Nigeria to Suffer Revenue Shortfalls as Supply Glut Weighs on LNG Demand

Nigeria’s Foreign Revenues Plunge With Fall in LNG Demand

The Federal Government may have to look for alternative sources of funds for the 2020 budget as global gas glut continued to weigh on demand.

Recent data showed that demand has collapsed in the LNG market just like in the oil market due to coronavirus pandemic.

Due to the pandemic, buyers who were under long contracts were said to be postponing the delivery of their products since they don’t have an immediate need for it. According to sources, this was also due to the extremely low prices that have forced many traders to keep their products in terminal tanks, thereby, creating the highest inventories at European import facilities.

Accordingly, this development is expected to further compound the government’s fiscal buffer woes and hurt foreign revenue generation.

To understand the size of NLNG revenue, the Federal Government generated an average of $700 million per year between 2015 and 2018 from its 49 stake in NLNG. In fact, Nigeria earned $3.102 billion in the four years that ended in 2018.

A break down of the government earning shows a sum of $356.126 million was generated in 2016, $698.149 million in 2017 and $904.498 million in 2018. While $1.043 billion was realised in 2015, the highest in recent years.

According to Nigeria’s Economic Sustainability Plan, “This means that dividends from LNG are also not forthcoming. In effect, our major sources of foreign exchange have dried up. This means that our external reserves get little or nothing by way of augmentation.”

The decline has come at a time Nigeria is looking to up revenue and revamp fall in economic activities due to COVID-19 lockdown.

Ademuyiwa Adegun, an Abuja-based gas commercial advisor, said “Due to the sharp fall in oil prices, spread between oil-indexed long-term LNG contracts and spot contracts has considerably reduced which will make it challenging for most LNG producers to meet revenue targets.”

“A rapid decline in gas demand is affecting the financing of capital-intensive new liquefaction projects, leading to inordinate delays and capex reductions,” Adegun added.