Olufola Wusu

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Liquefied Natural Gas (LNG) for export is great… However, LNG to power has become imperative for an energy starved Lagos!

Lagos is reported to have a population of over 20 million people and is still growing, Lagos is said to consume over 40% of the premium motor spirit consumed by Nigeria as a whole on a daily basis. Governor Akinwunmi Ambode has been talking about his light up Lagos plan, this might just be the tipping point for him…

Owners of Nigeria’s largest power plant located at Egbin Power Plant near Lagos are planning to build a LNG terminal, as it seeks to solve an acute shortage of gas according to Chief Executive Officer Dallas Peavey.

LNG is gas frozen to liquid reducing its original size by 1/600. LNG is a liquid which can be shipped in, this might give Egbin some respite from the constant attacks on pipelines, which reduced its gas supply, switching to LNG may also open Egbin up to multiple suppliers of LNG struggling for new markets.

The LNG terminal can be used strictly for Egbin or/and for other players who may also want access to LNG. Egbin has the opportunity to champion the use of LNG import terminals for its sole use, or the use of LNG import terminals as a service…

Concerns about LNG prices rising are a real concern, I am hoping the price indexation/decoupling of LNG prices may have ended.

Historically there has always being some relationship between the price of crude oil and that of natural gas, that is, barring any unforeseen occurrences like natural disasters etc. Decoupling of prices is usually temporary.

However three factors tend to point to a possible permanent decoupling of prices and a possible dip in some areas. They are:
1. The globalization of natural gas
2. Specialization in all parts of oil and gas industry by companies
3. The emergence of Shale Gas.

As per the price of LNG, I think Afolabi Akinrogunde is spot on “LNG can be a double-edged sword. Its prices change with time”

Egbin needs to benchmark its projections on possible higher prices or hedge against a rise in LNG prices.

Egbin needs to avoid the mistake some indigenous oil companies made; those oil companies banked on higher crude oil prices, which eventually fell.

Egbin should not bank on low LNG prices which may eventually rise.

Egbin should not limit its LNG supply to “local sources”. Our “local sources” of LNG may be given a right of first refusal, but at no point should Egbin limit itself, as our “local sources” of LNG may be fixated on export of their product…

It is now a buyer’s market in the LNG world; sellers are aggressively wooing buyers…

Qatar LNG recently gave a huge discount to India, waived a penalty and has been selling on the spot market too.

“The new formula between the two companies is in the interests of a win-win. Where the previous contract meant that Petronet had to buy LNG at $12-13 per mmBtu, the new contract means a price of $6-7 per mmBtu,”.

Iran has started supplying LNG to Kenya, Tanzania and South Africa.

Egbin should try spot markets. and negotiate a long term deal if the price is very low, preferably with a major player like Qatar Gas LNG or a player like Iran keen on gaining market share.

Long term LNG contracts have given way to spot markets, it’s no longer a seller’s market, it’s now a buyer’s market. There are quite a few LNG projects on the ground, floating and in the pipeline but consumption is not spiking per se.

India renegotiated a long term LNG contract recently and got a 50% discount. I believe Egbin should negotiate for the best deal it can get, since it’s building an LNG terminal.

It can even prospect for a seller, willing to finance the construction of the LNG terminal.

Comments anyone?

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

Olufola Wusu Esq. © 2016

Olufola Wusu is noted for his “dynamic practice” and “commercial acumen”. He is praised for his “first-rate skills” in assisting clients…