$1.5bn threatened over IOCs’ pull-out from LNG projects

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The Federal Government may be losing a whopping sum of $1.5 billion on Brass Liquefied Natural Gas and Olokola Liquefied Natural Gas (OKLNG) projects following the withdrawal of multinational oil companies from the projects that are expected to help the country harness its natural gas reserves and serve as a major contributor to its economic development, BusinessDay investigations have revealed.

 

The international oil companies (IOCs), Chevron and Shell, pulled out of Olokola LNG project located between Ogun and Ondo States. This came just four years after BG Group divested from the project. Both companies have a combined shareholding of 39 percent in the project, with 19.5 percent stake each in the company.

The most cost-effective LNG project in Nigeria, Olokola LNG, was initiated in 2005, with the Nigerian National Petroleum Corporation (NNPC) as the major shareholder with 46.75 percent stake, while BG Group, which had earlier withdrawn, had 14.25 percent.

A source said the withdrawal of the oil majors was due to a number of factors, including the lack of commitment on the part of the Federal Government to pursue the completion of the project and the non-passage of the Petroleum Industry Bill (PIB).

ConocoPhillips, the American oil giant, recently pulled out of the multibillion dollar Brass LNG project, where it had about 17 percent stake. This withdrawal may have dampened the government’s drive to attract fresh foreign direct investment (FDI) into the petroleum sector.

According to industry sources, over $500 million and $1 billion have already been spent on Olokola LNG and Brass LNG, respectively, of which the NNPC accounted for over $700 million.

The sources said it was quite obvious that these investments would go down the drain if there were no new investors ready to partner NNPC in these projects.

They said the withdrawn Shell and Chevron may mitigate their expenditure on the Olokola LNG against upstream tax. This means the NNPC would have to lose the entire over $1.5 billion on the project.

According to them, aside from the monetary loss by Nigeria, the issue of integrity is also at stake as future investors eyeing the oil and gas industry might be reluctant to do business with the government because she might be considered as unserious.

Nigeria has abundant natural gas, more gas than oil. Part of it is used for power generation and to run some heavy industries. The extent of gas usage in the country is dependent on gas infrastructure which is just being conceptualised.

LNG, which yields high foreign revenue, is a good way of utilising Nigerian gas. Natural gas is purchased, treated, refrigerated and shipped to industrial economies for high value foreign exchange income.

Nigeria LNG in Bonny already earns the country over $3.5 billion (about 4 percent of GDP) per annum. OKLNG and Brass LNG were conceived for same purpose.

The Brass and Olokola LNG projects were aimed at getting substantial foreign exchange revenues, increased domestic LPG supply and increased inflow of direct foreign investment (DFI).

If the projects had kicked off as planned, they were meant to generate massive employment (about 32,000 for both projects) during the construction period of about four and a half years. Other benefits of the projects include reduction of gas flaring through harnessing of associated gas (AG); stimulation of gas exploration as gas to be liquefied will have to be explored and produced; and acceleration of development of host communities through compulsory sustainable development initiatives.

Also, major local industries would be attracted to set up in the area to take advantage of good infrastructure, power supply and raw materials.

Emeka Eni, president, Petroleum Technology Association of Nigeria (PETAN), said the development would impact on the inflow of foreign direct investment into the oil and gas industry.

“However, it is an indication of long-term perspective of the IOCs on the impact of United States shale gas phenomenon on the liquefied natural gas business. Nigeria needs to encourage local companies to invest in projects that look inward at the potentially huge market for power and petrochemicals,” he said.

Seye Fadahunsi, the executive director, Pillar Oil, stated that these withdrawals of the IOCs would impose serious funding challenges on the projects.

Another industry operator, who does not want his name in print, said President Goodluck Jonathan was not interested to continue with the investments since his own people from the Niger Delta have also kicked against the rationale of putting the gas project (Brass NLG) in place.

Some of the major milestones that have already been achieved in respect of OKLNG include the completion of Front End Engineering Design and Environmental Impact Assessment (EIA). Pioneer camp to house the first wave of high level workers was also completed and is operational, and compensation has already been paid to croppers.

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