NLNG strikes while the iron's hot
Plans are finally in motion to expand Nigeria's LNG export capacity
What better time to ask financial markets to stump up almost $12bn for the long-delayed expansion of the Nigeria LNG (NLNG) export facility and securing its gas supply than just after the company fully repaid $5.45bn of shareholder loans taken out pay for the existing six trains?
That was the message underpinning NLNG's presentation to financial institutions and other stakeholders in the City of London in mid-July, at which its chief executive Tony Attah went to pains to stress the company's excellent track record of loan repayments to international lenders over the two decades since the project's inception.
The company wants to raise almost $7bn to cover the cost of the construction of Train 7 and a further $5bn for upstream investment to ensure the continued supply of gas feedstock to the existing and future trains.
The success of NLNG - the country's only LNG export facility - can be attributed, at least in part, to the managing company's shareholder structure. This has protected it from some of the worst of the financial turmoil that has laid low swathes of Nigeria's hydrocarbons sector over the years.
While the state-controlled Nigerian National Petroleum Corporation holds a 49% stake, NLNG has largely maintained its independence, with control of the project firmly in the hands of the company's board, backed by the three supermajors that own the other 51% - Shell (25.6%), Total (15%) and Eni (10.4%).
"Our financial credibility speaks for itself and we will be testing the financial market once again with our sustainability and expansion projects," Tony Attah, NLNG's chief executive said. "Raising $7bn is no small feat; anywhere in the world, this will be a major event. Therefore, we will be seeking support from the local and international financial institutions, our shareholders and the Nigerian government."
The Train 7 project will add around 8m tonnes a year (t/y) of export capacity to NLNG, boosting its overall capacity to some 30m t/y. Based on recent data, that would move Nigeria above Malaysia (27m t/y) in the global league of LNG exporters, and a little closer to Qatar's 77m t/y and the 60m t/y of capacity installed in Australia at the end of June 2018.
At the London presentation, NLNG officials hinted that they were considering building further trains. However, the company is already in a race against time to capture markets for Train 7 output and that of its first three trains, whose combined 9 m t/y output is currently being remarketed.
Global LNG export capacity has rocketed in recent years, with Australia poised to take over the lead in that respect from Qatar soon. Meanwhile, Qatar itself - which started LNG exports only two years before NLNG, but expanded a lot faster. - is now considering expanding its capacity to 100m t/y to maintain its market share.
In an effort to speed up NLNG 7 construction, the company has appointed two consortiums to work on front-end engineering and design (FEED) for the project simultaneously - a so-called dual FEED process. One group comprises US firm KBR, France's Technip and Japan Gas Corporation (JGC). While the other consists of Italy's Saipem, Japan's Chiyoda and South Korea's Daewoo.
By adopting this dual FEED approach, NLNG says it hopes to speed up the FEED process from the 9-12 months it typically takes.
NLNG has suggested a final investment decision (FID) could be taken in late 2018, though that may prove to be a tight deadline to meet, especially in view of the large fund-raising effort required.
"Going to the FEED stage is quite encouraging for NLNG, but doesn't guarantee that it will move ahead to FID," said Tunji Alli, a regional analyst at consultancy Wood Mackenzie.
He also noted that NLNG's plan to raise $5bn of finance to secure upstream supply - a role more commonly adopted by the upstream joint ventures with the international oil companies - is a new departure for the company and exposes it to greater upstream risk.
While the security situation in the Niger Delta has improved over recent months, the threat of a return to militant attacks on onshore oil and gas installations that have affected NLNG in the past remains a risk. However, the country does have copious gas reserves - currently estimated at around 187 trillion cubic feet - and the offshore hydrocarbons projects operated by the international oil companies could likely provide extra supply.
More problematic could be the demand side of the equation. If the project gets the green light next year, Train 7 may not come on stream until 2024-25, a time when an avalanche of new LNG cargoes could be hitting the market.
Alli estimates there is some 100m t/y of planned LNG capacity at the pre-FID stage at present, which contrasts with a Wood Mackenzie forecast that new demand for LNG would increase by 65m t/y by 2025. If much of that new capacity gets built, then NLNG's new supply will clearly be entering a fiercely competitive arena.