Nigeria Liquefied Natural Gas (NLNG) Ltd. says it will decide later this year whether to invest more than $10 billion to boost capacity by 40 percent. That would allow the Bonny Island terminal to export as much as 66 million cubic meters (30 million tons) a year to markets in Europe and Asia.
NLNG’s shareholders, Royal Dutch Shell Plc, Total SA, Eni SpA and Nigerian National Petroleum Corporation must weigh the benefits of expanding their profitable venture against the threat of higher taxes, pipeline vandalism in the Niger River 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.
In 2017, the country shipped 46 million cubic meters of LNG, almost all from Bonny Island, making it the world’s fourth-biggest exporter behind Qatar, Australia and Malaysia. It also faces competition from the U.S., Russia and Mozambique, which are spending billions of dollars to start or ramp up production.
“Nigeria needs to take the opportunity,” said Maggie Kuang, an analyst with Bloomberg New Energy Finance in Singapore. “The next few years are critical for investment decisions. If Nigeria does not take any action, it will fall behind.”
Governments and energy traders are signing long-term contracts to guarantee supply for decades, with Sanford C. Bernstein & Co. predicting that LNG demand will double to about 1.28 billion cubic meters by 2030.
Boosting capacity at Bonny Island will require investment of about $12 billion, according to New York-based Teneo Intelligence. That will fund the construction of two processing units. The terminal currently has six units, known as 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.
There are also fiscal concerns, with some lawmakers wanting to remove tax breaks enjoyed by the venture, but 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,” she said. “It has been a tremendously successful project that accounts for a large chunk of the international oil companies’ value in Nigeria.”
Nigeria’s 49 percent stake 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 last month Nigeria transferred $650 million of NLNG proceeds to its sovereign wealth fund for infrastructure development.