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Tension in the LNG Sector Over Cancellation of Cargoes

The Nigerian Liquefied Natural Gas sector (NLNG) is going through some pressure over deferrals, defaults and cancellation of cargoes despite the increasing demand in the international market.
This worry has affected over 20 LNG cargoes in the last 6 month period, and reports say that this number might hit the rise and get to 50 by December. Deferral notices are sometimes made just few weeks prior to vessel arrival at Bonny terminal. This practice mostly falls short of acceptable international standards.
Mostly the cause of this worry has been aggravated by the concession given to shareholders of International Oil Companies (IOCs) to the disadvantage of others. This unfair approach and delay in responding to market demands is making customers look elsewhere for business.
Federal government’s bid to increase the production capacity of LNG by 35% with Train 7 so as to increase revenue, might be affected by this recent trend. Gas supply targets have been impacted due to ENI AGIP’s 50percent supply mark to the plant, which is considered poor when compared to Shell and Total’s positive supply mark off over 90percent in recent past months. Sources claim that the Nigerian LNG production capacity is still at an impressive level of close to 90 per cent, which if managed properly, and IOCs are meant to make the right concessions, could see Nigerian LNG avoid the reputational risk it has been running within the global markets.
It was learnt that the situation in LNG was worrisome to the board of the NLNG, which is headed by a former Minister of Petroleum Resources, Chief Edmund Daukoru.
A market source said: “We continue to see abrupt deferrals, defaults and cancellation of cargoes especially when the market is highly profitable, it seems like a scramble between International Oil companies shareholder lifters and others”.
“This conflict is causing major supply disruptions and a very high level of operational inconsistencies, leading to unnecessary demurrage exposures and penalties, If things continue in this perception and complexities set in, it won’t be surprising to see off takers demand for performance guarantees for future lifting’s. This will be disastrous on Credit ratings and could impact on future financial syndication for LNG project expansion.”
The source also said, “Whilst the International Oil Company shareholder lifters have the capacity to take almost all of the LNG volumes produced, there has been a growing concern in Global Markets about conflicts, price fixing, insider trading and undue advantages.
“These IOCs’ shareholders derive better terms and flexibilities over others, supplying in the same market, which could lead to anti- trust and anti-competition litigations and petitions.
The increase in Nigeria LNG production capacity is expected to rise from 22 million metric tons per annum to 30 million metric tons per annum.
This is despite the volatility caused by lockdowns due to the Covid-19 pandemic. Shell equally predicted that demand is expected to almost double to 700 million tons by 2040. These criticisms are coming at a time the price of LNG is soaring globally. Last week President Buhari signed the Petroleum Industry Bill (PIB) into law. During the Train 7 ground breaking event, he said that the NLNG earned revenue of $114 billion over the years, paying $39 billion in taxes and $18 billion in dividends to the federal government. Managing Director of Nigeria LNG, Tony Attah also said Train 7 will generate 12,000 jobs.

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