Tension In Nigeria LNG Over Cancellation Of Cargoes

Tension In Nigeria LNG Over Cancellation Of Cargoes

THERE is tension in Nigeria Liquefied Natural Gas (NLNG) over deferrals, defaults and cancellation of cargoes despite increasing demand in the international market.

Over 20 LNG Cargoes are estimated to have been affected in the last six months.

It was projected that the number of the affected cargoes may rise to 50 by December.

Also, there are indications that the tension has been aggravated by the concession given to shareholders of International Oil Companies (IOCs) to the disadvantage of others.

The lopsidedness and delay in responding to market demands are making some customers to look elsewhere.

It was learnt that the recent trends may hinder Federal Government’s bid to increase the production capacity of LNG by 35 per cent with Train 7  – so as to increase revenue.

Investigation showed that gas supply targets have been impacted due to Eni AGIP’s 50 percent supply mark to the plant, which is considered poor when compared to Shell and Total’s positive supply mark off over 90 per cent in recent past months.

A source said: “The Nigerian LNG production capability is still at an impressive level of close to 90 per cent, which if managed properly, and concessions are made by IOCs shareholders lifters, could lead to an avoidance of performance reputational risk the Nigerian LNG is currently been plagued with in Global Markets. Independent third party Gas supply could also be a solution.

“In the last six months, over 20 LNG Cargoes have been affected, with an estimated increase to 50 cargoes by year end, traditional buyers such as Galp, Enel, Gas Naturgy have struggled.

“Deferral notices are sometimes made just weeks prior to Vessel arrival at Bonny Terminal. This practice, except for rare situation of force majeure, is very well below international acceptable standards.”

It was learnt that the situation in LNG was worrisome to the board of the NLNG, which is headed by a former Minister of Petroleum Resources, Chief Edmund Daukoru.

A market source said: “We continue to see abrupt deferrals, defaults and cancellation of cargoes especially when the market is highly profitable, it seems like a scramble between International Oil companies shareholder lifters and others”.

“This conflict is causing major supply disruptions and a very high level of operational inconsistencies, leading to unnecessary demurrage exposures and penalties.”

“If things continue in this perception and complexities set in, it won’t be surprising to see off takers demand for performance guarantees for future lifting’s”.

“This will be disastrous on Credit ratings and could impact on future financial syndication for LNG project expansion.”

The source also said, “Whilst the International Oil Company shareholder lifters have the capacity to take almost all of the LNG volumes produced, there has been a growing concern in Global Markets about conflicts, price fixing, insider trading and undue advantages.

“These IOCs’ shareholders derive better terms and flexibilities over others, supplying in the same market, which could lead to anti- trust and anti-competition litigations and petitions.

“Naturgy a Spanish Multinational natural Gas and electric company, had leveled allegations of discriminatory/antitrust practices in favour of NLNG IOC shareholders, during an arbitration process that was eventually settled.

The increase in Nigeria LNG production capacity is expected to rise from 22 million metric tons per annum to 30 million metric tons per annum.

The criticisms are coming at a time the price of LNG is soaring globally.

Prices in Europe have risen to some of the highest levels on record. In the UK for instance, prices have risen above 100p a therm, the highest since 2005.

In Europe, prices have hit €40 per megawatt hour for the first time.

A therm measures the amount of energy contained in natural gas and is sometimes used to calculate utility bills.

Also, the Global LNG market is currently at an all-time high with Gas prices soaring to record prices. Demand for the product has also been rising.

Royal Dutch Shell said in its annual LNG market outlook that demand for LNG was 360 million tons last year, up from 358 million tons in 2019.

This is despite the volatility caused by lockdowns due to the Covid-19 pandemic. Shell equally predicted that demand is expected to almost double to 700 million tons by 2040.

President Buhari last week signed the Petroleum Industry Bill (PIB) into law.

He had said during the Train 7 ground breaking event that the NLNG earned revenue of $114 billion over the years, paying $39 billion in taxes and $18 billion in dividends to the federal government.

Managing Director of Nigeria LNG, Tony Attah also said Train 7 will generate 12,000 jobs.

Attah, who is a Shell employee, will be leaving his position end this month.

He will be replaced by Philip Mshelbila, currently serving as CEO of Atlantic LNG, in Trinidad & Tobago

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