The NLNG, owned by the federal government of Nigeria (FGN)
and three international oil companies, saw its revenue increase by more than a
third in 2022 to $7.59 billion, the highest since 2014.
The dividend paid to the state-owned NNPC jumped by 52
percent to $1.10 billion from $722.44 million in 2021, according to the NLNG’s
latest Facts and Figures report. The last time the national oil company was
paid more than that amount was in 2014, when it received $1.39 billion.
The NLNG currently has over 70 spot liquefied natural gas
(LNG) master sale agreements with various counterparties across major LNG
markets and emerging demand centres to “enable the prompt sale and optimisation
of production volumes”, it said.
“Given the constantly evolving and volatile nature of the
energy market, exemplified by the demand destruction during the Covid pandemic
and then the spike in European LNG demand/global gas prices due to the ongoing
Russia-Ukraine war, the ability to remain a consistent and reliable supplier to
our buyers will continue to be a key success factor going forward,” it said.
Output decline threatens record revenue
The company has seen its output decline owing to gas supply
constraints, which triggered a force majeure that has remained in place for
over a year and threaten to drive down its revenue this year.
The NLNG had on October 17, 2022 declared a force majeure on
product supplies from its production facilities on Bonny Island, following the
declaration of force majeure by all its upstream gas suppliers. It said the
notice by the gas suppliers was a result of high flood water levels in their
operational areas, leading to a shut-in of gas production that caused a
significant disruption of gas supply.
Ayodele Oni, an energy law expert and partner at Bloomfield
Law Practice, pointed out that the declaration of a force majeure event by the
NLNG implies that it would not be able to perform its gas delivery obligations
(completely or partially) to the parties it has LNG sale and purchase
agreements with.
He said this would mean the suspension of its performance
obligations as well as financial benefits under such agreements.
“If the NLNG’s financial benefits are suspended, it means
the revenue (or a part of) that should ordinarily accrue for the period of time
when the force majeure event subsists would not be received,” he said in
response to questions from BusinessDay. “This no doubt has a negative impact on
NLNG’s financial projections, and by implication, the NNPC/FGN’s expected
revenue (especially in the form of dividends) from the NLNG.”
Oni said the declaration of force majeure for a long period
of time could give the counterparties who are supposed to take gas from the
NLNG the right to terminate the agreement with the company and even
disincentivise such counterparties and other third parties from entering into
similar gas delivery arrangements with it.
“During this peculiar time, when the FGN is pressed to make
decisions that affect the Nigerian economy, this even makes the task more
difficult for the FGN, as it means less foreign exchange and revenues,
generally,” he added.
Last year, Nigeria’s LNG exports totalled some 14.7 million
metric tonnes, according to data from S&P Global Commodity Insights, and so
far this year have reached 12.5 million mt, according to a November 8 report by
S&P Global Platts.
With six trains currently operational, the NLNG has a
capacity to produce 22 million tonnes per annum (mtpa) of LNG, and 5 mtpa of
natural gas liquids from an intake of 3.5 billion standard cubic feet of gas
per day.
“The building of Train 7, which will lift the total
production capacity to 30 mtpa of LNG, is currently progressing,” the company
said.
The final investment decision for Train 7 was taken in
December 2019 after being delayed for over a decade, while the signing of
engineering, procurement, and construction contracts with SCD (Saipem, Chiyoda,
and Daewoo) JV Consortium was completed in May 2020. The ground-breaking for
the project was done on June 15, 2021.
The Nigerian Content Development and Monitoring Board, in a
statement on November 7 after an engagement session with the management of
NLNG, said the ongoing construction of the $5 billion Train-7 project had
reached 52 percent.
Philip Mshelbila, managing director of NLNG, was quoted as
saying that the output from the six-train plant had fallen below 50 percent of
its nameplate capacity due to gas supply shortage.
According to him, feedgas to the NLNG plants comes mainly
from some its joint ventures (JV) partners, including Shell Petroleum
Development Company Limited, TotalEnergies and Nigerian Agip Oil Company, but
their supply pipelines suffer recurrent vandalism, coupled with facility
failure and low production from aging wells, resulting in serious disruption of
supplies.
The company said it was 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.
Mshelbila said the company’s board had also approved the
procurement of gas from other international and indigenous gas producers in the
country, with the goal of enhancing the performance of Trains 1-6.
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