Olufola Wusu

Fola Wusu

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Nigeria’s Federal Executive Council on the 28th of June 2017 approved the new National Gas Policy (“NGP”). Prior to the NGP, Nigeria’s focus had been primarily 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.

What Is LNG About?
NLNG makes make “liquefied natural gas” primarily available to the international market. With the advent of the National Gas Policy which will encourage our local markets to begin to consume LNG they probably will be willing to meet that need too.

Liquified natural gas (LNG) is the liquid form of natural gas at a cryogenic temperature of −160°C (−265°F). When natural gas is turned into LNG, its volume shrinks by a factor of approximately 600.
Transportation of gas has always been an issue; the cost of laying the pipelines alone was a major issue, turning natural gas into LNG, reduces the size of the gas volume by a factor of 600. This reduction in volume enables the gas to be transported economically over long distances, besides LNG is a liquid and can be transported in all the ways a cold liquid.

How LNG Works…
LNG companies buy natural gas, purify the gas to remove impurities such as hydrogen sulphide (which can be refined and sold as sulphur), other gases, sand, other compounds, and water (so the water does not become ice during refrigeration), then you refrigerate the gas at (-160) degrees Celsius so that the gas can turn into liquid. LNG (Liquefied Natural Gas) is simply gas in a liquid form. The LNG is shipped to the buyers, who on receipt of the LNG either use it like that (trucks, ships and other vehicles run on LNG) or turn the LNG back into gas and then pipe to their consumers.

LNG for export
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

National Gas Policy provides for Domestic uses of LNG…

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 as a fuel for heavy duty vehicles, Buses and Taxis;
LNG for Shipping and 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 to store Gas about to be flared, which will be used to fuel power plants serving host communities.

LNG as a fuel for heavy duty vehicles, Buses and Taxis is innovative and practical; this may be made possible by modular LNG plants and LNG tractor engines. Looking to engage with investors looking for a ready market, ideal markets are energy starved with a large population!

An issue industry watchers are pondering is whether Nigeria can sustain the export of LNG at competitive prices? These are some of the other questions facing the LNG industry:
• How much gas does Nigeria need to be produced for domestic consumption and how much will be exported via pipelines and LNG?
• What will be the competitive price for Nigeria’s natural gas after factoring in liquefaction and transport costs?
• Judging by recent decline and production rates, how much new production will be needed if any?
• What strategy will be more beneficial, export only, domestic use only, or a mix of both export and domestic use.

Do we need LNG Storage Tanks?
Japan has some massive LNG storage tanks as part of its energy strategy; it buys the LNG and stores it away for a rainy day to cushion the possible effects of high LNG prices.

Conclusion
The National Gas Policy is a step in the right direction; it gives a certain degree of regulatory certainty which discerning investors would do well to take advantage of.

Looking forward to engaging with investors keen on participating in the gas revolution about to take place in Nigeria…

Olufola Wusu Esq. © 2017

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