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As part of marking Nigeria @60, the Business Day Energy Series hosted the Chief Executive Officer (CEO) of NLNG, Mr. Tony Attah at the session of 'Talking Energy' anchored by the publisher of Business Day, Mr. Frank Aigbogun.Excerpts.
Q 1: Industry analysts often describe the NLNG model as one of the most viable models for investments in the industry. What exactly is this model, what are the differences between it and the Joint Venture model, and why is it a success?
The ownership structure in a typical Joint Venture Model in the Nigerian Oil & Gas Industry gives majority stake to the Government through NNPC. The partners also must undertake cash calls to fund projects and share profits based on their shareholding in the JVs or PSCs as the case maybe. But for NLNG, majority stake is held by the IOCs – 51% {Shell Gas B.V (25.6%), Total Gaz Electricite Holdings France (15%) and Eni (10.4%)} while FGN through NNPC holds 49%. In addition, NLNG is a Limited Liability Company and thus, has its own governance system.
Our unique shareholding structure remains an inspiration to other Nigerian companies within and outside Oil and Gas sector; we owe most of our successes to this structure and “the NLNG Model”. NLNG’s shareholding and governance structure is the first of its kind in the Nigerian oil and gas industry.
The Company’s structure guarantees that an independent Board of Directors is at the pinnacle of governance, and makes effective decisions for the company. Over the decades, this structure has supported the achievement of the company’s vision of being a global company helping to build a better Nigeria. This is in addition to other critical success factors such as funding, transparency, accountability, sustainability, reliability and disciplined delivery making NLNG arguably the most successful and efficiently run Nigerian business in the industry.
Q 2: So, what exactly are the direct benefits of NLNG’s model and operations to the Nation?
Our successes are very consistent with our vision - “To be a global LNG company, helping to build a better Nigeria”. Nigeria plays a significant role in the global energy sector, holding the position of the largest oil and gas producer in Africa and the 6th supplier of global LNG through the operations of Nigeria LNG Limited. We have consistently created value for our shareholders and other stakeholders over the last two decades and are poised to continue to do so.
Nigeria LNG has paid about US$18 billion as dividends to the Federal Government of Nigeria, through the state-owned Nigerian National Petroleum Corporation (NNPC) 49% shareholding and equivalent amount as dividend to the other three shareholders in the same time period. We have also paid about US$15 billion for feed gas purchases to the Federal Government of Nigeria through its shareholding in NNPC.
Nigeria LNG has paid about USD9 billion in taxes comprised of Companies Income Tax, Tertiary Education Tax, Withholding Tax and Value Added Tax. Other payments made to Government include PAYE (pay as you earn), state and local government taxes, as well as regulators’ levies and fees over $134million.
In addition, Nigeria LNG remains a major influencer in the domestic LPG sector. Presently, we have dedicated 350ktpa of LPG supply to the market. Our focus is to support the use of cleaner energy to protect our citizens and the environment from the hazards posed by other cooking fuels by encouraging the use of cooking gas. Our commitment to environmental safety is accentuated by the fact that our operation has drastically reduced Nigeria’s gas flaring profile from about 65% percent in 1999 to less than 12% today.
In line with our vision, we remain committed to build a better Nigeria by building human capacity and developing local industries through our projects. The construction contract for 6 new DFDE Vessels awarded by one of our subsidiaries, (BGT) to Samsung Heavy Industries (SHI) and Hyundai Heavy Industries (HHI) made remarkable provisions for local content:
- Export of 480,000Litres of paints by PCMN and Berger Paints Nigeria Plc
- Export of over 180,000meters of low voltage cables by Nexans Kabelmetal to Korea
- Over 9,000 pieces/158 tons of Aluminums and Zinc Anodes were exported by Metec West Africa
- All the moveable furniture in these 6 vessels were made by 2 Nigerian companies; IO furniture Limited and Vina International Limited
- Training of over 700 Nigerians in ship building both in Nigeria and South Korea.
- Maritime Centre of Excellence (MCOE) was also set up to provide marine and technical shipping services within country etc.
Indeed, our other records speak for themselves. Our Train 7 project alone will attract over USD10 billion into the country creating over 12,000 direct jobs and 40,000 indirect jobs when it takes off.
No wonder we were voted Nigeria’s “Company of the Decade” by a major media house in the country; we also emerged as employer of choice in Africa and best company in Africa in the area of poverty alleviation consistent with our corporate vision. The idea of helping to build a better Nigeria, I believe, should also serve as an inspiration to other companies in support of the country.
Q 3: How do you forecast the global gas industry will evolve in the mid-term 3-5 years and long term – 10yrs plus from now?
Gas is an important part of the global energy story, currently accounting for about 25% of the energy consumed. However, as you are aware, there is an increasing push for energy transition from fossil fuels to new energy sources.
The industry fully recognizes the case for this switch and the need to be involved in the protection of our planet whilst still ensuring the provision of adequate and affordable energy to fuel the growing world population and economies.
Whilst a quick switch to renewables and other cleaner energy sources is desirable, current data indicates that in reality, this cannot be achieved sustainably on a global scale overnight. We must therefore find a way to bridge the gap between where we are today, and where we desire to be. This is the role that gas is expected to play in the medium and long term. Despite being a fossil fuel, gas is cheaper, cleaner and increasingly more available than the traditional oil fuels and it can support realistic transitioning to the new energy world order.
Most forecasts show gas retaining and possibly slightly growing its share of the energy mix up till at least 2040, though the estimates could change due to the potential long–term impact of the ongoing pandemic which has seen some renewed calls for faster decarbonization. Now, it is difficult to project how much of an impact the pandemic will have as this is just the beginning of a new era. Everyone is still trying to understand what is going on and how to tackle it but as things hopefully begin to settle down over the next few years, and hopefully, with the development of effective vaccines, it will become clearer what the true outlook is. Whatever the case though, we are confident that gas will continue to play a significant role in fueling the world for at least the next 20-30 years.
Q 4: What will be the impact of this mid-term and long-term forecasts on the Nigerian Economy?
Nigeria is blessed with abundance of GAS, with 200TCF proven reserve ranked 9th in the world with potential to be 4th considering the another 600TCF scope for recovery. This portends a prosperous future for Nigeria. So, indeed, the future is gas, and Nigeria is very well positioned to take advantage of it. Despite the growing competition and our peculiar challenges, I am confident that the future is ours.
However, as was the case with coal dying out in many parts of the world over time, the window of opportunity for getting best value for the country from gas might not last forever. There is still coal in Enugu. The fact that GAS will continue to be a choice fuel well into the future, and will possibly co-exist with renewable energy, reinforces the need to maximize this opportunity and make sound investments in Gas projects in Nigeria quickly. The time for gas is NOW!
The addition of Train 7 at this time will undoubtedly create more export revenue earnings for the country and further deepen the monetization of gas that would otherwise have been flared. Train 7 will bring further value adding activities on the domestic front as it is expected to create over 12,000 new jobs, especially in the construction phase and it will attract Foreign Direct Investment (FDI) for Nigeria in the Upstream and other associated projects coming on stream. The multiplier effect of all these activities will also help in stimulating the Nigerian economy. The long-term implication of making these investments in the short and medium term, is a diversified revenue base from oil, which will begin to face declining share of the global energy mix in the next few decades.
Q 5: What do you consider the key Gas developments & monetization challenges in Nigeria?
Inadequate Infrastructure: Slow pace in the development of infrastructure is a great concern. Current gas transportation infrastructure is a bottleneck to domestic gas supply. There is need for an aggressive gas infrastructure blueprint and backbone pipeline infrastructure development such as the AKK pipeline currently being financed by FG.
Security of Assets/Supply: Pipeline vandalism is another critical challenge. Gas-based industries suffer from frequent gas supply outages due largely to vandalism/militancy/ sabotage. The need to provide more security for the protection of Oil and Gas Assets, and Infrastructure, cannot be overemphasized in order to encourage investment in gas development, production, processing and transportation/distribution.
Lack of viable commercial framework: A Fixed/regulated gas price does not guarantee willing seller/buyer arrangement which will engender firm investments and returns. Under-investment in Gas exploration, appraisal and development activities is a major challenge. There is paucity of investment in gas processing facilities as well due to inconsistent policies, unattractive commercial framework, security of investments, etc. All these have led to decline or stagnation in gas reserves, production, and commercialization.
General Business Climate: The ease of doing business index in Nigeria is still regrettably low, despite FG’S efforts to move the needle in that area. Government support is required to provide incentives and guarantees that could act as an enabler for investments.
Sanctity of Contracts/Agreements: Frequent violation of contracts and payment obligations with no recourse for redress is a major impediment. Legal frameworks need to be strengthened to curb this
Regulatory Uncertainties: Inconsistencies in government policies discourage investments and fuels violation of contracts. Agencies of government need to be aligned to deliver long term aspirations beyond immediate and short-term revenue targets.
Power sector illiquidity: Liquidity issues facing the power sector has a direct impact on the liquidity of the entire gas sector. Deregulation of the Power Sector by adopting the Willing Seller and Willing Buyer philosophy will guarantee commercial tariffs that will sustain the industry and thus entrench development and utilization of gas reserves
Q 6: As the nation turns 60, what should we be paying attention to, what opportunities should we be taking advantage of especially in the Oil & Gas Industry?
Nigeria has abundant Gas reserve (probable 600TCF and proven 200TCF). Nigeria is ranked 9th globally in terms of proven gas reserves, but most of it remains untapped. Australia with 128 TCF has 88MTPA LNG Capacity, Malaysia with 97 TCF has 29 MTPA output, Indonesia with 103TCF has 26 MTPA output, while Nigeria with 200TCF is still at 22MTPA, with potential to grow to 30 MTPA with NLNG T7. Concerted efforts must be made to deepen gas utilization for export as LNG & NGLs. FG must support companies, especially NLNG’s aspiration to further grow even beyond Train 7.
Concentration on power generation through gas:
The current drive of the Federal Government through the National Gas Policy is to ensure our natural gas is harnessed to address the crippling power sector amongst others. Availability of sustainable power will drive other sectors of the economy and to boost the GDP. A typical example is the establishment of the National Integrated Power Project (NIPP) scheme.
Industrial Use: Natural Gas can be used for a variety of industrial processes e.g. space heating, raising of steam via boilers, furnace operations, etc.
Petrochemicals and Fertilizers: Natural gas can be used for production of Polyethylene and Polypropylene products. The Indorama Eleme Petrochemicals Company Limited (IEPL), formerly known as Eleme petrochemicals Company Limited (EPCL) is an active player in this segment. Natural gas is used as chemical feedstock for fertilizer and methanol production. This can be a catalyst for growth in the agro-industries.
Transportation: Compressed Natural Gas (CNG) is used as fuel for Natural Gas Vehicles (NGV) like forklifts, cars and buses. It is especially attractive to organizations that operate large fleets of vehicles, enabling them to enjoy considerable economies of scale. The Dangote trucks are examples of vehicles being retrofitted to use CNG as fuel. This will also significantly reduce the carbon foot print since gas is much cleaner than PMS or AGO
Q 7: What then do we need to do to bring all these, home?
The Federal Government has taken some positive steps to make doing business in Nigeria easier. Among these steps include issuance of Visa on Arrival, changes in processes of registration of companies and the update to the Companies and Allied Matters Act. Furthermore, the Honourable Minister of State for Petroleum Resources, Chief Timipre Sylva has expressed interest in unlocking the potentials in the sector with the passage of the Petroleum Industry Bill and even declaring the year 2020 as the year of gas. In turn, this will have a salubrious effect on other sectors of the economy.
However, there is still a lot to do for us to attract investment in gas sector:
- Deepen the Natural Gas Policies (Gas Utilization and Monetization)
- Elaborate Fiscal Reforms (NAGFRA - Natural Gas Fiscal Reform Act)
- Gas Master Plan- implementation considering current realities
- Passage of PIB for investors’ confidence
- Incentives – Tax holidays, Duty waivers, Pioneer status etc.
- Government Guarantees & Assurances – To boost Foreign Direct Investment (FDI) in the gas sector
- Strengthen the legal system so that commercial cases are dispensed with expeditiously.
- Sanctity of Agreements – Complying with the terms and conditions of international business agreements
In the energy mix of the future, Gas will continue to play a pivotal role not just as a transition fuel, bridging the gap in the movement from fossils to renewables, but a smart partner because renewable energy will likely not achieve 100% reliability due to downtime of natural energy sources like wind and solar. This for me is a silver lining since gas will be relevant for much longer.
The Energy Transition push means that there might not always be a use or market for our oil and gas. However, the fact that it is a transition and not just a magical flip of a switch means that as a country we still have a window of opportunity we must utilize to position us for a world beyond fossil fuels. Whilst we work hard at capturing the external opportunities that remain, there is an even more important part of the story we must begin to pay more attention to. That is how to directly apply gas to the industrialization and development of Nigeria economy.
Power is critical for development and is one nut that we have been unable to crack to date. We need power to cater to our burgeoning population – to light up homes and businesses and power various industries. We also need to fuel the agricultural and petrochemical sectors and all other critical pillars that support a prosperous economy. Gas is well capable of providing the energy required in all of these areas if only we can remove the obstacles that have hindered full achievement of its potential. As we go through a global reset occasioned by the COVID-19 Pandemic, now is a good time to push beyond the long-drawn conversations and get to action. As a company we understand how critical this is, and we will continue to play our role as a pace setter and leader in helping to actualize the full potentials of gas monetization in Nigeria in keeping with our vision of helping to build a better Nigeria.
Nigeria has ridden on the back of oil for more than 50 years. It is time to fly on the wings of gas!
Q 9: How can you assess the global outlook for the LNG business post COVID-19?
As we all know, COVID-19 has also tested all aspects of business and entire global economy forcing companies to find newer and safer ways of working to manage the unique risks introduced by the pandemic. This is a Pandemic like no other before – Very Uncertain, Very Unpredictable, Very Complex and More Severe than anything we have ever seen in the history; not even the 1918 Spanish flu in terms of the economic impact.
This is a new experience for us all however, the bright side is that we have also seen a global response with the entire world unified towards helping to put the virus under control! I hope that we get approved vaccines soon. The situation is worsened by the drop in crude oil prices to a 21-year low on account of increased supply juxtaposed with very low demand due to the general disruption in manufacturing activities and aviation which are major energy consumers. These factors worsened the glut in liquefied natural gas (LNG) market. Though the market has rebounded slightly since oil prices stabilized around $40/barrel and governments have eased lockdown measures significantly.
I personally believe that the world will recover and the LNG industry will rebound even more. However, despite the IMF predicting a boost in global demand and economic recovery in 2021, until the scourge of the pandemic is curtailed, it is difficult to give an accurate timeline for recovery of the LNG business at this point.
Q. 10: Nigeria LNG is a major exporter of LNG and NGLS globally. What is the company doing to deepen LPG & LNG utilization in-country?
We continue to deliver on our vision of helping to build a better Nigeria by catalyzing the transition of domestic cooking fuel from the usual biomass and wood to LPG. Nigeria LNG remains a major influencer in the sector. We have dedicated 350,000 metric tonnes of LPG to the market helping to raise the total consumption from the initial 70,000 tonnes in 2007 prior to NLNG getting involved.
We are fully committed to delivering cleaner energy and to protect our citizens and the environment from the hazards of smoke inhalation while cooking with firewood and other sources of fuel which on record accounts for over 100,000 deaths in Nigeria, mainly women and children just trying to put food on the table. We are set to reverse this trend and to change the narrative with LPG, in addition to helping Nigeria preserve Forex from Kerosene importation and reducing deforestation.
Also, our domestic LNG (DLNG) initiative is a deliberate effort to enhance access to a healthy, safe and cleaner energy source, which is a dire need in Nigeria today. Consistent with NLNG’s vision of helping to build a better Nigeria, the initiative will support the economic development of the country and industralisation. NLNG is well positioned to support domestic gas demand and market growth through Volume Optimization. The strategy is to deepen NLNG’s footprint and enhancement of NLNG’s relevance in the domestic market as well as to ensure local gas utilization in line with our country’s national gas aspirations. The potential for Domestic LNG exists with credible off-takers and the we are already exploring the possibility of LNG to Power with gas-based users across the country.
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