Ukraine war: NLNG can’t compete for new market space

Sopuruchi Onwuka

The new redirection of energy supply flows has become the real prize of the raging war following the barrage of diplomatic and trade sanctions countries in the Western military and economic alliances slammed on Russia in response it its invasion of Ukraine.

In reaction to the worsening trade disputes between Russia and industrialized western nations that account for significant portion of the global energy market, world energy powerhouses are stretching their plant capacities to fill supply gaps in Europe while key Asian  consumers find cost relief Russian rogue exports.

Unfortunately, Nigeria’s sole trans-continental gas exporter, the Nigeria Liquefied Natural Gas (NLNG) Limited, is limited by plant capacity to participate in the emerging supply order. The company’s existing 22 million tons per annum plant and emerging 8.0 million tons per annum plant are already committed to sales and purchase agreements (SPAs). However, spot market opportunities are open to the company.

Although the NLNG remains in the list of global LNG supply factors, it does not appear to stand strong in the prevailing scramble for new market niches as Russia concedes its huge European market and recedes into the status of rogue exporter.

The race for new space in the market place is currently among Australia, Qatar and the United States.

Australia currently has the biggest nameplate LNG production capacity in the world, at a total 88 million metric tons annually, posting a 12 months LNG export income of $23 billion last June. It topped Qatar as the world’s largest liquefied natural gas exporter in 2020, shipping some record high 78 million tons of the product abroad.

With focus on industrialized Asia where demand is projected to jump by 500 percent by 2050, Australian Resources and Water Minister Keith Pitt said, the country is working to capture seven Asian markets, including Indonesia, Bangladesh, and Vietnam.

Pitt said the country would also continue to supply key markets in China, Japan, and South Korea.  

Qatar is working on plans to reclaim its market leadership with projects conceived to boost liquefaction capacity from 77 million to 110 million metric tons annually.

The United States currently leads exports to Europe to bridge supply gaps created by trade disputes between the European Union and Russia. It has plans to boost its export to 107 million metric tons annually.

According to Rystad Energy, plant capacity for 36 million tons is currently under development.

Meanwhile there are prevailing efforts by global market players and governments to rebalance the market as forces of demand and supply alter.

The cumulative western indignation at Russia’s invasion of Ukraine activated trade sanctions that have thus redefined the traditional flow-chart for global energy supply, threatening to sequestrate most industrialized European economies from oil supply chain and established gas supply conduits that secure a solid market niche for Russia.

Whereas Europe is leaning harder on the US as the EU tries to wean off from Russian supply in light of its invasion of Ukraine, steep sanctions from the west have forced Russia to seek alternative buyers.

To save face and keep resource revenue inflow, Russia has slashed the price of its benchmark crude oil and gone rogue with its export destinations as buyers evade indignation of western government to avert adverse trade and diplomatic reactions.

Most Russian oil exports currently change routes on the high seas as importers, traders and shippers try to evade vicarious penalties from western countries.

However, some Asian consumers including China and India have openly take opportunity in subscribing Russian oil imports in consideration of the steep discounts in order to mass up cheap oil volumes at a time of comparative strong prices in the tight global markets.

The Oracle Today reports that after hesitant extension of European Union’s trade sanctions to Russia’s energy exports, the 27 nation block decided to add partial boycott of Russian oil with an outlook to also forgo Russian gas in the near future. The sanctions also threaten some European countries with higher energy cost and inflationary jumps.

Russia has also in retaliatory defiance demanded its European customers to pay for its energy supplies in Russian domestic currency, roubles, instead of the American dollar which is globally accepted as international legal tender. Russia which has avoided breaching supply agreements with European customers also refused accepting oil and gas payments in the Euro.

The government of President Vladimir Putin’s Russia has recently started disconnecting some defaulting European countries from its gas supply systems, sending them on international supply exploration to bridge energy gaps and keep their economies running.

The Oracle Today reports that as the Western nations spar with Russia over Ukraine, other players in the international energy market are taking new positions to capture benefits falling from the shakeup in supply movement.

Some nations of Europe which have been traditionally dependent on cheap pipeline gas from Russia are now shopping new supply agreements from other countries with huge liquefaction capacity: Qatar, Saudi Arabia, Australia and the United States.

Nigeria’s 22.3 million tons per annum (mtpa) Bonny plant is committed to supply agreements, and even its 8.0 mtpa plant development project is already tied to supply agreements.

Sources in Nigeria Liquefied Natural Gas (NLNG) Limited told our correspondents that the only opportunity open to the country resides in renegotiation of old agreements whose tenures are coming to an end. He added however that the bulk of the company’s supplies are already tied to Europe.

The NLNG source was responding to the company’s role in the appeal by European diplomats who visited the Nigerian National Petroleum Company (NNPC) Limited to demand greater energy ties in the face of souring relationship with Russia.   

The NNPC holds exclusive European companies as operating partners in the NLNG; and it is strongly inferred that the European diplomats in Nigeria were asking to secure exclusive supply of Nigeria’s LNG exports.

In the Middle East, the EU diplomats are also in discussion with the governments of Qatar and Saudi Arabia for enhanced supply of LNG from the region which holds significant existing and new liquefaction capacity.

In the United States, diplomats were in discussion with players last week to boost already rising American LNG supply to the region, as trade disputes with Russia over Ukraine invasion continue to aggravate.

Economic counselor in the Embassy of the Republic of Latvia to the United States, Gints Zadraks, led a delegation of diplomats from Baltic states whose energy and natural gas supply has been heavily impacted by Russia’s invasion of Ukraine.

Zadraks hinted during discussions with the American LNG Association that the prevailing break in energy trade with Russia has a long term outlook, inferring strongly that the European countries are not thinking of post war reconnection to Russian supply lines.

“For all of us, there’s no question of ever going back to Russian gas,” Zadraks is quoted in a report by EQT, a company that hosted the diplomatic delegation to production site visit.

Latvia which draws 99% of its natural gas supply from Russian pipelines, along with Lithuania, Estonia and Finland, has been shut off from their traditional Russian gas supply and are looking to find new sources of gas.

Zadraks said about a third of Latvia’s electricity came from natural gas along with other uses, and the Baltic States are looking for ways to supplant the shortfall.

The options on the table of the Baltic States, Zadraks said are LNG imports in the immediate to short term, and total switch from fossil energy in the medium to long term.

The Oracle Today reports that the immediate solution to trade disputes with Russia calls for LNG reception and regas infrastructure. And the background of reliance on Russian pipeline gas means that some of the European countries do not have large-scale infrastructure for LNG imports.

Western economic allies in Asia including Thailand, Singapore, Japan, Taiwan and Hong Kong are also seeking energy security outside the sanctioned Russian oil and gas.

Minister Counselor at the Royal Thai Embassy to the United States in Washington, D.C., Chuliepote Isarankura Na Ayudhaya, said energy and energy security are prime concerns to Thailand and the rest of Asia.

 “I think energy security is that way for everyone in the world,” she said. “We are exploring every option.”

President and CEO of LNG Allies also called The US LNG Association, Fred H. Hutchison, said that the war in Ukraine and the supply shocks have brought renewed attention on the benefits and opportunities of LNG.

Nearly three-quarters of all US liquefied natural gas has gone to form nearly half of Europe’s liquefied natural gas imports this year as the region moves away from Russian supply. The new shipments triple the total amount of LNG exported to the EU in 2021.

Energy supply crunch in Europe has since provided the US a large incentive to take of advantage of bigger profit margins. The US has increased its overall output of liquefied natural gas in 2022, with production up 18% compared to 2021.

The Oracle Today reports that whereas the U.S. has grown by leaps and bounds its capacity to produce and export LNG, the country is rapidly coming to the end of its ability to scale up immediate LNG export in the face of skyrocketing potential demand with the Russian invasion of Ukraine.

`The tight global LNG market as European countries scramble to cut their reliance on Russian gas has also caused palpable disruption that has shaken Australia, the world’s top LNG exporter.

While Australia whose primary energy consumption is majorly gas maintains a very strong export position, it has been challenged from several fronts: cold snap and associated heating demand, outages at coal-fired power plants, and a tight global LNG market as European countries scramble to cut their reliance on Russian gas.

Australia’s energy minister declared in the face of the ongoing demand surge in the LNG market that the country temporarily formed the reference point for superfluous fossil fuel investment now faces “perfect storm” of factors.

Analysts posit that Australia has allowed large global energy companies to export much of the country’s gas.  The result is that nearly 75% of Australia’s gas production is exported, and more lucre pressure is mounting on the market from Europe where trade disputes with Russian has sparked energy supply crisis.

Meanwhile defiant administration of Vladimir Putin is still pushing oil and gas exports to countries that are still willing to transact with his increasingly alienated country.

China, India and some other countries are currently mopping up Russian oil exports which are offered at massive discounts. Both countries have declared that they are merely taking price advantage.

Russia does not have massive LNG capacity. Thus, its gas supplies are mainly stuck with the enemy market, and transactions are constrained by international financial systems from which Russia has been isolated.

Russia’s request to be paid for its commodities in its local currency is perceived by most countries as violation of international sanctions. Instead, key Western economies explore new sources of supply event a greater cost.