IHS Global Insight Perspective | |
Significance | The Brass LNG export project has been delayed further with the news that not all the required gas feedstock has been guaranteed. |
Implications | The Federal Government's gas master plan is prioritising gas for the domestic market over the more profitable LNG export projects. A final investment decision cannot be secured, along with the necessary project finance, until the necessary gas feedstock has been secured. |
Outlook | There remains open speculation that ExxonMobil may join the consortium, enabling it to secure further gas feedstock. The project has made considerable progress and is certain to go ahead, but until further gas supply is accounted for and the gas master plan implemented, the Brass LNG project cannot proceed. |
LNG Export Project Delayed Again
The planned Brass LNG export facility in Bayelsa State in the Niger Delta is still many months away from receiving its final investment decision (FID). Domestic newspaper Business Day reports that the consortium of oil companies involved with the project have not secured the necessary gas feedstock for implementation of the FID. For multi-billion-dollar projects, which require extensive planning via a chain-like process, the commercial and fiscal terms have to be worked out first before an FID can take place, and project finance teams are reluctant to provide funds for the project until 100% of the necessary gas supply has been secured. The project was due its FID in 2008—which itself was already a delay—but only 70% of the gas could be guaranteed at that stage.
The Brass LNG facility is being built on Brass Island in Nigeria's Bayelsa State. The facility will consist of two trains, each with the production nominal capacity of five million tons of LNG per year during the project’s 20-year lifetime. The consortium reached purchase agreements with six buyers, covering the entire production of the two LNG trains at the plant (10 million tons per year), several years ago; all cargoes are set for the Atlantic Basin market. One factor in delaying the facility was the ongoing militant attacks and insecurity occurring throughout the Niger Delta—the frequent pipeline sabotages and occasional oil-worker abductions contributed to the project not proceeding on schedule.
Another cause for the delay in the project is the Nigerian federal government’s determination, as part of their gas master plan, to prioritise the country's gas reserves for domestic use. The federal government is planning a huge investment drive that will see the construction of three gas-processing centres in the Delta region: one in Delta State, another in Port Harcourt, and a third in the Akwa Ibom-Calabar area.
Liquid petroleum gas, condensate, and dry gas will be stripped out at these processing centres. Some of the feedstock will be used for industry and local methanol, fertiliser, and cement businesses, but most importantly, some will be used as feedstock for a new series of gas-fired power plants. A new network of gas transmission lines will also be constructed throughout the country.
Brass LNG Limited is a joint venture between Eni, ConocoPhillips, Total, and the Nigerian National Petroleum Corp. (NNPC). The three foreign companies each have a 17% stake in the project, while NNPC holds a 49% share. Last year there was speculation that U.S. supermajor ExxonMobil was set to join the consortium, and although news reports have heavily linked the company to the project, ExxonMobil is not currently a member of the consortium.
Outlook and Implications
The delay in proceeding with the Brass facility is the result of several important factors, but the gas master plan lies at the crux of the reorganisation of the country’s energy sector. If the government can implement the gas master plan over the course of the year, it should set out a clearer schedule for both the domestic market and gas exports. The state appears on course, as last week the group managing director of the NNPC, Mohammed Sanusi Barkindo, told the 2009 Nigeria Oil and Gas Conference and Exhibition that plans are in place to deliver 2 bcf/d to the domestic market by end-2009. The government believes that the 2 bcf/d could be used as feedstock for a new series of gas-fired power plants, which could generate 6,000MW, and breathe new life into the country's moribund power sector. The government has been urging oil companies operating in Nigeria to re-think how they utilise gas, where vast amounts are flared due to lack of in-place infrastructure. The figure currently stands at around 68.66 bcf/m, a little less than 2.5 mmcf/d.
Nigeria’s federal government is determined to further monetise its gas reserves, but has told oil companies that the more profitable LNG export projects will not be sanctioned until flaring has been reduced and feedstock has been prioritised for the domestic market. Once this important first step is taken, the oil companies can engage in securing the remaining 30% of the required gas feedstock, which could allow them to reach the FID for Brass LNG. However, it might take ExxonMobil’s inclusion into the consortium to secure a new supply of gas to proceed with the project.
The project is already underway, and early site work began last April on the US$8.5-billion Brass LNG facility. Dutch firm Royal Boskalis Westminster commenced operations on its 60-million-euro dredging contract, including the opening up of access roads and demarcation of the areas for installation of tanks. The firm's in-country subsidiary, Nigeria Westminster Dredging and Marine Co., aims to strengthen the site's ground with approximately 1.6 mmcm of sand, in order to allow heavy building to take place upon it.
The U.S. engineering and construction firm Bechtel entered into a project management contract with Brass LNG Limited in June 2007. Bechtel has experience in the implementation of the ConocoPhillips Optimised Cascade Process, which has also been adopted for the Brass LNG plant, and the firm was previously awarded the front-end engineering and design contract, which it completed in 2006.
The project should considerably boost the local economy and create jobs, and the host community has a good relationship with the consortium of oil companies involved. Domestic newspaper reports state that a new Brass city will emerge from the project as a result of the investment, and the LNG export facility has the necessary political support. The FID has been put back before, and with such an uncertain timetable ahead there can be no firm schedule. However, all parties will attempt to reach an agreement for December, but it would come as no surprise if the decision drags on until next year.