$4bn LNG Train 7 worries analysts amid global projects

• Plus US growing influence in global LNG market
• Meridus‭, ‬Ulica shale basin’s 214trn gas reserves

The excitement and jubilations in government circles amid expectations of huge economic impact from Nigeria Liquefied Natural Gas (NLNG) Train-7 project, following the signing of the engineering, procurement and construction (EPC) contracts should be moderated, economists at the Institute of Chartered Economists of Nigeria (ICEN) have suggested.

They appear to be throwing a cautionary spanner in the works because they say they see headwinds ahead. The promoters of the project last week signed the EPC contracts with main contractors, Italy’s Saipem, Japan’s Chiyoda and South Korea’s Daewoo.

But in a note to business a.m. enquiries, ICEN experts said Nigeria’s 22 million metric tonnes per annum LNG constitutes an insignificant part of an estimated ongoing LNG liquefaction (LQ) projects of 456 million tonnes per year (mt/y) around the world, noting that the outcome of this might just be a sharp drop in the demand for Nigeria LNG, thereby affecting the expected revenue projection from the project.

“The current global liquefaction (LQ) capacity is estimated at 456 mt/y, compared to regasification capacity of about 22.9mt/y and underutilized capacities in countries like Egypt, Israel, Japan, and Mexico. With this, the global LQ capacity of LNG would cause a product supply surge, which might overwhelm the demand curve. This is a bad sign for Nigeria,” Friday Udoh, a gas value-chain expert and the lead economist of the south-south zone of ICEN, explained to business a.m. of the think tank’s projections.

Udoh said Nigeria’s 30-mtpa LNG would certainly be competing with a surfeit of LNG development projects around the world. “These LQ projects would exert serious limitations on the global LNG market, and could affect the original positive net present value and investment forecast of Nigeria LNG,” he added.

ICEN’s expert calculations are that there are uncertainties around the expected economic success of the LNG train 7, going by the vast number of competing LNG projects currently being developed around the world.

Some of these are: Tanzania LNG, pushed for commencement in 2028; the Kitima LNG, Abadi LNG in Indonesia, slated for production in 2026; Ruvuna LNG in Mozambique, with production slated for 2024; and the new Russian 13-mt/y LNG, with commencement of sales to Asia set for 2025.

The ICEN economists said, perhaps, the greatest competition to Nigeria’s incoming LNG Train-7 is the astrometric increase and growing influence of the US in the global LNG market. A recent statement credited to the US Department of Interior said that the Meridus and Ulica shale basins hold an estimated 214 trillion feet of undiscovered and recoverable natural gas.

Added to this, is the impending EU climate change policy of stoppage in the use of all fossil fuel and combustion engine vehicles from 2025 and 2035. Although this is mainly targeted at gasoline, automotive gas oil (AGO) and the likes, but ICEN economists said they fear that with the coming of electric-driven vehicles and other road moving and industrial devices, natural gas might just be the next target in the ban.

The Nigeria LNG Train 7 project has investment worth $4 billion, with Saipem of Italy picking up $2.7 billion equity in the business. It is expected to increase the capacity of Nigeria’s LNG current six-train plant by 35 percent from the extant 22 million tonnes per annum (mtpa) to 30 mtpa. The construction period is expected to last approximately five years, with first LNG rundown expected in 2025.

The execution of the EPC contracts now triggers the commencement of the detail design and construction phase of the project expected to increase the capacity of NLNG’s current six-train plant by 35% from the extant 22 million tonnes per annum (mtpa) to 30 mtpa.

Nigeria LNG is an incorporated joint venture owned by four shareholders: the federal government of Nigeria, represented by Nigerian National Petroleum Corporation (49%), Shell Gas B.V.  (25.6%), Total Gaz Electricité Holdings France (15%), and Eni International N.A. N.V. S.àr.l (10.4%).

President Muhammadu Buhari, speaking gleefully after the signing of the contract in Abuja last Wednesday, May 13, said it was quite a delightful experience on the unique business model adopted by the country’s foremost gas company. He called on stakeholders to make critical inputs into ensuring that the Train 7 project was delivered successfully.

The group managing director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, who is also a director on the NLNG board, said Nigeria LNG successes since it started operation in 1999 continue to prove that the company operates a unique business model that is profitable to all its stakeholders.  He said the NNPC and the other shareholders – Shell, Total and Eni – are proud to be a part of this exceptional Nigerian brand that stands out in the global market.

“It is for this reason that our President, Muhammadu Buhari instructed, through the Honourable Minister of State for Petroleum Resources that NNPC as a shareholder must do everything possible to support all the other shareholders and NLNG management to secure the much-needed public confidence from all critical stakeholders, especially the critical agencies of the Federal Government of Nigeria and international investors, to pursue the company’s ambition of adding a 7th train to its existing production capacity,” Kyari had said at the contract signing ceremony. He encouraged the SCD JV Consortium, NLNG Train 7 project team and the company’s management to make the project a reality.