By JEROME ONOJA AND AMOS IKE
It is stale news that the Final Investment Decision (FID) for the Nigerian Liquefied Natural Gas Train 7 project has been taken and Engineering, Procurement and Construction (EPC) has commenced. This article focuses on the possible impact of the project on Nigeria’s economic development, especially with the looming global economic downturn; the impact on the nation’s quest to deepen gas export and domestic consumption; job creation and; impact on indigenous servicing firms among others.
Nigeria had in May defied the global economic challenges brought about by the COVID-19 pandemic and signed a multi-billion dollars Engineering, Procurement and Construction (EPC) deal with the SCD JV Consortium to effectively flag off the commencement of work on the Nigerian Liquefied Natural Gas (NLNG) Train 7 project. The significance of the deal stems from the fact that, while other multinational oil companies were scaling down on their investments, with
majority of them discontinuing pending projects, the Federal Government, along with investors in the NLNG forged ahead.
NLNG is an incorporated Joint-Venture owned by four shareholders; the Federal Government of Nigeria, represented by Nigerian National Petroleum Corporation (49 per cent), Shell Gas B.V. (25.6 per cent), Total Gaz Electricite Holdings France (15 per cent), and Eni International N.A. N.V. S.àr.l (10.4 per cent). Specifically, during the signing of the EPC deal, Minister of State for Petroleum Resources, Chief Timipre Sylva, had stated that the COVID-19 pandemic would not discourage further investments in the Train 7 project, and insisted that the government and its partners had agreed that the project must continue despite the devastating impact of the pandemic on the global oil and gas industry and by extension, the Nigerian economy. He had stated that: “We cannot say that any project is immune to the global pandemic but projects like this one must go on. COVID-19 is a medical and economic problem. And
unless projects like this go on, the economic situation will really not improve.
So for us, projects like this will help us to also overcome the pandemic.”Also, Group Managing Director of the NNPC,
Mr Mele Kyari, had disclosed that proper consultations were done with all stakeholders involved, hence the optimism that the project would survive despite COVID-19 impact on the global oil market.
He said, “Every situation and consideration have been taken into account in taking a Final Investment Decision (FID) and releasing the EPC contract today. What that means is that despite this difficulty we are seeing in the global market and the prospect of economic growths being revised downward, this project will survive.
“That is why we and our partners confidently agreed to release the EPC for the contract. We have no doubt that this project will survive. By the way this project will come to play in five years’ time. “So it could come at a time when the global economy would have been completely reversed. I see no much difficulty with this project going forward.” Similar views were held by the chief executive officers of the other partnering companies who were present at the various signing ceremonies to kick-start the project. The decision of the partners to continue with the project is mainly as a result of the immense benefits the project holds for the company and for the country, especially during the period of the COVID-19 pandemic.
the best way to cushion the effect of the looming economic recession, is for the government, as well as private organizations, to increase expenditure.
The Train 7 project has provided a veritable means for the government and the company to increase their spending, as the project would ensure that economic activities continue, bringing to life most of the fabrication and construction yards thereby recording increased number of activities.
Servicing companies would also be engaged, as well as food vendors, insurance and banking sectors among many others. Upon completion, the project is expected to support the Federal Government’s drive to generate more revenue from Nigeria’s proven gas reserves of over 200 trillion Cubic Feet (Tcf) and further reduce gas flaring in the country’s upstream oil and gas industry. Specifically, Managing Director and Chief Executive Officer of the NLNG, Engr. Tony Attah, stated that the project represented yet another milestone in NLNG’s journey towards achieving its vision of being a global LNG company, helping to build a better Nigeria. He added that on completion, Train 7 would increase NLNG’s production capacity by 35%, adding another eight million metric tonnes of LNG to the current sustained 22 million metric tonnes production capacity of the existing plant, and generate huge value for the company, shareholders and the country.
Train 7 project is expected to
create immediate employment opportunities for more than 10, 000 Nigerians, and would attract foreign direct investment of about $25 billion to the country.
The project would have a multiplier effect on the Nigerian economy, as it would keep Nigeria prominently on the list of the top seven suppliers of global LNG, an enviable position for an African country to achieve in the face of evolving technological advancement which is managed by highly skilled Nigerian professionals of varying competencies.
creation of jobs for its teeming youths by netting up to 12,000 direct jobs at the construction phase
as well as the associated skills acquisition through a deliberate effort at technology transfer. Riding on the back of a robust Nigerian Content plan endorsed by the Nigerian Content Development Monitoring Board (NCDMB), 55% of the Engineering activities for Train 7 is scheduled to be carried out in-country also 55% of all procurement for execution of the project will be undertaken by Nigerian vendors.
One hundred per cent of the construction and installations is also scheduled to happen in Nigeria,
boosting Nigeria’s Gross Domestic Product (GDP), while attracting huge Foreign Direct Investment to her economy. Other benefits to be derived include the emergence of upstream and other associated projects that are expected to bolster Nigeria’s economy. The project would also help in monetization of flared gas and trigger gas-based industrialization especially.
As to date, the NLNG has converted about 191.5bcm (billion standard cubic metres) or 6.8tcf (trillion cubic feet) of Associated Gas (AG) to Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs), thus reducing gas flaring by upstream companies from over 60 per cent when it commenced operations, to less than 20 per cent currently.
The Federal Government and its partners in the NLNG disclosed that the Train 7 project was designed to aid speedy development of other LNG trains, noting that the target was to expand the facility to a minimum of 12 trains, which had been the vision of President Muhammadu Buhari for the NLNG
The project would also have a huge impact on host communities, local content and indigenous capacity utilization, going by the promise that majority of its construction and installation works would be undertaken in Nigeria, presenting a massive opportunity to grow local capacity utilization in the country.n For instance, the NCDMB said it had engaged the NLNG on
the need to involve host communities’ contractors and other indigenous companies in the project.
The NCDMB also stated that it had undertaken a verification of all the indigenous contractors shortlisted for jobs on the Train 7 project to prevent sharp practices and to ensure that host communities’ contractors were also captured. In addition, the NCDMB has also appealed to the NLNG to evaluate the capabilities of the beneficiaries of the Project 100 programme and engage them in the execution of the Train 7 project and other related services. The NCDMB noted that the involvement of the Project 100 Companies in its supply chain would be a major boost in the quest to collectively support local companies to become large enterprises and deepen Local Content practice in Nigeria’s oil and gas industry. It listed the areas of competencies of the Project 100 beneficiaries to include exploration, subsurface and seismic services, fabrication and construction, Front-End Engineering Design (FEED), detailed and other engineering services, marine services and operations and inspection, testing and certification. Other key areas of their competencies, the NCDMB said, are inspection, hookup and commissioning, material and procurement, project management and consulting, well drilling services and petroleum technology as well as maintenance and modification among others.
Furthermore, it is envisioned that with the success of the Train 7 project, the
government would be encouraged to revisit the other LNG projects in Nigeria, like the Olokola LNG and Brass LNG projects.
The OKLNG and Brass LNG project had failed to get off the ground, mainly due to political interests, paucity of funds, feedstock gas supply to the facilities, lack of confidence in the Nigerian economy,
especially by some investors who had earlier shown interest in investing in these projects; and lack of commitment by successive governments to proceed with the project. It is envisaged that on completion of the Train 7 project and with the successes of the project, the Federal Government would see the need to revisit the abandoned NLNG projects.
In the same vein, the new liquefaction unit of the Train 7 is expected to add approximately 4.2 million tonnes per annum (Mtpa) capacity, while the expansion project would include debottlenecking of the existing six trains that increases the processing capacity by 3.4Mtpa. Also, the NLNG Train 7 is expected to spur other projects in the country, as it is stated that an
additional $5 billion would be required to build wells and pipelines to supply additional feed gas to the LNG facility.
These tasks would be contracted out and consideration would be given to indigenous firms that have displayed capacity to undertake such significant projects.
The Train 7 project would also bring about an increase in the production of Liquefied Petroleum Gas (LPG) for domestic consumption. Some companies are already gearing up to commence the production of LPG cylinders.
Specifically,
Techno Oil, said it had built the first fully indigenous automated LPG cylinder manufacturing plant at Kajola,
Lagos, Nigeria, with a capacity to produce over five million pieces of high quality LPG cylinders annually. It said the cylinders are in different sizes of 3kg, 6kg, 12.5kg, and 50kg and so on, adding that with the commissioning of the plant, LPG cylinders would no more be imported into Nigeria.
In addition, the NCDMB had entered into a partnership with RunGas Prime Industries Limited to
establish a 400,000 cooking gas cylinders per annum manufacturing plant in Polaku, Bayelsa State.
The factory, as was stated, would produce Type 3 Liquefied Petroleum Gas, LPG, composite cylinder. This is in addition to the many other projects that would be springing up, especially with the increase in gas exploration and supply. One of the sectors that would be a major beneficiary of the increase in gas supply is the electricity sector. Already, hinging on the proposed Ajaokuta-Kaduna-Kano (AKK) gas pipeline, the Federal Government is envisaging a proliferation of power plants between states that the AKK pipeline would transverse between Kogi and Kano states.
Hinging its hopes on increased gas supply, the Federal Government of Nigeria signed an Electricity Road Map with a German-based company, Siemens.
Speaking during the signing, President Muhammadu Buhari tasked Siemens and other stakeholders in the power sector to work hard to achieve 7,000 megawatts of reliable power supply by 2021, and 11,000 megawatts by 2023. Buhari, also recently, directed the Ministries of Power, Finance, and the Bureau of Public Enterprise (BPE) to conclude the nation’s engagement with Siemens AG over regular power supply, and to immediately start the pre-engineering and concessionary financing aspects of the Presidential Power Initiative (PPI).
PPI is the power infrastructure upgrade and modernization Programme agreed to by the Federal Government and Siemens AG of Germany, with the support of the German Government, and with the ultimate aim of modernizing and increasing the Nigerian electricity grid capacity from its current capacity of about 5 GW to 25 GW, over three phases.
Under the PPI, Nigeria, on behalf of the other shareholders in the Electricity Distribution Companies (DisCos), will invest in infrastructure upgrades
in the form of improved payment systems, distribution substations, transformers, protection devices, smart meters, and transmission lines among others. The funding for the PPI would be secured under concessionary terms (up to 3-year moratorium and 12-year repayment at concessionary interest rates) through the German Euler Hermes cover, which Nigeria will on-lend as a convertible loan to the other shareholders in the DisCos. Buhari also approved the release of funding for the first part of Phase 1 of the PPI, to kick-off the pre-engineering and concession financing workstreams.
The agreement was expected to make the entire electricity value chain attractive, increase the domestic consumption and boost investments in the gas sector of the Nigerian economy. It is also important to note that with the NLNG Train 7 project, would arise the promotion of gas based industries, which some experts argued hold more opportunities for Nigeria than the NLNG project. For instance, the several derivatives that can be obtained from processing natural gas are key ingredients in the manufacturing of goods, such as Ammonia, used in the production of fertilizer, plastics and carpets; Methanol, used in producing paint, photography film, disinfectants, dyes, automobile parts and preservatives; and Ethylene, for the production of paint, synthetic motor oils and lubricants.
In addition, another natural gas derivative; propylene, can be used for the production of phones, auto parts, plexiglass, coatings, cosmetics, ropes, PVC plastics and bathtubs. At an online training for CSOs and media, organised by African Initiative for Transparency, Accountability and Responsible Leadership (AFRITAL), with Support from Facility for Oil Sector Transformation II (FOSTER), an energy expert,
Dr Solomon Adeleye, stated that several intervention studies had been concluded and proven domesticating gas, can promote value-added schemes and create jobs.
According to him, one of these studies is the ‘cost benefit analysis of NLNG Train 7 versus Domestic Gas Based Industries.’ He said, “In the last four years, Afrital has continued to sensitise government on the trends in hydrocarbon industry. A major concern is the population growth rate.
According to the National Bureau of Statistics, growth rate is about 3% while unemployment is about 12% per year. The indication is that there is need to create jobs for 122 million people in the next 10 years.
“If Nigeria utilises its gas effectively, it has a potential of creating about six million jobs every year through the Gas Based Industries (GBI) and other companies that will spring from these industries. “Findings from the study show that Train 7 will utilise 1.27 billion cubic feet per day (BCF/D) with an investment of $3.6 billion. The economic benefit that will be derived is about 15% and a total of 4,211 jobs will be created. “On the other hand, if 0.5bcf/d of gas is used in the domestic GBIs, with an investment of $9.5 billion, the economic benefit that will be derived is about 120% and total jobs that will be created is over 1 million.”
According to him, investment in domestic GBIs has the potential to alleviate the current and future unemployment burden of the rapidly expanding population. However, he noted that Nigeria is not effectively utilising its gas resources, especially as the importance of gas to the local industry cannot be over-emphasised. It is increasingly becoming more relevant in this Covid-19 era and the potential movement toward zero oil. Adeleye said, “Gas is such a resource that is capable of providing varieties of petrochemicals used every day. If these can be produced locally, it means Nigeria will be saving on foreign exchange used to import these goods and gain foreign exchange from exporting these goods to regional markets in Africa.
“It also means there are sufficient gas reserves to become a regional petrochemical power and derive geo-political benefits. Also, its importance cannot be disputed because Nigeria’s population is exploding and a low hanging fruit solution to this is kick starting gas industries so jobs can be created to meet the growing population. “What has not been brought to the fore is the economic and financial value of gas compared to oil.
If the 1.27bscf/d NLNG acquired from associated and non-associated gas fields for Train 7 had been put into domestic industries and processing plants, Nigeria would have been able to provide over three million jobs
and create vibrant value chains and industries that would have sustained its people as opposed to about 4,000 job that would be created from Train 7 which is basically an export project.” Irrespective of the above,
it is expected that going forward, indigenous firms would be encouraged to form consortia like Korean and Japanese companies,
to boost their capacity, which would put them at an advantageous position to bid for big-ticket projects like the NLNG Train 7 project, thereby, ensuring 100 percent local content in the country. This is the goal of the Federal Government and the NCDMB, who had stated that in the medium to long term; it is targeting 100 percent domiciliation of Floating, Production, Storage and Offloading (FPSO) vessel integration in Nigeria. This can only happen, in the short term, when indigenous firms form consortia to domicile technology in-country and grow their individual capacity. To this end, if significant portion of the fabrication work of the NLNG Train 7 plant is scheduled to be done in-country, in the near future, indigenous firms, especially those involved in the project, are expected to have been able to grow their capacity to be able to fully domicile such projects in-country. After developing indigenous capacity, the Nigerian consortia can now extend their services outside the country, to other West African countries, then to other African nations and the world at large, thereby becoming multinational. Already, with six operational LNG processing units, NLNG’s existing facility has the capacity to produce 22Mtpa of LNG and 5Mtpa of liquefied petroleum gas (LPG) and condensates.
Trains one, two and three have the capacity to produce 3.33Mtpa of LNG each, while trains four, five and six can produce 4Mtpa of LNG each. Other facilities at the terminal include four 84,200m³ LNG storage tanks, four 65,000m³ refrigerated storage tanks, three 36,000m³ condensate storage tanks, a common LNG processing fractionation plant, a common condensate stabilisation plant, and ten gas turbine generators with a combined capacity of more than 320MW.
The facility has two LNG export jetties, 23 dedicated LNG ships and a materials off-loading jetty. It is, therefore, a consensus among stakeholders that the NLNG Train 7 project would expand Nigeria’s existing gas infrastructure, boost domestic gas consumption and export, create job opportunities, grow Nigeria’s GDP and bring about a general improvement in all of Nigeria’s economic indices.
