NLNG Dividend to NNPC Reaches Eight-Year Peak
Official data reveals that the dividend paid by the Nigerian LNG Limited (NLNG), the largest gas exporter in Nigeria, to the Nigerian National Petroleum Company Limited (NNPC) has reached its highest level in eight years. In 2022, NLNG’s revenue increased by over a third, reaching $7.59 billion, the highest since 2014.
According to the NLNG’s latest Facts and Figures report, the dividend paid to the state-owned NNPC surged by 52 percent to $1.10 billion from $722.44 million in 2021. This marks the highest dividend payment to NNPC since 2014 when it received $1.39 billion.
The NLNG currently has over 70 spot liquefied natural gas (LNG) master sale agreements with various counterparties across major LNG markets and emerging demand centers, facilitating the prompt sale and optimization of production volumes.
“Given the constantly evolving and volatile nature of the energy market, exemplified by the demand destruction during the Covid pandemic and then the spike in European LNG demand/global gas prices due to the ongoing Russia-Ukraine war, the ability to remain a consistent and reliable supplier to our buyers will continue to be a key success factor going forward,” he said.
Output decline poses a threat to record revenue
The Nigerian LNG Limited (NLNG) has experienced a decline in its output due to gas supply constraints, leading to the imposition of a force majeure that has persisted for over a year. This situation poses a threat to the company’s revenue for the current year.
On October 17, 2022, NLNG declared a force majeure on product supplies from its production facilities on Bonny Island, in response to similar declarations by all its upstream gas suppliers. The force majeure was prompted by high flood water levels in the operational areas of the gas suppliers, resulting in a shutdown of gas production and a significant disruption of gas supply.
Ayodele Oni, an energy law expert and partner at Bloomfield Law Practice, explained that the declaration of a force majeure event by NLNG implies the company’s inability to fulfill its gas delivery obligations, either partially or completely, to the parties with whom it has LNG sale and purchase agreements. This entails the suspension of NLNG’s performance obligations and financial benefits under such agreements.
“If the NLNG’s financial benefits are suspended, it means the revenue (or a part of) that should ordinarily accrue for the period when the force majeure event subsists would not be received,” he said.
“This no doubt hurts NLNG’s financial projections, and by implication, the NNPC/FGN’s expected revenue (especially in the form of dividends) from the NLNG.”
Ayodele Oni highlighted that a prolonged declaration of force majeure by NLNG could provide the counterparties, who are supposed to receive gas from NLNG, the right to terminate their agreements with the company.
Furthermore, this extended force majeure situation might discourage both existing counterparties and potential new ones from entering into similar gas delivery arrangements with NLNG. The uncertainty and disruption caused by force majeure can impact business relationships and future agreements.
“During this peculiar time, when the FGN is pressed to make decisions that affect the Nigerian economy, this even makes the task more difficult for the FGN, as it means less foreign exchange and revenues, generally,” he added.
In the previous year, Nigeria’s LNG exports amounted to approximately 14.7 million metric tonnes, as reported by S&P Global Commodity Insights. As of November 8 this year, the exports have reached 12.5 million metric tonnes, according to a report by S&P Global Platts.
The Nigerian LNG Limited (NLNG), with six operational trains, has a production capacity of 22 million tonnes per annum (mtpa) of LNG and 5 mtpa of natural gas liquids. This is achieved from an intake of 3.5 billion standard cubic feet of gas per day.
“The building of Train 7, which will lift the total production capacity to 30 mtpa of LNG, is currently progressing,” the company said.
The decision to invest in Train 7 was finalized in December 2019, marking a significant milestone after more than a decade of delays. Following this, the engineering, procurement, and construction contracts with the SCD (Saipem, Chiyoda, and Daewoo) JV Consortium were signed in May 2020. The groundbreaking ceremony for the Train 7 project took place on June 15, 2021.
As of November 7, the Nigerian Content Development and Monitoring Board reported that the construction progress of the $5 billion Train 7 project had reached 52%. Philip Mshelbila, the Managing Director of NLNG, mentioned that the output from the existing six-train plant had fallen below 50% of its nameplate capacity due to a shortage of gas supply.
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Philip Mshelbila explained that feed gas for the NLNG plants primarily comes from its joint venture (JV) partners, which include Shell Petroleum Development Company Limited, TotalEnergies, and Nigerian Agip Oil Company. However, the supply pipelines face recurring vandalism, facility failures, and reduced production from aging wells, leading to significant disruptions in supplies.
To address this challenge, NLNG is exploring various options, including collaborating with security agencies to prevent vandalism on the pipelines and working with JV partners to increase gas production. Additionally, the company’s board has approved the procurement of gas from other international and indigenous gas producers in the country, aiming to enhance the performance of Trains 1-6.
