Egbin Power Plant plans to build a liquefied natural gas terminal to solve a severe shortage of gas


Liquefied Natural Gas (LNG) for export is great… However, LNG to power has become imperative for an energy starved Lagos!
Light Up Lagos!

Lagos is reported to have a population of over 20 million people and is still growing, Lagos is said to consume over 40% of the premium motor spirit consumed by Nigeria as a whole on a daily basis. Governor Akinwunmi Ambode has been drumming up support for his light up Lagos plan, this liquefied natural gas terminal might just be the tipping point for him…

Lagos has the opportunity to become the LNG import hub for Nigeria and Africa as a whole.
Egbin to the rescue…

Owners of Nigeria’s largest power plant located at Egbin Power Plant near Lagos are planning to build an LNG import terminal, as it seeks to solve an acute shortage of gas according to Chief Executive Officer Dallas Peavey.

What is LNG?
LNG is gas frozen to liquid reducing its original size by 1/600. LNG is a liquid which can be shipped in, this might give Egbin some respite from the constant attacks on pipelines, which has reduced its gas supply, switching to LNG may also open Egbin up to multiple suppliers of LNG struggling for new markets. It is plausible that Egbin may be able to ensure the stability of gas supply to the market with a floating LNG terminal for importation.

What is an LNG Terminal?
An LNG terminal is a purpose built port used exclusively to export or import LNG.

“LNG import terminals” as a service?
The LNG terminal can be used strictly for Egbin or/and for other players who may also want access to LNG.
Egbin has the opportunity to champion the use of LNG import terminals for its sole use, or the use of LNG import terminals as a service to other gas consumers…

LNG Pricing
Concerns about LNG prices rising are a real concern, it is hoped that the price indexation/decoupling of LNG prices may have ended.
Historically there has been some relationship between the price of crude oil and that of natural gas that is, barring any unforeseen occurrences like natural disasters etc.

Decoupling of prices is usually temporary. However three factors tend to point to a possible permanent decoupling of prices and a possible dip in some areas. They are:
1. The globalization of natural gas
2. Specialization in all parts of oil and gas industry by companies
3. The emergence of Shale Gas.
Quite a number of industry experts agree that LNG prices change with time, thus, Egbin may consider benchmarking its projections on possible higher prices or hedge against a rise in LNG prices.

Egbin may do well, to avoid the mistake some indigenous oil companies made; those oil companies banked on higher crude oil prices, which eventually fell.

Egbin should be wary of banking on low LNG prices, which may eventually rise, when demand rises or supply falls.
Egbin should avoid limiting its LNG supply to “local sources”. Our “local sources” of LNG may be given a right of first refusal, but at no point should Egbin limit itself, as our “local sources” of LNG may be fixated on export of their product…

Buyers Market v Sellers Market
It is now a buyer’s market in the LNG world; sellers are aggressively wooing buyers…

Qatar LNG recently gave a huge discount to India, waived a penalty and has been selling on the “spot market” too.
“The new formula between the two companies is in the interests of a win-win. Where the previous contract meant that Petronet had to buy LNG at $12-13 per mmBtu, the new contract means a price of $6-7 per mmBtu,”.

Iran has started supplying LNG to Kenya, Tanzania and South Africa.
Long Term Contracts v Spot Markets
Egbin should try spot markets and negotiate a long term deal if the price is right, preferably with a major player like Qatar Gas LNG or a player like Iran keen on gaining market share.

Long term LNG contracts have given way to spot markets, it’s no longer a seller’s market, it’s now a buyer’s market. There are quite a few LNG projects on the ground, floating and in the pipeline but consumption is not spiking per se.

India renegotiated a long term LNG contract recently and got a 50% discount. I believe Egbin should negotiate for the best deal it can get, since it’s building an LNG terminal.
Egbin may consider prospecting for a seller, willing to finance the construction of the LNG terminal…

Hydraulic fracturing has increased the supply of natural gas available. It has been reported that, 5 (five) LNG export terminals are being built along the U.S. East Coast alone, making the possibility of an LNG glut more feasible. Egbin LNG import terminal will be very handy for gas exporters from the U.S.A, Qatar and Iran to enter the Nigerian market.
In Africa, it is reported that there are at least 5 (five) planned LNG import terminals , Cotonou LNG Import Terminal, Benin, Ghana FSRU LNG Import Terminal, Ghana, Jorf Lasfar LNG Import Terminal, Morocco, Mombassa LNG Import Terminal, Kenya and Mossel Bay LNG Terminal, South Africa.

The Croatian Paradigm

Land Based LNG terminal v Floating LNG terminal

Croatia has been reported to have opted to go for an FLNG (Floating LNG) terminal to commence LNG import over a land-based LNG terminal.

This FLNG import terminal is expected to reduce the construction costs of an LNG terminal and will require only two years to be fully operational. It will be the world’s first offshore LNG regasification terminal. It is 47-metre (154 ft) high, 88-metre (289 ft) wide, and 180-metre (590 ft) long.

It was reported that, the FLNG terminal will be operated by Qatar Terminal Ltd., a subsidiary of Qatar Petroleum and some other companies.

Conclusion
The benefits of an LNG import terminal may far outweigh its cost, avoiding gas supply disruptions due to ruptured pipes may be the least of such benefits, while the possibilities range from security of gas supply, to the possibility of long term storage tanks, to opening the window for the use of gas for transportation and helping a nation complete its energy circle.

Olufola Wusu is a Commercial, Oil and Gas and I.P. Lawyer based in Lagos
Olufola Wusu Esq. © 2016
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