Nigeria’s revenue share from Nigeria Liquefied Natural Gas (NLNG) Limited has plummeted by 43 percent due to persistent gas supply challenges, leaving several industry experts increasingly worried about the mounting headwinds plaguing the country’s economic lifeblood: the oil and gas sector.
The Nigeria LNG Limited (NLNG), owned by the Federal Government of Nigeria and three international oil companies, has seen its output decline owing to gas supply constraints, which also pose a threat to its expansion plan.
Data sourced from Nigeria’s budget performance showed the federal government’s actual revenue from its NLNG’s share stood at N46.2 billion in 2023, a 43.5 percent decline from a proposed target of N81.79 billion.
“Nigeria’s deep water lacks a fiscal framework for associated and non-associated gas, especially the one under production sharing contracts,” said Kelvin Emmanuel, CEO of Dairy Hills.
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He explained that IOCs like Exxon and Chevron that are not in the NLNG Joint Venture lack incentives to invest in developing wells for gas, or assets that will involve them giving the entire gas feedstock to the government without clarity on sharing formula, carried costs and interest, as well as pricing models.
“NLNG currently has a 1 trillion cubic feet (tcf) in annual deficits and needs another 1tcf when Train-7 comes into force. The government through the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Federal Inland Revenue Service (FIRS) needs to urgently develop a fiscal framework to drive in investments into especially non-associated gas wells,” he noted.
NLNG, in June 2024, confirmed that its ongoing $4.3 billion Train-7 project had reached 67 percent completion, and employed over 9,000 Nigerians.
The multi-billion-dollar NLNG Train-7 project is an expansion under construction at the 22.5 million tonnes per annum (mtpa) NLNG Terminal in Bonny Island, Rivers State. The project aims to increase capacity by an additional 7.6 mpta of LNG by building a seventh train of 4.2 mtpa capacity and debottlenecking the existing trains.
But despite the substantial progress made in constructing Train-7, concerns remain over the future feedstock.
Emmanuel said, “Domestic gas delivery obligation market under Section 108 of PIA is stunted because pricing provides little incentives to commercialise gas delivery.
“If these issues are not addressed, the minister of power will not be able to perform any magic with electricity supply-— because 19 of 24 plants connected to the national grid are thermal plants,” he added.
Ayodele Oni, energy partner at Bloomfield Law Practice, said that one of the problems affecting Nigeria’s gas revenue is the shortage in production led by poor infrastructure.
He advised the government to improve security mechanisms by utilising innovative technology to protect gas infrastructure.
“It is also important to improve and implement gas utilisation, exportation and consumption policies, while enforcing the deterrence of gas flaring and encouraging gas commercialisation.
“The government should encourage the development of gas-based industries to improve gas utilisation. Efforts should also be made to eliminate corruption in the sector while implementing mechanisms to increase investments,” Oni added.
For Jide Pratt, country manager of TradeGrid, less drilling leads to less output, which means that Nigeria will have less gas for exportation.
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“Commercial pricing is still an issue with gas as well in the country. Nigeria needs investment to upscale production, exportation that’ll trickle down to revenue surge for the country,” Pratt said.
Feedgas to the NLNG plants comes mainly from some of its joint venture partners, including Shell Petroleum Development Company Limited, TotalEnergies and Nigerian Agip Oil Company.
Philip Mshelbila, managing director of NLNG, had previously expressed concerns over the delay in initiating deep-water gas projects that are intended to supply feed gas for Train-7 and future expansions.
“This delay means the facility could be completed without a gas source for liquefaction,” Mshelbila said during an engagement session with the Nigerian Content Development and Monitoring Board last year.
Mshelbila said NLNG was facing difficulties in getting adequate gas supply, resulting in its six plants –Trains 1 to 6 – producing below 50 percent of their total installed capacity.
According to Mshelbila, NLNG is 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.
To boost the performance of Trains 1 to 6, Mshelbila said the board of directors of the NLNG approved the company to procure gas from other international and indigenous gas producers.
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