Act amendment: Nigeria’s LNG projects face fresh threat

Act amendment: Nigeria’s LNG projects face fresh threatA bill seeking to amend Nigeria Liquefied Natural Gas Act is seen by industry stakeholders as capable of shaking the nation’s biggest gas exporter and domestic cooking gas supplier to its foundations, ’FEMI ASU writes

Amid delay in reaching a final investment decision on Trains 7 and 8 projects proposed by the Nigeria LNG Limited, the passage of a bill for the amendment of the NLNG Act by the House of Representatives looks set to dim the prospects of the projects.

Other projects that have suffered delay in the FID are Olokola LNG and Brass LNG, with the exit of international oil companies such as Shell, Chevron and ConocoPhillips.

On Tuesday, the House of Representatives passed the bill seeking to amend the NLNG (Fiscal, Guarantees, Assurances, and Incentives) Act, subjecting the company to three per cent Niger Delta Development Commission levy.

The NLNG immediately reacted to the development in a statement, saying the amendment violated the assurances and guarantees granted the investors by the country, which paved the way for the huge international investment that enabled the company to become a reality and the success story.

The company is owned by four stakeholders, namely: Federal Government, represented by the Nigerian National Petroleum Corporation (49 per cent), Shell (25 per cent), Total LNG Nigeria Limited (15 per cent) and Eni (10.4 per cent).

The Vice-President/Head of Energy Research, Ecobank, Mr. Dolapo Oni, believes the NLNG remains the best way the country has monetised its gas reserves, saying it had at many times come to the rescue of the Federal Government in terms of provision of cash.

Nigeria is blessed with abundant reserves of associated and non-associated gas, estimated to be in excess of 180 trillion cubic feet.

Oni said, “I honestly think we’re making a big mistake with this amendment. This move to impose new costs and payments on the company’s cash flows will not only affect the bottom line but future investment prospects. Amending the agreement after the investments have been made is akin to changing the goal post during the match.

“You send a bad signal to the international investing community. The timing is also wrong – just as the shareholders are currently coordinating which gas projects will be involved in Trains 7 and 8. If they wish to impose the new levies on the future trains, then the investors have a clear line of sight on what incomes will be, not on existing investments.”

With six trains currently operational, the NLNG is capable of producing 22 metric million tonnes per annum of the LNG, and 5mtpa of natural gas liquids from 3.5 billion standard cubic feet per day of natural gas intake.

The company reiterated in its ‘Facts and Figures on NLNG 2017’ that plans for building Train 7 that would lift the total production capacity to 30mtpa were currently progressing with some preliminary early site preparation work initiated.

The NLNG added that further work awaited the FID by the stakeholders.

The Group Managing Director, NNPC, Dr. Maikanti Baru, had in March said the Federal Government would do everything to ensure the take-off of Bonny NLNG Train 7 and the Brass LNG in the months ahead, after which the Olokola LNG would come on board if the fundamentals were strong.

“The review of the NLNG Act by the National Assembly is causing a challenge for the Federal Government and the IOCs; and it is sending wrong signals to the international community about how business is done in the country,” he said.

In a statement read at a press conference on Wednesday in Lagos, the General Manager, External Relations, NLNG, Kudo Eresia-Eke, said, “We understand that this bill will be progressed to the Senate. We think that this is a huge error to pass into law as it is a direct collusion with the Federal Government’s drive to attract Foreign Direct Investment.

He described the company as the country’s biggest and most successful indigenous firm, run by 100 per cent Nigerian management and over 95 per cent Nigerian workers, yet competing effectively globally.

“It is today the country’s highest tax payer and the fourth largest supplier of the LNG in the whole world. The NLNG is a pride to Nigeria and the nation’s flagship corporation whose model is being considered for replication in various sectors of the economy. But the fact that the company is being targeted by this amendment while fellow gas purchasers and processors in other businesses such as fertiliser, petrochemical, and electricity are left untouched gives the world the impression that Nigeria would rather drag down than support its best.”

According to the statement, the amendment is a threat to the company’s continued existence and will discourage inflow of foreign investment.

It said the company succeeded largely due to the provisions of the NLNG Act, which gave investors the confidence to invest in the country.

The NLNG said, “But with an amendment, that confidence will be eroded and jeopardise critical ongoing investments for the continued survival of the company; critical among which is the $1bn needed annually for the next three years to guarantee the current operation of six existing trains.”

“Any amendment will also mean an immediate potential loss of foreign investment of $25bn in respect of Trains 7 and 8 investments ($15bn by the gas producing and supplying companies, and $10bn for construction of the project).”

It said the expected 18, 000 construction jobs for Trains 7 and 8 would also be lost if the Act was amended.

“This is at a time when the Niger Delta, and the country at large, is in dire need of jobs. Needless to mention is the impact of such a huge number of jobs on the peace of the Niger Delta region and the economy of the country,” it added.

According to the statement, the NLNG purchases gas from upstream suppliers, who already pay three per cent NDDC levy, which would have otherwise been flared.

It said, “The company has almost single-handedly caused the reduction of gas flaring from about 65 per cent in 1999 to about 20 per cent currently. With the required investment, the NLNG is capable of reducing that figure even further upon the completion of the Trains 7 and 8 project.

“Any amendment will however ultimately result in a return to high flaring if the NLNG ceases to exist with attendant negative impact on the Niger Delta environment.”

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