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Gas projects on hold over non-passage of PIB

Gas-plant-facilityInvestments in Nigeria’s gas sub-sector may have suffered several setbacks due to the non-passage of the Petroleum Industry Bill (PIB).

Already, International Oil Companies (IOCs) have slowed down investment proposals of over N17.2 trillion due to the fiscal terms and non-passage of the PIB.

Besides the non-passage of the bill, the IOCs are said to have suspended further investments in the oil and gas sector, claiming that such investments may not bring expected returns.

PIB, which was initially proposed in 2008, is expected to change the organisational structure and fiscal terms governing the oil and  gas sectors, if it becomes law.

The IOCs are concerned that proposed changes to fiscal terms may make some projects commercially unviable, particularly deepwater projects that involve greater capital spending.

According to the United States Energy Information Administration (EIA), there are several planned oil and gas projects scheduled to come online within the next 10 years.

It noted that the start-up dates for many of the deepwater oil projects have been pushed back, which has mainly been attributed to regulatory uncertainty. The regulatory uncertainty has also resulted in the decline in deepwater exploration activity since 2007.

Nigeria is the largest holder of natural gas proven reserves in Africa and the ninth largest holder in the world. Nigeria produced 1.2 Tcf of dry natural gas in 2012, ranking it as the world’s 25th largest natural gas producer.

It flares the second largest amount of natural gas in the world, following Russia. Natural gas flared in Nigeria accounts for 10 per cent of the total amount flared globally.

Nigeria exported 19.8 MMtpa (950 Bcf) of LNG in 2012, accounting for more than 8 per cent of globally traded LNG and making Nigeria the world’s fourth largest LNG exporter.

Apart from poor performance of Nigeria’s oil and gas export in the last few years, investments in the Nigeria gas sector have been on a slow pace.

For instance, Gazprom, which has world’s leading expertise and experience, like large-scale infrastructure management, control and protection, gas gathering systems and storages and exploration, is said to have slowed down further investment plan in Nigeria due to the PIB.

The Russia’s energy giant Gazprom had signed a $2.5 billion deal with Nigerian National Petroleum Corporation (NNPC), to invest in a new gas joint venture.

Chief Executive Officer of Gazprom’s Nigerian unit, Vladimir Ilyanin, said in November 2010 that the Russian state- owned company would delay plans to invest billions of dollars into the country until an oil and gas regulation bill is passed.

Also, The Guardian gathered that the proposed Trans-Saharan Gas pipeline is also suffering from the uncertainty surrounding the PIB.

Nigeria signed an accord with Niger and Algeria in 2009 to build a pipeline costing about $20 billion across the Mediterranean Sea to Spain, possibly with a branch going to Italy.

 

Gazprom also negotiated with Nigeria about its possible participation in the project. Also Indian company GAIL, France’s Total S.A., Italy’s Eni SpA and Royal Dutch Shell had expressed interest in participating in the project.

The Guardian gathered that some of the IOCs that have earlier signified interest in the project are no longer showing much enthusiasm in the project all because of the petroleum industry bill.

Also, the Brass LNG with two trains and an output of 10mtpa was expected to have been on stream in the first quarter of 2009 while the Olokola (OK) LNG, which is a four train plant with an output of 20mtpa will have had the first two trains commissioned in 2009/2010.

But, up till now, these gas projects are on hold with the Final Investment Decision also paused several years after being initiated.

The idea for an LNG tolling facility in Western Nigeria was solidified in 2007 with the signing of an MOU between shareholders – NNPC, Chevron, Shell, and BG Group; but the dream started years before then. The plan was for gas producers/owners to send natural gas to the facility where it would be converted to LNG for a fee and pumped into owner ships for sale.

Initiated about the same time as Brass LNG, OK LNG seemed to garner more support and interest owning to former President Obasanjo’s championing efforts. Chevron was said to have pulled out of the project. The belief was that final investment decision (FID) wasn’t too far away and the shareholders were ready to see it through. On change of governments in 2007, the same year FID was expected, the project still had enough steam to run a few more miles.

Fast-forward to 2012, five years later, FID still had a shifting date and was a hazy hope at best; a vain one at worst. There isn’t much information about what happened in those five years, most likely, it was full of vital planning, some field work, high-level meetings, and everyday office work. Then in 2012, BG Group pulled out of the project.

Although, NNPC claimed the company already made plans to sell its upstream holdings, and even though the company had the smallest share of OK LNG, it was still a blow to the project, a foreboding of something that would become real. A few other companies, LNG Japan, Mittal Group, and Centrica, lined up to take over the 14.25 percent share of OK LNG; however, it is not clear whether they eventually did buy into the project.

One year later, June – July 2013, the other two international oil companies (IOCs), Shell and Chevron pulled up stakes and left.

Also, the delay in the take off of the Train seven of the Nigeria LNG Limited has also been linked to the failure of the Nigeria government to pass the PIB.

Sources, who are familiar with the proposed NLNG seventh train, also ascribed the delay in the project takeoff to the non-passage of the PIB.

One of them, who pleaded anonymity because of the complexity to the project, said that IOCs operating in the country were not ready to invest in major oil and gas projects due to certain clauses in the proposed bill.

According to him, the fiscal terms proposed in the bill are making major oil and gas investments unattractive to players and this may not be unconnected with the delay in the NLNG project.

The Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry, some of whose members are joint owners of the NLNG, said the harsh fiscal terms in the PIB had slowed down the N17.2 trillion investment proposals.

“$109bn in planned investments is not progressing as new projects are no longer economical,” the Chairman, OPTS, Mark Ward, said.

He explained that the IOCs had planned to invest $33 billion in the next five years but lamented that the fiscal terms of the PIB, if not reviewed, might jeopardise this.

 

[The Guardian]

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