News Column

'Why Multi-Billion Dollar LNG Projects Are Delayed'

July 16, 2014

Collins Olayinka and Sulaimon Salau

MORE facts have emerged over implementation inertia trailing the most ambitious Liquefied Natural Gas (LNG) export projects in Brass, Bayelsa and Olokola in Ogun State.

The Group Managaing Director, Nigerian National Petroleum Corpaoration (NNPC) told The Guardian in Uyo, Akwa Ibom state, at the weekend that the pull out of the major partners in the projects had actually affected the progress on construction.

However, he explained that the green field refineries are also on track, but the government is strategising to resolve some technical and financial issues surrounding the implementation.

He explained that the cost analysis of the projects have increased tremendously, thereby affecting the budget, hence the need for further review of the financial implications.

The estimated cost of all four projects was put at $28.5 billion, and 80 per cent of this is meant to be funded with a term loan provided by China Export Credit Insurance Corporation (SINOSURE) and a consortium of Chinese banks led by the Industrial and Commercial Bank of China, while the NNPC was to foot only 20 per cent of the cost as equity contribution, under the terms of the agreement.

Yakubu said: "The initial estimate is different from the one we have today. We are having a substitution derivation from what we saw and what we thought we will do. We are continuing negotiation on the refineries,"

Besides, he said Nigeria must get the commercial arrangement right, because it is one of the key impediment to greenfield investment.

"You want to bring private players into the business, there is no private player that will put his money in a business without guarantee on returns. All the other players that are there today are either handling deregulated products or they are candidates for the Petroleum Support Fund (PSF). If you don't pay them they will stop, then we will resort to NNPC, which will always be there. We have to address the commercial environment, we have to address the business environment and the business model to be sure that players are encouraged to participate and get us out of this energy crisis."

This factor has also affected the OKLNG, which was estimated to gulp about $9.8 billion as at the conception stage in 2007, while the Brass LNG was estimated at $12 billion.

Yakubu said the corporation is also carefully considering a going concept for the LNG projects and ensure that the "parameters are right before investing such huge amount of money on the projects".

"On the LNG, we still have the two projects on our drawing board, but when you are faced with challenges like that, it becomes difficult to take decision. There are so many conditions prior to Final Investment Decisions (FID), and nobody takes a decision on major investment like this, when the factors are not right. We have done the engineering design, the entire package is done, but since one of the major players, ConocoPhillips pulled out, we had a setback.

"We were at the point of taking FID when they gave us the notice, so, we cannot just continue and ignore it. Where do you get the money from. When the cost is now over $20 billion. So, if you take 17 percent of that out (which belongs to ConocoPhillips), you know what it means.

"We have concluded the tender and in fact we were at the point of taking commercial decision, when this happened. Since last year when they pulled out, we have been discussing.

I don't want to lead the country into a 49 per cent of a multi-million dollar project that will eventually hit the brickwall," he said.

The National Refineries Special Task Force (NRSTF) had recently advised that only the proposed 350,000 barrels per day (bpd) Lagos Greenfield refinery should be pursued vigorously as a priority project to ensure it comes on stream by 2016, while the proposed Bayelsa and Kogi refineries should be explored later.

The NNPC and China State Construction Engineering Corporation (CSCEC) in 2010 signed a memorandum of understanding (MoU) for the construction of three Greenfield refineries in Lagos, Bayelsa and Kogi, as well as a gas refining/petrochemical plant.

The project was envisaged to add 750,000 barrels per day of extra refining capacity to Nigeria's current 445,000 barrel per day refining capacity as well as stem the flood of imported refined products into Nigeria.

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Source: AllAfrica

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