NLNG’s plan to sell liquefied gas locally opens opportunity for investors

September 24, 2021 Mary

The first molecule of domestic liquefied natural gas from Nigeria LNG Limited is billed to come into the Nigerian market by July 2022 heralding what could become a million-dollar investment opportunity in the gas sector.

On the back of this plan, investors can find opportunities in shipping, regasification infrastructure construction, offtaking the gas, construction of terminals, even tracking, and insuring the gas in transit.

“The move by the NLNG should be applauded as it encourages energy transition of our domestic energy systems to a cleaner source of energy in line with the global energy transition,” said Chinwendu Enechi, associate director, oil, gas and power unit of Andersen Tax.

A Nigerian shipping entity can leverage the Cabotage Act to ship LNG from the company’s Bonny plant to ports around the country. Nigeria’s Cabotage Act restricts the use of foreign vessels in domestic coastal trade to promote local participation.

LNG can be shipped either on Delivered Ex Ship (DES) or Free On Board (FOB) basis. Under the DES, the seller delivers the goods to a buyer at an agreed port of arrival but under the FOB contract, the buyer or his agent handles shipment.

Before the recent spike in gas prices, the cost of shipping LNG was usually charged around $1 per million British thermal units (mmBtu), shipping thousands of LNG volumes could become a million-dollar business.

The construction of the regasification unit further allows gas supply in different forms including CNG and LPG helping to close the market gap.

Chijioke Mama, managing director at Meiracopp Nigeria Limited, an energy and infrastructure advisory company put the value of setting up the small scale LNG regasification unit of around 18,000 cubic meters at $25,000 with a bigger capacity costing more.

In a presentation at an interactive session with journalists, Austin Ogbogbo, marketing manager, NLNG, said the company would be starting its domestic LNG supply to Nigeria with an initial one million tons per annum in July 2022.

Ogbogbo said to achieve that, NLNG was constructing more smaller terminals to be able to get more LNG to the Nigerian market as well as exploring getting dedicated vessels for this purpose.

Analysts say it will have a positive impact on the local market by enabling or strengthening supplies to small, fragmented and remote consumers.

In November 2019, the NLNG held a workshop to stress test the delivery model with industry stakeholders in Lagos. This began a series of engagements to identify suitable actors to co-create the initiative and stimulate market interest for potential off-takers.

This led to the company signing the first gas supply agreement with three companies in June this year to add 1.1 million metric tons of liquefied natural gas to the domestic market.

Tony Attah, former CEO of the company while launching the project said the agreement which unlocks gas utilisation is now backed by the execution of Sales and Purchase Agreements (SPAs) to supply 1.1 million tons per annum (MTPA) of LNG on DES basis to Asiko Power Limited, Bridport Energy Limited and Gas-Plus Synergy Limited.

Felix Ekundayo, CEO of Asiko Power Limited said the company is still in the design stage and awaiting approval by the Department of Petroleum Resources (DPR), to construct.

He said though the country is waking up late to the opportunity, gas holds potential to transform the economy and there is plenty of opportunity in the gas space.

Based on the successful execution of the SPA, the NLNG from July next year is scaling domestic LNG supply, throwing open the space for more investors on the same willing buyer and willing seller basis.

Nigeria has declared a decade of gas from 2021 to catalyse investment into the sector. To this end, the government has set up a ministerial committee that includes the petroleum resources minister, the finance ministry representatives, industry operators, the NNPC, and consultants to deliver actionable plans for the decade of gas.

The market opportunity for domestic LNG will continue to expand with the creaking national grid unable to deliver electricity access to millions of people and inadequate pipeline infrastructure.

Other operators like Greenville are also playing in the domestic LNG value chain. Within the Lagos industrial corridor on the outskirts of Lagos, the Tolaram Group is developing an 830 hectare of land into one of West Africa’s biggest industrial hubs.

To ensure reliable, affordable and clean energy access to industries within the Lagos Free Zone (Tolaram Group), domestic LNG will be supplied from 2021 by Greenville LNG, a local mini LNG company.

Greenville, which has a regasification plant in Port Harcourt has recorded success trucking gas to locations far from natural gas sources in 16 Nigerian states and is moving to 20 states in the coming months.

However, NLNG’s decision to ship LNG to the local market will add bigger volumes to meet the yawning gap in the market.

“Potential supply increase by the NLNG will further guarantee energy supply security and insulate the country against future extraneous supply disruptions,” said Enechi.

There is a growing market to move gas to industrial customers, the creation of gas hubs to serve SMEs in commercial clusters, conversion plants for autogas vehicles, and the widening LPG market.

The NLNG is an incorporated Joint-Venture owned by four Shareholders, namely, the Federal Government of Nigeria, represented by Nigerian National Petroleum Corporation (49 percent), Shell Gas B.V. (25.6 percent), Total Gaz Electricite Holdings France (15 percent), and Eni International N.A. N. V. S.àr.l (10.4 percent).