NLNG:
The Trains Of Gas Flares And Revenue Flares
By Engr
Saidu Njidda It
is in strategic management or corporate strategy or management policy as
it is variously called; that identified the requirement of managing an
organization from the top; to most involved the determination of their
mission, vision, objective and deployment of resources adaptively in
order to achieve overall company objectives.
“Helping to put out the flares in Nigeria” is therefore a
mission statement of our pioneer gas liquefaction company, the Nigerian
Liquefied Natural Gas Limited (NLNG).
The Nigerian Gas Company (NGC), a subsidiary of NNPC, although
older and more of a creditor company (NEPA alone owed them The
NLNG Ltd remains the first and only Nigerian Company with a
fractionalization plant process. It
is however of interest to note that other NLNGs include West Delta LNG,
Statoil LNG, Agip-Philips-Brass LNG, though yet to be in production. The
NLNG, a limited liability company was incorporated in 1989 with
shareholders of note and as usual of petroleum industry practice in
Nigeria with joint venture capital, the NNPC holding brief for the
Federal Government of Nigeria (FGN) with 49% shares, Shell 25.6%, Total
LNG Nigeria Ltd 15% and Eni of Italy 10.4%.
The company is in full production in Finima Island, a village in
Bonny Local Government Area of Rivers State since 1999.
The end products of NLNG are basically three: - 1.
The Liquefied Natural Gas C1, that is used for
industrial heating. 2.
The Liquefied Petroleum Gas (LPG) C2 that is used for
domestic heating 3.
The condensate C4, C5 used for industrial
solvent. The
LPG and condensate are actually an addition as product diversification
to the LNG and that is why sometimes advertisement is made for potential
buyers of condensate. It is
unlike most business markets, the specialty of LNG’s makes its selling
unique, LNG’s of this world makes
sure that their products are sold upfront before even an investment
decision is signed. Recall
that the first major assignment of the NLNG’s Chairman then was the
signing of M.O.U for the sales and purchase agreement (SPAS) and the
project was nearly truncated when one of the buyers Enel of Italy wanted
to pull out. The final
investment decision (FID) by the shareholders to finance the project was
effected in November 1995; productions started in September 1999 and
export of first LNG cargo was in October 1999. The NLNG has also floated a subsidiary company, the Bonny Gas
Transport Limited (BGT) to handle the transportation and shipping of its
products to five of its European buyers that signed the (SPAS) for
twenty two and a half years duration.
They are Enel of Italy, Gas Natural, SDG SA of Spain, Botas of
Turkey, Gaz de France of France and Transgas of Portugal. The
concepts of NLNG are beautiful as highlighted in their vision and
mission statement. The company intends to be a world class LNG, helping
to better Nigeria and to produce and export LNG reliably and profitably
thereby growing the business to its full potential and helping to put
out the flares in Nigeria. However,
the objective of the company was salient and therefore, through their
operations the objective is emerging and this will be identified and
shared. Nigeria
is blessed with massive reserves of gas in excess of 160 trillion cubic
feet and is ranked amongst the 10 largest in terms of proven natural
gas. The associated gases
are almost being flared and therefore Nigeria is the biggest gas flarers
in the world. Inview of
environmental hazards and health implications, the government has set a
2008 target for zero flares and in conformity with global requirements. The
NLNG has positioned itself
to collect or pay for little these gas from the fields and notably from
communities land of Soku, Ibewa, Ubeta, Obagi, Idu, Mbede,
Obiafu-Obrikom, Omoku, Ebegoro, Ogbogene, Ebocha all in the Niger Delta
region with their pipes running and affecting over 110 communities
before reaching the plant site at Finima.
These gas are now refrigerated in a train to a temperature of
-160oc and
loaded as solids in a ship and delivered as cargo to the buyers in
Europe and America. A cargo
ship provided by the Bonny Transport Company has a capacity of about
132,000 cubic metres of gas and so
far not less than 125 cargoes had been delivered to buyers with
16,500,000 cubic metres of gas sold and paid for the company. Therefore,
with the signed (SPAS) and gas selling at USD 2.9 Bqu it can be
comfortably estimated that NLNG has earned about
USD 1.3 billion in 2003, i.e.
selling price of USD 10 million per cargo and with the above profitable
trend the company can generate USD 30 billion within the sales purchase
agreement. The
question is with these revenues, what is the objective of NLNG? The
operations of the company entails trapping of flares and natural gas
from community lands to a train at Finima, process it and export same
for a value. The estimated cost of a train is USD 1.8 billion.
The company has 3 trains operational and trains 4 & 5 is
under construction. Trains 1 & 2 was wholly financed by Equity while
train 3 was financed by Equity and surpluses from train 1 & 2.
Trains 4 & 5 are presently being constructed and financed
wholly by borrowing through international banks such as BNP Paribas,
Citigroup, Credit Lyonnais, MCC and West LB with some few local banks to
give it credibility. Why
borrow? When you started with Equity and surpluses are coming in. The Theory of the Trapped Economy Whatever
economic advantages borrowing has, the fact remains that you borrow when
you don’t have. Nigerian
external debt obligations stand at USD 30.9 billion and Mr President
told the nation in 2004 budget that significant amount of money has been
invested in gas exploration and yet it has not brought money to the
coffers of the government. The
borrowing started by NLNG in trains 4 & 5 is therefore a strategy to
achieve its salient objective of trapping the Nigerian economy.
The company started borrowing
for expansion purposes unlike established standard where
borrowing is associated with new projects and as you break-even such
loans are repaid and expansion are financed through surpluses, the
present borrowing adapted is not
because NLNG cannot expand its trains with profits and surplus being
accruing to the company, the idea of borrowing is to create “Evergreen
Loans”. The other
shareholders 51% who are foreign nationals have already broken even
through the sales of their equipment and job generations to their
nationals and to avert Nigeria from paying its foreign debt through the
use of these huge foreign dollars have devised in collaboration with the
I.M.F, the idea of loanable funds inorder
to create evergreen loans to also flares the revenue from our gas to the
western economies. Evergreen
loans are exploitative credit facilities usually the developed nations
extend to the developing corrupt nations whose initial principal amount
are too big for the borrower to repay/or the borrowed principals
keep rising through the negative effects of compound interest and its
capitalization. All economic production units have optimal point beyond which
further endeavours cause a deterioration or decline of output rather
than improvement or increased production.
Therefore, a unit of production that has reached this optimal
production level but is obliged to share with foreigners the entire
income or output among current liabilities with nothing left (i.e. with
no surplus and savings) for capital plough-back can at best only
stagnate. This is the
objective of NLNG and they failed to state that in their mission
statement. The situation is
worse when even the amounts charged to capital depreciation are used to
service the initial loans used to set up the production unit. The fate of such a production unit is obviously doomed.
It will not just stagnate; it will collapse but of course after
the foreign shareholders have benefited enough.
However, if the production unit is liable only to internal
obligations, that is, if its entire income or output is to be shared
among internal claimants, the achievements of economic growth or higher
output is possible provided the recipients invest part of their receipts
internally to increase production.
Thus, the endogenous sourcing of loans through the Nigerian banks
may be welcome. But how
much is the Nigerian bank’s contributions in this expansion loan?
We may have to wait until the Soludo solution of The
whole noise about local contents and Nigerianisation in NLNG does not
exceed USD 8 million per annum with the pressure coming on to the
management of NLNG, the company has declared a dividend of $512 million
on 15th June and the Federal Government is expected to
receive about However,
if necessary steps are not taken, to both monitor the foreign interest
in NLNG and the Nigerian representatives as signified by NNPC, the
history of diverting anything from the oil companies to
the federation accounts may repeat itself and the ruination of the
country may increase. Recall
the diversion of $37 million dollars paid as education tax by (SPDC)
when the present Accountant General of the federation Mr. Kayode Nayeju
was in charge of Education Tax Fund (ETF) and CBN did some debit and
credit to close the case. We
should not continue with business as usual and extra care must be taken
so that our resources are managed to the advantage and benefit of all
Nigerians. However,
if care is not taken; with our usual poor monitoring and corrupt
management of our resources, these meagre amounts being invested by NLNG
as local contents and community projects of Shagari low-cost houses
standard may turn out to be the only return we may get from our huge gas
investment as similar faith observed above may also befall the West
African Gas Pipeline project.
The trapping of the third world economy has already been
perfected despite all resources and revenues we can generate within
globalization and its discontents. Should
we live without gas revenue or live with gas flares?
For the trains are both there; of gas flares and revenue flares. ENGR SAIDU NJIDDA |