Harsh operating environment: How would NLNG reach Train-12?

• Vandals disable plant expansion ambitions

Sopuruchi Onwuka

Despite the laudable plans by the government to develop secure market for Nigeria’s huge natural gas resources; its failure to address huge investment and operational challenges in the domestic environment has continued to drain the results.

And with no visible active programmes running to address difficult issues inflicting production losses, stoking fiscal disputes and aggravating security crises in the operating environment; huge investment outlays in industry infrastructure, processing facilities and resource aggregation might continue to suffer sub-optimization and deliver disappointing market returns.

The Nigeria Liquefied Natural Gas (NLNG) Limited, West African Gas Pipeline Company (WAGPCO) and similar investments in gas harnessing and processing form a bunch of well conceptualized resource valorisation ventures that currently suffer debilitating impacts of uncongenial operating environment.

The case of the NLNG is outstanding in a number of ways. It is the second largest income earner to the country outside the NNPC Limited.  It also earns one of the biggest foreign exchange incomes for the country, and pays the biggest accountable taxes in the continent to the country from its operations.

The NLNG ranks first among all companies in the country on transparency of operations and industry best practices. It has the biggest annual budget for corporate social responsibility. And it has taken some of the biggest and audacious community development projects in the country.

The NLNG held the promise of being Africa’s largest and fastest expanding enterprise that flies Nigeria’s flag across international sea routes to connect the country’s natural gas resources from local oilfield flare booms through processing plants to farthest markets in the world. It takes responsibility for displacing dirty fuels and associated health issues from Nigerian homes by supplying over 40 percent of total clean cooking fuel in the domestic market.

The company which is run entirely by Nigerian management team remains the symbol of national industry competency. And it stands tall with the reputation.

It would have been a surprise to many who followed the visit of the new gas minister, Rt. Hon. Ekperikpe Ekpo, to the NLNG plant on Bonny Island, Rivers State, where he was told that the company is currently staggering under the weight of local operating burdens.

Managing Director and Chief Executive Officer of Nigeria LNG Limited (NLNG), Dr. Philip Mshelbila, told the bewildered minister that Nigeria would likely lose its position in international ranking of gas suppliers following fierce competition among producing countries for bigger market share.

He explained that changing global energy choices in the face of the growing clamour for carbon emission reduction, and the trade disputes that shut out Russian gas to Europe, have led to significant proliferation of gas liquefaction projects across the globe as resource rich countries position for lion shares in the burgeoning global market.

The Oracle Today reports that countries like Qatar, Australia and the United State are currently shaking the tables in the global gas supply competition, with the American giant making the fastest and steepest leap in supply capacity.

According to global LNG market data for 2022 released by CEDIGAZ, Africa’s biggest suppliers led by Nigeria and Algeria were laggards in a market that went bullish as the diplomatic outcomes of the Russian invasion of Ukraine caused a reset in the market; cutting Russian pipeline gas feed to industrialized Europe, and also cutting LNG flow to China.

According to market report from CEDIGAZ, LNG exports from Algeria and Nigeria decreased by a combined 0.5 billion cubic feet per day (Bcf/d) as both countries continued to experience issues with domestic natural gas production for feedstock at LNG export facilities.

The United States became the world’s top LNG exporter for the first time in the first half of 2022 after the new Calcasieu Pass LNG export facility was commissioned, according to the report.  

However, the US slid to its earlier third place after its Freeport LNG export terminal shut down in the second half of the year, yielding the first and second positions in the global supply chart to Qatar and Australia respectively. Qatar’s exports averaged 10.5 Bcf/d, and Australia’s exports averaged 10.4 Bcf/d.

CEDIGAZ stated that six countries: Malaysia, Norway, Trinidad and Tobago, Russia, Oman, and Equatorial Guinea increased LNG exports in the year by a combined 1.3 Bcf/d.

A parallel LNG production capacity chart viewed by The Oracle Today also showed that Nigeria slid backwards in actual output in 2022, an inverse movement that negates the country’s longstanding pledge to rapidly boost capacity and match global peers.

The data which showed annual LNG export from producing countries captured the vandalism induced sub-optimization in Nigeria, with volumes of export falling from 2.5 Bcf/d to about 1.9 Bcf/d.

The United States remains outstanding in the chart with phenomenal capacity growth from about 2.0 Bcf/d in 2018 to 10.2 Bcf/d in 2022.

Russia maintains its middle position with about 4.0 Bcf/d, Malaysia grew to some 3.9 Bcf/d, and Indonesia grew from about 1.9 Bcf/d to some 2.3 Bcf/d. Oman and Algera stagnated at about 1.8 Bcf/d and the rest of the exporters jointly held some 7.0 Bcf/d.

Nigeria’s total liquefaction and export capacity is held by the Nigeria Liquefied Natural Gas (NLNG) Limited which secures guaranteed feedstock from its shareholders: Nigerian National Petroleum Company (NNPC) Limited, Shell, Total and Eni.

The company currently sources additional feedstock from some indigenous companies as the three international oil majors scale down and divest operated assets in Nigeria’s conventional play.

Some of the remaining and divested assets are however currently troubled by sabotage and pipeline outages that translate to inadequate supply to the NLNG processing plants at Bonny Island where the company is also dedicatedly expanding its plant capacity despite glaring challenges.

The ongoing NLNG-7 project is expected boost the company’s liquefaction capacity by some 8.0 metric tons per annum (mtpa) from current 24 mtpa to 30.0 mtpa.

Dr Phillip Mshelbila has severally called on government to address the issues in the operating environment to attract new global investable funds into the Nigerian petroleum industry from where major international oil companies currently seek to exit.

He said Nigeria has remained the slowest market supply laggard in the global LNG market as policy unpredictability, fiscal inconsistency, contract incredulity and local security volatility continue to shake investor confidence.

 Among three LNG projects initiated in Nigeria including the Brass LNG, Olokola LNG and the NLNG; only the Bonny processing project has survived, thrived but grew at very slow pace.

Peer players and countries like Qatar and Australia where the society, policies and fiscal regimes are stable are way ahead of Nigeria; industry statistics earlier reported have shown.

“Considering these dynamic changes, our position in the rankings is likely to shift rapidly, as other countries make substantial investments in LNG production,” Dr Mashelbila told the new gas minister at the company’s site in Bonny.

He stated that criminal attacks on industry facilities have cripples feedgas supply to the company, cutting available production capacity to nearly half and raising concerns about the commercial viability of investments in plant expansion.

It would be recalled that former President Muhammadu Buhari had dismantled policy barriers installed by former oil minister, the Late Rilwanu Lukman, against gas export projects. The domestic gas prioritization policy of the Late Dr Lukman had killed the OLokola LNG and Brass LNG projects and also stalled growth of the NLNG.

Former President Buhari’s intervention allows simultaneous domestic and export gas projects to flow in the country. He vacated the policy directives and approved speedy development of NLNG up to Train 12. But the policy correction came quite late.

Former Managing Director of NLNG, Mr Tony Attah, had in a chat with The Oracle Today declared that “Train 7 is no longer ambitious. What we should be doing to sound anything near ambitious is to start talking about Trains 8, 9 and 10. And that, for us, is an aspiration too. It is an aspiration we want to carry forward to a new ambition. But first of all we must land Train 7. If we land Train 7, that would be déjà vu for me.”

In pointing at the need to contain disruption of upstream petroleum industry operations in the country,  Mr Attah said: “We have a line of steady gas supply from the upstream petroleum industry, but the more the merrier because we see the opportunity for supply reliability and flexibility if all the produced gas is captured for commercialization.”

He said steady and predictable feedgas supply would enable the company create redundancies that eliminate downtimes associated with interruptions in gas supply.

“We take 3.5 billion standard cubic feet (Bcf) of gas every day.  So, we can do with more gas. On the back of Train 7 we can take another 2.0 Bcf; and as we cross the ambition of Trains 8, 9, 10, more gas, more gas and more gas,” Mr Attah had told The Oracle Today in an exclusive interview.

But the present Managing Director can no longer boast of guaranteed gas supply NLNG to the process plants. In fact, the company struggles to keep its plants running at technically permissible capacity ratio due to acute feedgas cuts.

Dr Mshelbila told Rt. Hon. Ekperikpe Ekpo that the impact of crude oil theft on gas supply pipelines has forced the company to run at about half of available capacity, and also shaken the aspiration for the Train-8 project even after the feasibility study has been completed.

“Today, the biggest challenge we have, one that poses a threat not only to our existing operations but also to our expansion plans, is feed gas supply. Trains 1 to 6 currently operate at roughly half their potential capacity, a situation that has persisted for some time.

“The main issue behind the challenge is crude oil theft which affects associated gas supply. The plant is half-full, not because we don’t have the capacity but because the feed gas is not there. We have aspiration for Train 8 but we cannot progress that work because we have no line of sight as to where that gas will come from.”

He also pointed at policy and fiscal issues that currently hold back the company’s shareholders from initiating new deepwater field development projects and provide new sources of feedgas for the plant.  He told the minister that the Production Sharing Contracts (PSCs) that govern deep-water exploration do not offer commercially viable terms for gas producers.

“We believe that the gas can only come from deepwater but the terms for that must be addressed. At present, the Production Sharing Contracts (PSCs) that govern deep-water exploration do not offer commercially viable terms for gas producers,” he pointed out.

Before now, the NLNG had battled with multiple regulators including those in the maritime sector over violation of incentives guaranteed its shareholders for investments in building the gas liquefaction business in Nigeria.

Mr Attah had told The Oracle Today that “sanctity of contracts is crucial.”

“When you talk of fiscal regimes, people would like to know the impact on investments. People will have to know if you sign contracts today, government will respect it going forward even if things change: new fiscals and stuff like that.

“So, overall you would expect stability in your fiscal environment which is really the basis for investment. So, fiscal stability is crucial,” he explained.

Mr Attah had blamed violation of long term business agreements and contracts in Nigeria, fiscal regimes that deter flow of investments in exploration and production, and policy inconsistency for Nigeria’s slack in the tight global LNG market scramble.

“In the inside, we have done our reserves to LNG capacity ratio analysis and we just feel that Nigeria has not even started anything. We rate Australia as holding the world’s biggest LNG capacity but they don’t have up to the 200 trillion cubic feet of gas reserves that we have, but they have production capacity for 89 million tons of LNG per annum. Actually they have about 150 Tcf but produce that much. We have 200 Tcf and we have 22 mtpa. 

“So, you can see there is huge opportunity space that needs to be tapped; and a lot of it comes to the politics around gas and what to do to enable gas development. And that is why they say that it is not about what you have got but what you do with it,” Mr Attah had lamented.

At the recent visit of the minister, Dr. Mshelbila stressed the need for government to relieve the industry of the challenges plaguing the energy sector, stating the operating challenges in the environment constitute huge threat to the country’s economic aspirations for the industry.