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Brass LNG: Looking into the Horizon

01 Jan 2013

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With Nigeria losing her supply position of global Liquefied Natural Gas (LNG) output, Ejiofor Alike writes on the need for interest at the highest level of government to ensure early signing of the Final Investment Decision (FID) for Brass LNG project
 
How it Began
Conceived during the administration of former President Olusegun Obasanjo, the project suffered neglect and was virtually pushed to the back door, especially after the departure of Dr. Jackson Gaius-Obaseki as the group managing director of the Nigerian National Petroleum Corporation (NNPC), for reasons many attribute to political consideration.

However, faced with a credibility problem on the subject, credit must be given to former President Obasanjo himself, who in his last days in office, was not in doubt as to who he had to look for to drive the vision for the project.

Obasanjo in his wisdom had to look for Gaius-Obaseki, a credible professional with proven track record, who enjoys respect of all in the industry, as the chairman of the Board of the Brass LNG Ltd. Rumours had it that but for the passion, which Gaius-Obaseki has for the Brass LNG project, having conceived the project, it would have been difficult to persuade him to come back and champion the project, after he had left the NNPC.

The Brass Liquefied Natural Gas (LNG) project located in Brass Island of Bayelsa State is designed to produce 10million metric tonnes of LNG per year. The Nigerian National Petroleum Corporation (NNPC) holds 49 per cent equity in the project, while United States owned oil company, ConocoPhillips; French oil giant, Total and Italian company ENI hold 17 per cent stake apiece in the Brass LNG Ltd.

However, the NNPC plans to divest 17 per cent of its stake in the project after the FID. Of the 17 per cent to be divested, Bayelsa and Rivers State Governments are proposed to take five per cent each, while the remainder will go to NNPC’s strategic investors.
With a pre-FID expenditure of over $1billion, a lot of early works have been completed on the site, demonstrating the faith of the shareholders in the project.

Comfort is also drawn from the fact that the projected 10million metric tonnes of LNG to be produced yearly have been virtually sold. In other words, they have all been committed to different buyers. However, the buyers will be unable to sign the Sales Purchase Agreement (SPA) until after the Final Investment Decision (FID) has been signed.

In terms of construction, three major contractors are expected to undertake the building of the three different packages – The gas train; The onshore Components and The offshore Components. Two of the three contractors have already been selected, whilst the third contractors at the last stage of selection. So, for all intents and purposes, the contractors’ selection stage is virtually completed. This selection was done vide internationally-accepted processes

Funding
The funding scheme for the multi-billion dollar project has been agreed to by the shareholders. The shareholders are however working on the details of the funding agreement at the moment. So, with the LNG committed, contractors selected, funding agreed to, what is then holding the FID for the Brass LNG Project? What are really the challenges?

Challenges in 2013
Although there is massive infrastructure on ground, the LNG to be produced already committed to different buyers, contractors selected and funding arrangement put in place, there are however glaring challenges, which the Brass LNG, led by Obaseki, himself an industry professional , has to grapple with in 2013.

There is no doubt however that the board will require commitment of all the stakeholders and support by the Federal Government, especially President Goodluck Jonathan and the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, which industry sources claim the board and management of the project already enjoy.

The first major challenge to the execution of the Brass LNG is gas supply. Although discussion is ongoing on this subject between Brass LNG and the gas suppliers –Total Joint Venture (JV); Nigerian Agip Oil Company (NAOC) JV, and Chevron JV, THISDAY gathered that agreements on fundamental issues are far-fetched.

Records have it that the Chairman of the board, himself, who enjoys the respect of these International Oil Companies (IOCs) have engaged in diplomatic shuttle to their headquarters to build an alignment between them and the shareholders. The NNPC is also working assiduously to provide the comfort and assurances the suppliers are in dire need of, but a lot still needs to be done and this cannot exclude intervention of the highest level of government.

THISDAY gathered that the suppliers insist they have to invest heavily in gas development if they are to commit to a Gas Supply Agreement (GSA) for 25 years with Brass LNG. Their concerns, industry sources say, include the ability of NNPC to fund its own share of Joint Venture cash call for this development.

The second major challenge to the project is the impact of the Petroleum Industry Bill (PIB), which the gas suppliers claim, recommends harsh fiscal regimes that will make gas development very challenging.
The IOCs assured that the country has enough gas reserves but it needs to be developed to meet the supply requirement of the project and probably, other gas-dependent projects, which could include power supply, as well.

The third challenge is the exit of one of the partners – ConocoPhillips of the United States, whose departure and planned sale of its shares was recently announced.

Sources close to the board informed THISDAY that this is one challenge the chairman and the board has been cracking their brains on how to manage. It was also gathered that at a recent meeting held between the chairman and the vice president of ConocoPhillips in London, the chairman was quoted to have, in his characteristic manner of saying things the way they are, told ConocoPhillips point-blank that their exit would have an impact and solicited their support in managing the impact so that it does not delay the project.

What did ConocoPhillips bring to the table that they are taking away with their exit? The company brought in technology, which has been acquired; they brought in expertise and experience, and of course financial muscle. How these can be replaced will be one of the challenges that the board, management and the shareholders have to cope with in 2013.

In spite of these challenges, the country is hopeful that the Brass LNG project will be realised, having as the head of the board, a tested man like Gaius-Obaseki, who has strength of character, credibility and who also commands respect amongst all industry players.
Given the foregoing, it therefore stands to reason that, having lost her influential position in the global LNG supply chain, Nigeria cannot afford to wait any longer for the FID of the Brass LNG.

Tags: Brass LNG, Business, Featured, Nigeria

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