pipelines suffer recurrent vandalism, coupled with facility failure and low production from aging wells, resulting in serious disruption of supplies.

The company said it was exploring several options to mitigate the challenge, including partnering with critical security agencies to curtail vandalism on the pipelines and working with their JV partners to increase their gas production.

Mshelbila said the company’s board had also approved the procurement of gas from other international and indigenous gas producers in the country, with the goal of enhancing the performance of Trains 1-6.