Olufola Wusu

Fola Wusu

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The Honorable Minister of State for Petroleum Resources, Dr. Ibe Kachikwu today hosted a landmark Gas Sale & Aggregation Agreement signing for 74MMscf gas delivery to a US$500m LNG Facility located in Rumuji, River State owned by Greenville LNG.

#7BigWins in motion
Greenville LNG’s investment in small scale LNG is poised to deliver liquefied natural gas (LNG) by LNG powered trucks which have the capacity to travel about 1,000 km on LNG before refueling, to states not connected by pipeline, supplying power plants and industry with cheaper, cleaner fuel.
Total Nigeria and Gas Aggregation Company Nigeria Ltd (GACN) would deliver gas to a small scale LNG plant owned by Greenville LNG.

History of LNG…
The first commercial liquefaction plant was reportedly built in Cleveland Ohio in 1941. In January 1959, the world’s first LNG tanker “MEHTANE PIONEER” carried its LNG cargo from Lake Charles Louisiana to Canvey Island, United Kingdom. This event established the fact that large quantities of LNG could be transported across the sea safely and possibly established LNG as an “Energy Transportation Industry” that makes gas available to markets near or far.

What Is LNG About?
LNG makes make “liquefied natural gas” available to the international market and when our local markets begin to consume LNG they probably will be willing to meet that need too.
Transportation of gas has always been an issue; the cost of laying the pipelines alone was a major issue then came in LNG which reduces the size of the gas volume by a factor of 600. LNG can be transported by Ship, Rail, Truck and all the other ways a liquid can be transported.

The advent of Small Scale LNG…
The term Small Scale LNG refers to the direct use of liquefied natural gas in its liquid form, as opposed to the traditional model of regasification and subsequent introduction into the gas transmission grid. Small Scale LNG is cheaper, better and faster.

Uses of Small Scale LNG
Small Scale LNG plants supply LNG to end-users in places where traditional infrastructure like pipelines do not reach, or to consumers requiring LNG.
There are three major end uses for Small Scale LNG: marine fuel (bunkering), fuel for heavy road transport, and power generation in off-grid locations.

Factors favoring Growth of Small Scale LNG
Small Scale LNG offers investors quicker returns in the medium term. Small Scale LNG involves lower investment requirements and accelerated commissioning schedules. And that leads to reduced uncertainty on the project execution timing, a factor that has plagued multiple pending LNG projects in Nigeria.

Small Scale LNG is scalable; it is a great way to meet short term fluctuations in demand.

Small Scale LNG will help jump start the market for domestic use of LNG which NLNG was not formed to serve. It remains to be seen if NLNG will consider the domestic supply of LNG too.

Patents
A patent is a document issued, upon application by a government office (or a regional office acting for several countries), which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent. Patents cover processes like gas liquefaction, regasification, small scale LNG and LNG transportation technology.

Free Technology vs. Patents
LNG is intensely technology driven and this technology is protected by patents and other IP owned by companies who either directly participate in LNG projects or license out their IP including patents to others to use for a hefty fee.

Commodity Sellers vs. Proprietary Industry…
If the products of LNG companies were not protected by patents, they would have been priced as a “commodity”.
If their products had been priced as a “commodity”, they may not have been developed and made available to the LNG industry. The thing is that Intellectual Property Rights are enforceable against the whole world while Contractual Rights are enforceable against only the parties that enter into contract with you!

Major pricing systems in LNG contracts
There are three major pricing systems in LNG contracts: Oil indexed contract, the JCC (Japan Crude Cocktail )Contracts, used primarily in Japan, Korea, Taiwan and China, and Take-or-Pay Contracts based on a combination of oil products and other energies used primarily in Continental Europe and Market indexed contracts used in the USA and the UK.

The National Gas Policy has made provision for domestic use of LNG.
The Federal Executive Council on the 28th of June 2017 approved the new National Gas Policy (“NGP”). The NGP is designed to catalyze growth of the gas industry in Nigeria.
Prior to the NGP, Nigeria’s focus has been on oil, the NGP is designed to monetize the abundant gas assets Nigeria has and help accelerate Nigeria’s industrialization as gas has many by products.

LNG for export Vs Domestic Use
NIGERIA LNG Limited (NLNG) attained a milestone with the export of its 4000th cargo of Liquefied Natural Gas (LNG) from the Bonny Island Terminal in Rivers State to Mamara LNG Terminal in Turkey. Interestingly the Mamara LNG terminal also received NLNG’s historic 3000th cargo, 3 years ago.

Changing LNG market
The LNG market is rapidly evolving, from the 20 year long term contracts to spot markets, LNG was dominated by sellers using take or pay contracts to a buyer’s market, where buyers have been able to renegotiate the price of LNG shipments.
New volumes of LNG are entering the global LNG market from the United States(Which used to be a major importer) and Australia, with a slowdown in expected economic growth in Europe and Asia. The LNG spot market is making a strong showing as more buyers shun long term contracts in favor of spot contracts.

NLNG which was created to monetize Nigeria’s natural gas resources and produce LNG and the NGLs for export was reported to have had its revenues plunge to $4.723bn last year, the lowest in 7 years. The LNG export market is experiencing an oversupply which is dampening the price of LNG. However, the domestic market is experiencing severe energy shortage.

Possible LNG market forecast
However, 7 (Seven) factors may drive the LNG market in the next 10 (ten) years:
• Accessing new users
• Reaching new markets
• Lowering shipping costs
• Slow or Quick economic growth
• Increasing energy efficiency
• Excess LNG supply
• Development of indigenous LNG liquefaction technology

An in-depth review of the NGP reveals the NGP provides a bit of balance and makes provision for LNG for domestic downstream applications:

Possible Domestic uses of LNG
LNG for Transport
LNG as a fuel for heavy duty vehicles
LNG for Buses and Taxis
LNG as fuel for Ferries and Ships
LNG for Shipping
LNG for Rail
LNG for Agriculture
LNG for Power
LNG as a gas source where no pipeline gas is available
LNG as a backup supply for natural gas pipeline network
LNG as a fuel for heavy duty vehicles like Trains, Tractors, Trucks and Buses is innovative and practical; this may be made possible by small scale LNG plants and LNG engines.

Conclusion
Small Scale LNG Business is cutting edge and is still a bit new in Nigeria. However, demand for Small Scale LNG is sure to rise rapidly, catalyzed by the increasingly stringent energy deficit in Nigeria, evolving environmental regulations and the oil and gas industry’s ability to reinvent itself. Regardless of the uncertainty in the global LNG market, Small Scale LNG may very well be the game changer in Nigeria’s quest to monetize its abundant gas resources.

Olufola Wusu Esq. © 2017

Olufola Wusu is a Commercial/Gas and I.P. Lawyer based in Lagos.