Few years after the Department of Petroleum Resources (DPR) granted the first license to privately-owned Nigerian company UTM Offshore for the production of 176 million cubic feet per day (MMCFD) of gas despite through the Floating LNG gas technology, the outlook remains uncertain.
While Floating LNG is expected to be a game-changer, boosting the efficiency of gas production by adding the processing to the place of extraction, however, experts say it will have to prove it is cost-competitive with more traditional approaches to LNG production.
An FLNG is an LNG plant floated on water rather than onshore, usually for its comparative advantages, which is primarily its ability to access stranded gas volumes on the sea through the use of modern technology.
Although most experts expect the UTM deal to transform the face of Nigeria’s natural gas market, however, others have raised doubts about the future of FLNGs considering its initial failure and whether more companies – and indeed investors – should be looking this way, or not.
Caleb Adebayo, an Energy lawyer at the New York University School of Law said the technology and financing risks of FLNGs leave many grey areas, yet it is encouraging to see a Nigerian company wade into these waters.
“The technical designs of the FNLG have to match the weather, gas composition, and metocean conditions for its contemplated routes, the extent of copycatting from prior constructions is restricted- instead a high level of specificity is required, for which no playbook may exist,” Adebayo said.
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He noted the numerous benefits of FLNG cannot also be brushed aside most especially the obliterating knotty issues of land rights and permits that have always been a challenge in developing oil and gas projects.
“With pros and cons existing for these floating projects, it may be too early to make a call that they are the future of the natural gas market,” Adebayo said in a note.
Charles Akinbobola, an analyst at Lagos-based Sofidam Capital said it’s still unclear whether FLNG’s is the future of natural gas development he however advised the UTM project to take significant learning from the failings of Shell’s Prelude.
Shell’s billion-dollar Prelude FLNG project, with an annual capacity of 3.6 million tons hasn’t produced any LNG since February last year, and it’s future still highly unclear.
The project shipped its first cargo in more than eight years after the final investment decision was made, and two years after the FLNG vessel arrived at the site, one Wood Mac analyst pointed out at the time.
Production stopped in February 2020 following a technical problem and hasn’t been restored with concern emerging it may have been a flop. Building it and putting it into operation cost between $12 and $17 billion, according to external estimates.
Nigeria becomes the second African country that would leverage the technology after a $2billion facility being championed by the government of Equatorial Guinea and Ophir Energy and Golar LNG.
The Yolo field is owned by ExxonMobil’s subsidiary, MPN, which holds a 40 percent stake and operatorship, and the Nigerian National Petroleum Corporation, which has a 60 percent stake.
“We are pleased to have been part of this significant milestone for our client, UTM Offshore,” Templar’s Energy and Projects Partner Dayo Okusami said.
UTM Offshore was incorporated as a private Nigerian company in 2012. The Yoho field started crude oil production in 2003.
