Rising un-contracted LNG demand opens market opportunity for Nigeria, others

The seven major buyers of the world’s Liquefied Natural Gas (LNG), CNOOC, PetroChina, Sinopec, CPC, JERA, KOGAS and Tokyo Gas, which account for half of global volume, could see their total un-contracted demand rising fourfold by 2030, providing opportunity for savvy producers, a new WoodMac research has found.

The four-decade old global research and consultancy firm found that after a number of quiet years, these Northeast Asian players have become active again in global LNG contracting activity, with over 16mmtpa of contracts announced this year, pushing forecast for un-contracted demand volume to 80 million tons per annum (mmtpa) by 2030.
“As China pushes on towards a lower-emission economy, its demand for gas and LNG has grown significantly and we expect the trend to continue in the longer term,” said Nicholas Browne, research director.
“Other traditional major buyers, on the other hand, are facing legacy contract expiries and will be on the hunt for a mix of contracts to lower average costs and security in supply sources,” he said.

But huge demand does not immediately translate into value for Nigeria until it makes the required investments. In July, Nigeria took concrete action development of NLNG Train 7, with the signing of front-end engineering and design contracts with Saipem SpA, TechnipFMC Plc and Chiyoda Corp. A final investment decision was expected later in the year but BusinessDay checks show no announcement is in the offing.
Two other LNG projects in Nigeria: Olokola LNG and Brass LNG have been unable to reach final decision. The Olokola LNG project was stalled because all the international oil companies (BG, Shell and Chevron) withdrew from the project, with only the Nigerian National Petroleum Corporation (NNPC) left.
The Brass LNG project, which was designed to produce 10 million metric tonnes per annum, was to be built by the NNPC, Total, ConocoPhillips and Eni Group. But ConocoPhillips withdrew from the project in 2013 and it has stalled since then.
Of these projects the LNG Train 7 looks the most likely to reach FID and could have the most impact. On completion, it will lift total production capacity of the plant to 30 metric tonnes per annum (mtpa) from the present 22 million tonnes per annum, capacity from six NLNG trains and help Nigeria retain its spot as 4th largest LNG exporter in the world.
Last year, Nigeria supplied the world with 7 percent of the super-chilled fuel but it is struggling to retain its market share in Asia. It is also struggling to retain markets in 24 countries it supplied LNG in 2017, a prospects that increasingly looks bleak with difficulties it has had re-marketing its expiring contracts.

Meanwhile, Wood Mackenzie predicts that 2019 could be a record year for LNG project sanctions with over 220mmtpa of gas targeting final investment decision (FID). Some of the less prepared or competitive projects will slip into 2020 and beyond, but nonetheless a bumper year beckons.
The research firm said LNG suppliers will need to ensure they can meet the changing needs of major LNG buyers as they seek a variety of contracts to meet their different needs.
In addition to price, factors such as contract flexibility, index, source diversification, upstream participation and seasonality will all be considerations, it said.

“Market liberalisation and uncertainty on longer-term demand in more mature markets, such as Japan, South Korea and Taiwan, will mean more room for spot and short-term purchases,” Browne said.
“While oil indexation will continue to dominate markets due to familiarity and ability to hedge, Asian buyers should be more inclined towards hub indexation to boost diversity and enable sales into Europe.”
Browne said: “Looking forward, 2019 will be the biggest year ever, in terms of LNG capacity sanctioned, for liquefaction project FIDs. Asia’s major buyers will be at the forefront in ensuring this next generation of LNG supply is brought to market.”