Nigeria’s decade of gas: Examining the failure to harness LNG

I am not sure what has re-ignited the zeal of the government to bring back the Brass LNG project that was abandoned in 2006, and which, at full capacity utilisation, was supposed to produce an output of 10 million tonnes per annum from 1.6 billion standard cubic feet of gas feedstock daily. However, I am shocked that the Nigerian Government lacks any sense of self-awareness.

This is especially considering that, currently as we speak:

• The government is unable to deliver the 3.5 billion standard cubic feet of gas NLNG needs on a daily basis.
• There’s a 65 percent capacity utilisation that will become 44 percent when Train 7 takes off in 2025, as the installed capacity rises from 22 million tonnes per annum (mta) to 30 mta (this will extend the force majeure Nigeria has been under since October 2022).
• Going to the International GasTech Conference in Houston, Texas to announce the decision to revive the Brass LNG to an audience from Europe, which was frantically searching for LNG from Nigeria in 2022 after the oil and gas embargo on Russia stopped supplies from the Yamal Pipeline and led to the destruction of Nord Stream II, or to an American audience aggressively ramping up efforts to capture the global LNG market in a race with Russia and Qatar, is quite frankly amusing.
• The government’s failure to provide a fiscal framework for deepwater fields that fall under the production-sharing contract model has limited institutional-level investments from International Oil Companies (IOCs) interested in participating in the global ramp-up of gas as a transition fuel. This is especially concerning since American IOCs like Chevron and ExxonMobil, which do not fall under the NLNG framework, have shown interest in such opportunities for natural methane gas to LNG, ethane, propane, and butane.

As the government wakes up from its slumber and finally joins the global race to turn Nigeria into a gas nation that aligns with the communique of the G-7, which has designated gas as a transition fuel, it is important for the Nigerian Government to reconstitute the heads of agreement that were signed in 2003. Given that ConocoPhillips has exited Nigeria, and Eni’s onshore business has new owners, it might be time to bring ExxonMobil and Chevron into the Brass LNG shareholding structure as a tool to incentivize them to invest in non-associated gas wells in deepwater.

The grade of crude oil produced in America, with an API degree of less than 30°, typically means that when the gas is refined, it produces more butane than propane, which doesn’t work best for the melting and boiling points of temperate countries. This validates the need for increased shipments of propane from gas separation and processing companies in regions where the crude grade is lighter.

The Nigerian Government, realising that revenues from government-owned enterprises are key to balancing perennial budget deficits, which have seen the debt-to-GDP ratio rise to 52 percent, and the impact of using debt—both from issued bonds and through the apex bank using overdrafts and the Cash Reserve Ratio (CRR)—is what has led to the trilemma of weak exchange rates, hyperinflation, and high interest rates. We need to pivot to critical debates on the question of ‘carry’ and the financial models operated by NNPC.

How will NNPC raise its share of $12 billion to finance the 10 million tonnes per annum CAPEX for the Brass LNG?

• Will it structure a modified carry agreement that will see it negotiate for the financialization of future dividends as repayment?
• Will it entice the JV partners to finance the ‘carry’ by offering a ‘carry tax relief’ as pioneer status for a number of years?
• Will it offer to sign a Gas Supply Purchase Agreement (GSPA) with Brass LNG as a tool to validate the final investment decision and use this structure to pay down on its share of FID for CAPEX?

While these are valid and industry-tested financial models for financing projects, it’s important to realise that pivoting NNPC into a full market entity without the encumbrances required to structure project financing for such JV contributions to massive capital projects is critical to producing value for its shareholders—who, in this case, are the Nigerian Federation.

It is my hope that as the government marshals out its team to structure financial models, it focuses on the best long-term solutions, not the most expedient, or the options driven by vested interests, but the solutions that, while not immediately convenient, have the longest-term returns for the people. The problem has never been an unwillingness from the private sector to invest; the challenge has always been the lack of commitment by the government to put its own skin in the game.

Kelvin Ayebaefie Emmanuel is an Economist.