BusinessDay

Oil theft bites deeper as NLNG gas supply drops 38%

The rising crude oil theft overwhelming Nigeria’s energy business is biting deeper as the volume of gas the Nigeria LNG Limited (NLNG) can supply to the international markets has declined by 38 percent, BusinessDay has learnt.

While Liquefied Natural Gas (LNG) spot prices reached an oil equivalent of over $500 per million British thermal unit (mmBtu) last month, LNG exports from Nigeria plunged by 38 percent year-on-year, according to LNG data from Refinitiv Eikon, one of the world’s largest providers of financial markets data.

“Much of the feed gas supplied to Nigeria’s NLNG project at Bonny Island is derived from associated gas; hence, the drop in the country’s oil production on the back of upstream issues and crude theft has led to a sizeable decline in feed gas supply to the facility,” said Olumide Ajayi, a senior LNG analyst at London Stock Exchange Group.

The NLNG, which is jointly owned by the Federal Government and three international oil companies, was established in 1989 to harness Nigeria’s vast natural gas resources and produce LNG and natural gas liquids for export but it started operations in 1999.

“Although record prices contributed to Europe’s skyrocketing energy bills, they could have provided Nigeria’s economy with much-needed foreign currency revenues similar to levels of the Gulf war oil windfall in the early 1990s,” Ajayi said.

The Nigerian government received a dividend of N208.5 billion from the NLNG in 2021, according to data from the Budget Office. The country has received over $18.3 billion in dividends in the last two decades.

“Worth noting that two years ago, LNG spot prices fell to less than $2/mmBtu so this opportunity to take advantage of high spot LNG prices won’t always be there,” Ajayi explained.

Kayode Oluwadare, an energy market development analyst at Enrg Solutions Ltd, said a combination of factors including years of underinvestment in upstream gas/condensates projects and delays in the passage of the Petroleum Industry Act (PIA) have greatly impacted the non-associated gas balance in the NLNG’s feed gas mix.

He advised the federal government to model its LNG projects for offshore gas field developments in a vertically integrated fashion, which will increase supply of gas to the international market.

“British Petroleum’s Greater Tortue Ahmeyim gas project on the maritime border of Senegal and Mauritania is a good model for future gas projects in Nigeria to emulate,” Oluwadare added.

Read also: Peter Obi accuses government of rampant oil theft

Bede Emuka, regional director at Guyana-based Atlantic Oilfield Supplies, believes the situation is really bleak, considering that crude oil and gas are the twin pillars of Nigeria’s foreign exchange revenue.

BusinessDay learnt the federal government is expecting N187 billion dividends in 2022 from its 49 percent share in NLNG.

“It used to be that the NLNG was a quiet foreign exchange performer. Not anymore,” Emuka said.

Apart from losing FX, BusinessDay’s findings showed Nigeria may also be losing a decisive battle for market share to other smaller oil-producing countries, which are springing up different projects and attracting the right kind of investments.

Last Friday, Egypt announced it was earning about $500 million monthly from natural gas exports and aimed to raise the figure to $1 billion “in the coming period”.

Egypt exported 8.9 billion cubic metres (bcm) of LNG last year and 4.7bcm in the first five months of 2022, according to Refinitiv Eikon data.

According to Egypt’s finance minister, Mohamed Maait, the country is pushing to maximise its exports of natural gas to generate foreign exchange revenue after coming under financial pressure due to the impact of the war in Ukraine.

The government says gas exports have been boosted after it introduced an electricity rationing plan in August.

“Unlike Egypt, Nigeria is at a crossroads in terms of the state of Nigeria’s oil and gas industry. Revenue from oil and gas exports has fallen significantly over the year. A huge loss to Nigeria with the high profits declared by other producing nations,” Etulan Adu, a production engineer familiar with Nigeria’s oil and gas industry, said.

NLNG, whose export plant is located on Bonny Island, an industrial hub in the restive Niger Delta, is owned by the Federal Government of Nigeria (49 percent) and Shell Gas B.V. (25.6 percent), Total Enegies Gaz & Electricité Holdings (15 percent) and Eni International N.A. N.V. S.àr.l (10.4 percent).

With 209.5 trillion cubic feet of natural gas reserves, Nigeria is the largest gas-producing nation in Africa and 10th globally. It produces 8 billion cubic feet of gas daily, according to the Nigerian Upstream Petroleum Regulatory Commission.

The NLNG monetises well over 4 billion cubic feet of gas daily, hence the company’s significant contribution to the nation’s economy through dividend payments from foreign exchange earnings, foreign direct investments, and immense local content and community impacts.

Since its operation in 1999, the company has generated over $114 billion in revenues, paid to the federal government $9 billion in taxes, $18.3 billion in dividends, and $15 billion in feed gas purchase.

The NLNG Train 7 is currently under construction and is targeted at increasing the company’s gas supply capacity from 22 million tonnes per annum (mtpa) to 30mtpa.

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