Brass LNG: Re-Streaming Divided JV Partners

By

Ifeanyi Izeze

iizeze@yahoo.com

When the immediate past president, Chief Olusegun Obasanjo declared that “Government considers Brass LNG fundamentally a sound project with an excellent value proposition – one that is at the centre piece of the Nigerian Government’s efforts to efficiently monetise its gas resources,” he actually captured the prime importance of the project to the Nigerian government. However, government’s (past and present) efforts at achieving this dream at Brass Island, right from day one, could best be described as blurred and at worst obscured.

More so, the recent dismissal of Mr Martin Hutchinson as the managing director by the Board of Brass Liquefied Natural Gas Limited (Brass LNG Company) without any official reason only added to the suffocating fog of confusion on the yet-to-take-off project.

Incorporated on 20th February 2004 as a company, four stakeholders in September 2006 signed the Shareholders’ Agreement for the Brass LNG Project. The shareholders were Nigerian National Petroleum Corporation (NNPC), ENI International, Phillips (Brass) Limited (an affiliate of ConocoPhillips) and Brass Holdings Company Limited (an affiliate of Total). The Shareholders’ Agreement regulates the manner in which the company will undertake the project for the construction and operation of two liquefied natural gas (LNG) trains at Brass in Bayelsa State and the delivery of LNG to the Atlantic Basin gas market.

However, recent developments on the project are not only worrying but could be said to be counter-productive no matter how anybody may want to tilt the story. To say that Hutchinson’s ouster sent shock waves across the company’s stakeholders is an understatement. Whatever must have warranted such action cannot justify the choice of venue and event to announce or rather implement such decision. The Board who had converged on London for the signing of agreement to facilitate funds deployment that would enable the firm commences construction on the project site at Brass Island; Bayelsa State in its wisdom chose to announce a decision that could make even the most extravagant and willing financier- corporate or government hold back its money and/or commitment.

Not surprising, following the management change, the earlier scheduled programme of the signing of agreement to facilitate foreign investment injection into the project was postponed to “a day that will soon be announced.”

This is the real gist: the federal government alleged that one of the Joint Venture partners, ConocoPhillips, which was rated as not only being very interested in the success of the project, but has sadly shown traces of foot-dragging in the implementation of some actions that could have moved the project forward.

So being the JV partner that produced the removed managing director, the shareholders reasoned that even though Hutchinson was alive to his responsibilities, he may not go far in advancing the course of the company with certain actions or decisions that are against the interest of his parent company, ConocoPhillips.

Also, the failure of the former Managing Director and his company to attend the ‘earth-breaking’ ceremony of the JV LNG Project in Brass Island was interpreted by the federal government and some of the partners as an affront not only to the project but to the Federal Government.

The former chief executive and representative of ConocoPhilips on the Brass LNG Board lost his job to a number of factors considered by other shareholders especially the federal government and Agip (ENI) as stumbling blocks to meeting the presidential directive to the Board to deliver gas to the nation’s economy from the project within its production schedule.

The shareholders allegedly undertook what was termed a ‘critical review of the project from inception to date’ and concluded that ConocoPhilips and the Hutchinson’s leadership had a terrible snag and that it would not be in the best interest of the Brass LNG to continue to allow ConocoPhillip remain in the driver’s seat of the project.

In the place of ConocoPhillip, another JV partner in the project, ENI (Nigerian Agip), was mandated to occupy the driver’s seat and also nominate a candidate for the post of managing director. Since ConocoPhilips allegedly sited security concerns in the area as one of the reasons for its lackluster attitude, ENI (Agip) which beliefs that the business opportunities in the area and the gains that will be derived from the LNG project far out-weigh security concerns, was asked to take charge of the project management. ENI (NAOC) has longstanding exploration and production activities in the Brass area of Niger Delta.

Although the vote of no confidence on ConocoPhilips or rather the company’s decision to step aside may have sounded like a normal administrative re-shuffling, it would be a terrible miscalculation for the Nigerian government to pretend that such decision will not adversely affect the actualisation of the Brass -vapour dream as already scheduled.

The contract for the Front End Engineering Design (FEED) for the project was awarded to Bechtel Corporation; a US- based engineering company, in November 2004 under the leadership of ConocoPhilips. Though Brass LNG Limited has continued to progress FEED work towards completion, through optimizing designs, preparing the scopes of work for the award of Engineering Procurement and Construction (EPC) contracts and pre-qualifying contractors for the EPC activities, without the re-streaming of ConocoPhilips commencement of EPC activities would remain a mirage or at best be dragged “to yet to be determined date.”

Fellow Nigerians, Bechtel of USA was chosen because of its proven track record, and the company has world class experience in the implementation of the ConocoPhillips Optimized SM Process which has also been adopted for the Brass LNG plant. Is the complicity in the Brass LNG dream becoming clearer now to all concerned Nigerians? Except the shareholders have to change the entire process technology already adopted for the project, ConocoPhilips still maintains its say in the driving seat (whether at the front or back). This is the true picture of the Nigerian government’s dilemma in the ongoing ‘house-divided-among itself’ Brass LNG Project joint venture partnership.

Meanwhile, Brass LNG Limited on 5th July, 2007 announced that it has entered into a Project Management Contract with the U.S Bechtel Corporation to manage some aspects of construction work on the Brass LNG Project. The contract covers the coordination of all plant site activity for the construction comprising two trains of 5 million metric tons per annum, as well as other works involved in the construction of the plant. These include site preparation, construction camp and construction dock, permanent operator housing and amenities, marine facilities, common facilities and support services, tankage, utilities and offsites, and others.

The most worrying aspect of the ‘divided house’ has to do with the signals being sent to would-be termed off-take buyers of the gas expected from the project. In early 2006 Brass LNG signed Memorandum of Understandings with six buyers including BP, BG Group and Suez LNG Trading S.A. amongst others for the sale of the entire LNG production for the first two trains, each for a 20-year period. However, the company is yet to seal the final Sales and Purchase Agreements with the identified buyers which in real terms, represents the Final Investment Decision by the front-end receivers of the LNG from the Brass Plant. This is where the bigger problem lies.

In addition, the Engineering Procurement and Construction (EPC) Phase was expected to be funded by a combination of third party loans and Shareholder equity. In the light of the ongoing controversies, only a very few third-party financiers would be foolish enough to commit their funds to a project that is heavily characterised by in-house bickering and back-stabbing.

Export Credits Agencies (ECAs) was expected to form a key part of the Brass LNG project’s financial plan. ECAs provide government-backed loans, guarantees and insurance to corporations seeking business opportunities in developing countries and emerging markets. However, now it is going to be harder with the crisis in the joint venture partnership to convince these ECAs that funding the project will not jeopardize their credit facilities.

Meanwhile, all the above concerns centre on the technical partnership in the project. Another crucial partnership and its peculiar problems –the host community (immediate and pipeline route) is yet to be visited. The former president, Chief Obasanjo oversimplified the issues involved in host community partnering when he casually commended the three Brass Island communities of Twon Brass, Okpoama and Ewoama for providing the land for the project and “putting aside” their differences. The question is: If the conglomerating host communities have put aside their own differences, has the Brass LNG Limited put aside the mindset to ignore/neglect their immediate environment particularly the human component? The issues here may turn out to be thornier than the mere disagreements or power tussle among partnering shareholders.

IFEANYI IZEZE, IS A PORT HARCOURT-BASED ENABLING ENVIRONMENT CONSULTANT (iizeze@yahoo.com)