Cargoes: Uneasy calm over concession to IOC shareholders’ lifters by NLNG

Nine days to the assumption of office of Philip Mshelbila as Managing Director, there is uneasy calm in the Nigeria Liquefied Natural Gas, NLNG, over concession given to International Oil Companies, IOCs, lifters above others.

Mshelbila, who is the outgoing Chief Executive Officer of Atlantic LNG in Trinidad and Tobago, takes over from Tony Attah on August 31.

It is also confirmed that Patrick Olinma, the Total representative on the board, has been asked to proceed on retirement, commencing July 31, 2021, and will be replaced by Total on the Board of NLNG.

Mohammed Abdulkabir Ahmed, the NNPC new helmsman for Gas and Power, will be occupying the NNPC Board position in NLNG.

But the new helmsman has to address in-house and market tension arising from deferrals, defaults and cancellation of cargoes.

More than 20 NLNG cargoes had suffered deferrals, despite demand surge in the international market.

‘’It was gathered that the deferral and default game in the NLNG may make some international customers to abandon Nigerian market. There is fear that the recent trends may obstruct Federal Government’s bid to increase the production capacity of LNG by 35 per cent with Train 7 and earn more revenue,’’ a source told Vanguard.

Vanguard learned that gas supply targets have been impacted due to Eni’s AGIP 50 per cent supply mark to the plant, which is considered poor.

Shell and Total’s positive supply mark off had been over 90 per cent in the past few months. The source said: “There is disquiet within and from the market in the Nigeria Liquefied Natural Gas (NLNG) over cancellation of cargoes and unnecessary deferrals.

‘’This is one of the issues, which the board and the new management need to address for a smooth take off.”

Giving insight into some of the challenges in NLNG supply chain, the source, who spoke with select media, added: “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 the International Oil shareholders lifters, could well 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’s arrival at Bonny terminal. This practice, except for rare situation of force majeure, is very well below international acceptable standards.”

Vanguard gathered that the situation in NLNG was also worrisome to the board of the NLNG, headed by a former Minister of Petroleum Resources, Edmund Daukoru.

A market source, who preferred to be anonymous for fear of witch-hunt, said: “It’s all over the market these days on how unreliable Nigerian LNG is in recent times.

“There is certainly lack of prudence; 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 Company 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.

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

“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 levelled allegations of discriminatory/antitrust practices in favour of NLNG IOC shareholders during an arbitration process that was eventually settled.’’

Corroborating the growing concern, another industry source said: “These continued lack of confidence, driven by Nigeria LNG’s unprofessional defaults and performance, as perceived by international off-takers in the LNG global market, not only gives other regions an edge over Nigeria LNG position, but creates a risk of losses the government of Nigeria could be exposed too”.

NLNG is expected to increase its production capacity from 22 million metric tons per annum to 30 million metric tons per annum.

The criticisms against the NLNG business ethics is coming at a time the price of LNG is rising in the global market.

In Europe, prices have gone up to €40 per megawatt hour for the first time. For example, in the United Kingdom, prices have soared above 100p a therm, the highest level since 2005. A therm measures the amount of energy contained in natural gas and is sometimes used to calculate utility bills.

Royal Dutch Shell had in its annual LNG market outlook, stated 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 Muhammadu Buhari had last week, signed the much- awaited PIB into law. During the ground breaking of Train 7, he stated 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.

(Vanguard)

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