Economy

NLNG Needs $12b to Boost Expansion

Published

6 years ago

June 8, 2018

NLNG Needs $12b to Boost Expansion

The Nigerian Liquified Natural Gas (NLNG) will require investment of about $12 billion to fund the construction of two new processing units, known as trains.

The terminal currently has six smaller trains in which gas is compressed and cooled to 258 degrees below Fahrenheit (minus 161 Celsius), before being piped as LNG onto ships at nearby jetties.

According to New York-based Teneo Intelligence, the firm will need the funds to boost production capacity.

The firm, located on Bonny Island, Rivers State, said it will decide later this year whether to invest more than $10 billion to boost capacity by 40 per cent. That would allow the Bonny Island terminal – an hour’s ferry ride from the oil hub of Port Harcourt – to export as much as 66 million cubic meters (30 million tons) a year to markets in Europe and Asia.

Nigeria is the largest LNG producer in the region and wants to get bigger.

NLNG’s shareholders are Royal Dutch Shell Plc, Total SA, Eni SpA and the Federal Government through state-run oil firm, the Nigerian National Petroleum Corporation (NNPC). The shareholders must weigh the benefits of expanding their profitable LNG venture against the threat of higher taxes, pipeline vandalism in the Niger Delta and volatile gas prices. Those concerns have already delayed the project first mooted in 2012.

Any further interruptions will increase the risk that Africa’s biggest oil producer misses the global transition to cleaner fuels and a chance to reduce its stuttering economy’s reliance on crude.

Nigeria’s 49 per cent stake in the venture has proved lucrative, earning the government $16 billion of dividends from 2004 to 2016, according to statements on NLNG’s website. Buhari used those payouts to bail out several states in 2015, after the oil-price crash battered the economy, and this month it transferred $650 million of NLNG proceeds to its sovereign wealth fund for infrastructure development.

An analyst with Bloomberg New Energy Finance in Singapore, Maggie Kuang, said the country would need to strike when the iron is still hot by taking advantage of existing opportunity. “Nigeria needs to take the opportunity. The next few years are critical for investment decisions. If Nigeria does not take any action, it will fall behind,” Kuang said.

Last year, Nigeria shipped 46 million cubic meters of LNG, making it the world’s fourth-biggest exporter behind Qatar, Australia and Malaysia, according to data compiled by Bloomberg. It also faces increasing competition from the United States (U.S.), Russia and Mozambique in an LNG market where demand is set to double to about 1.28 billion cubic meters by 2030, according to Sanford C. Bernstein & Co.

French oil giant Total declined to comment, while Italy’s Eni and Nigeria’s NNPC didn’t respond to requests for comment. A Shell spokesman referred queries to NLNG.

Nigeria has no shortage of gas. Its almost 5.7 trillion cubic meters of proven reserves are the biggest in Africa, but supplies to NLNG can be erratic.

Flows were reduced by 10 per cent at one point last year amid shutdowns at oil and gas fields in the Delta region as thieves tapped into pipelines. Shell said this week that attacks, ranging from piracy and theft to vandalism and kidnapping, continue to put a brake on output.

Guaranteeing enough throughput for the new, larger trains at Bonny Island will require investment from gas producers to increase supply and improve security, according to NLNG.

There are also fiscal concerns, with some Nigerian politicians wanting to remove tax breaks enjoyed by the venture. President Muhammadu Buhari’s government is against such a move, which NLNG says would kill off its expansion plans.

Should that threat be averted, the business case for the LNG project is good, according to Gail Anderson, research director for sub-Saharan Africa upstream oil and gas at Wood Mackenzie in Edinburgh.

“The economics of NLNG have always been pretty robust. It has been a tremendously successful project that accounts for a large chunk of the international oil companies’ value in Nigeria,” she said.

Crucially, the oil majors have retained a majority stake, said Malte Liewerscheidt, a West Africa analyst at Teneo.

“That has allowed the company to operate successfully thanks to limited political interference,” he said. “NLNG is widely regarded as the most efficiently run company with major government involvement, much unlike the entirely state-owned NNPC.”

To maintain that position and Nigeria’s clout among global energy giants, the new trains must be built, NLNG Managing Director Tony Attah said in February. The cleaner fossil fuel offers a better long-term option than crude, he said.

“Nigeria has to begin to think about the relevance of oil in the future,” Attah said. “The energy mix is fast-changing and Nigeria has to come to terms with that. The best bet is for gas.”

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Economy

Fed Slashes Interest Rates by 0.5% to Steady Job Market and Inflation

Published

4 hours ago

September 18, 2024

Samed Olukoya

The Federal Reserve on Wednesday enacted its first interest rate cut since the early days of the Covid pandemic, slicing half a percentage point off benchmark rates in an effort to head off a slowdown in the labor market.

With both the jobs picture and inflation softening, the central bank’s Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, affirming market expectations that had recently shifted from an outlook for a cut half that size.

Outside of the emergency rate reductions during Covid, the last time the FOMC cut by half a point was in 2008 during the global financial crisis.

The decision lowers the federal funds rate to a range between 4.75%-5%. While the rate sets short-term borrowing costs for banks, it spills over into multiple consumer products such as mortgages, auto loans and credit cards.

In addition to this reduction, the committee indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year, close to market pricing. The matrix of individual officials’ expectations pointed to another full percentage point in cuts by the end of 2025 and a half point in 2026. In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond Wednesday’s move.

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.

The decision to ease came “in light of progress on inflation and the balance of risks.” Notably, the FOMC vote was 11-1, with Governor Michelle Bowman preferring a quarter-point move. Bowman’s dissent was the first by a Fed governor since 2005, though a number of regional presidents have cast “no” votes during the period.

“We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation. That’s what we’re trying to do, and I think you could take today’s action as a sign of our strong commitment to achieve that goal,” Chair Jerome Powell said at a news conference following the decision.

Trading was volatile after the decision with the Dow Jones Industrial Average jumping as much as 375 points after it was released, before easing somewhat as investors digested the news and considered what it suggests about the state of the economy.

Stocks ended slightly lower on the day while Treasury yields bounced higher.

“This is not the beginning of a series of 50 basis point cuts. The market was thinking to itself, if you go 50, another 50 has a high likelihood. But I think [Powell] really dashed that idea to some extent,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “It’s not that he thinks that’s not going to happen, it’s that he’s not he’s not pre-committing to that to happen. That is the right call.”

The committee noted that “job gains have slowed and the unemployment rate has moved up but remains low.” FOMC officials raised their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June, and lowered the inflation outlook to 2.3% from 2.6% previous. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.

The committee expects the long-run neutral rate to be around 2.9%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.

The decision comes despite most economic indicators looking fairly solid.

Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on continuing strength in consumer spending. Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target. The Fed’s preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.

However, Powell and other policymakers in recent days have expressed concern about the labor market. While layoffs have shown little sign of rebounding, hiring has slowed significantly. In fact, the last time the monthly hiring rate was this low – 3.5% as a share of the labor force – the unemployment rate was above 6%.

At his news conference following the July meeting, Powell remarked that a 50 basis point cut was “not something we’re thinking about right now.”

For the moment, at least, the move helps settle a contentious debate over how forceful the Fed should have been with the initial move.

Economy

Condemnations Trail Dangote-NNPCL Fuel Price Deal As Petroleum Crisis Persists

Published

9 hours ago

September 18, 2024

Ugwoke Ogbodo

There is widespread condemnation over the fuel price deal by the Dangote Refinery and the Nigerian National Petroleum Company Limited (NNPCL).

This is coming as some Nigerians have said that their hope of easing sigh of relief following the sector’s deregulation appeared to have been dashed as the price of the Premium Motor Spirit (PMS) commonly known as petrol has continued to hit the roof.

For the Minority caucus of the House of Representatives, the N980 per litre of pump price as agreed by NNPCL and Dangote Refinery is outrageous and exploitative.

Chairman of the caucus, Kingsley Chinda, said the development was a burden added to the already struggling Nigerians.

In a statement that he signed, the lawmaker expressed his outrage over the pump price that varies from N950 to N980 and above N1000 per litre depending on the parts of the country.

The statement said, “We find this pricing regime to be not only burdensome but utterly unacceptable, particularly in light of the fact that this fuel is refined locally.”

The lawmaker emphasised that locally refined fuel should be priced significantly lower than imported fuel, as it avoids costs such as landing charges and import duties, insisting that the pricing model was wrong for all intents and purposes.

“It appears Nigerians are unfairly exploited, especially at a time when many are facing severe economic challenges,” he said, urging NNPCL and Dangote Refinery to reconsider their stand in the interest of the poor masses.

The statement warned that allowing the current pricing arrangement to continue would only deepen the economic hardships of millions and erode trust in local refineries’ ability to deliver affordable fuel.

The caucus called on regulatory bodies and the government to urgently review the pricing framework to ensure Nigerians are not subjected to unsustainable fuel prices.

Also reacting, Senior Advocate of Nigeria and human rights activist, Femi Falana, condemned NNPCL for its role in setting the price of petrol, asserting that the actions of state oil companies are illegal and violate the Petroleum Industry Act (PIA).

In a statement, Falana cited Section 205 of the PIA, emphasising that the law requires petroleum prices to be determined by free market forces, not by the NNPCL.

He argued that the company’s involvement in price-setting contradicts the very deregulation process outlined in the law.

Economy

Ubeta Project to Produce 350 Million Standard Cubic Feet of Gas Per Day Once Operational – FG

Published

13 hours ago

September 18, 2024

Ugwoke Ogbodo

The Federal Government of Nigeria has said that once the Ubeta gas field is fully operational, it will produce 350 million standard cubic feet of gas per day.

With this dream realised, the Federal Government said the anticipated achievement would enhance energy security, attract investments, and strengthen collaboration with key partners.

This was made known by the Special Adviser to President Bola Tinubu on Energy, Olu Verheijen, at the inaugural US-Nigeria Strategic Energy Dialogue, hosted by the US State Department in Washington, DC.

Recall that the Nigerian National Petroleum Corporation (NNPC) Limited, in partnership with French energy giant TotalEnergies, had in July planned to invest a significant $550 million to develop gas facilities in oil-rich Rivers State.

Verheijen had announced the kickoff of a $550 million upstream gas project between Nigerian National Petroleum Corporation Ltd. (NNPCL) and TotalEnergies for the development of the Ubeta field.

At a luncheon during the dialogue, Verheijen mentioned that the upstream gas project would produce 350 million standard cubic feet of gas per day once operational.

A statement from Morenike Adewunmi, Stakeholder Manager, Office of the Special Adviser to the President on Energy, quoted Ms. Verheijen as informing the gathering that President Bola Tinubu’s major energy reforms since June 2023 have been aimed at enhancing energy security, attracting investments, and strengthening collaboration with key partners, including the US government.

According to her, the reforms have significantly improved the viability of Nigeria’s gas-to-power value chain.

She explained that in support of the reform efforts, the President issued five new executive orders designed to offer fiscal incentives for investment and reduce the cost and time required to finalize and implement contracts for developing and expanding gas infrastructure.

Verheijen said that the directives aim to immediately unlock up to $2.5 billion in new oil and gas investments in the country.

She acknowledged the valuable support of financing and technical partners, including the US government, the World Bank, and the African Development Bank, in efforts to expand electricity access and reliability through both grid and off-grid solutions.