Nigeria LNG keen on renewing contracts despite rise of spot market
The Nigerian LNG has said that due to the erratic nature of the LNG spot market, it is not keen to explore it fully even though the market has reached over $90billion and is influencing pricing for long-term contracts.
Despite a global shift to spots market, NLNG says it is focusing on renewing its expiring contracts and preparing for final investment decision on LNG Train 7.
Tony Okonedo, NLNG Manager, Corporate Communications, in an email response to BusinessDay’s questions said the company is working hard to renegotiate its expiring contracts.
“The first set of contracts from the base project (trains 1, 2 & 3), which are 20+ years contracts are scheduled to expire between 2021 and 2023/2024. In line with the provisions of the contracts, NLNG has commenced the remarketing activities of the expiring volumes with prospective counterparties. The remarketing campaign commenced with a marketing roadshow at the Gastech Conference in Tokyo Japan in March 2017,” said Okonedo.
The marketing to Japan comes as the world’s biggest buyer of LNG seeks to import more short-notice supplies from producers such as the United States, another step away from rigid deals that run for decades towards a more active spot market.
This change in the market place from long term contracts to spot comes as a growing number of producers and importers are joined by more commodity houses that trade LNG.
Top commodities traders Vitol and Glencore have both said this year that they expect more spot trading over the next 18-24 months.
Supplies are outpacing demand, leaving a lot of LNG stranded without takers and pulling down Asian LNG spot prices by over 70 percent since 2014 to below $6 per million British thermal units.
Spot LNG trading made up 18 percent of supplies in 2016, up from 15 percent a year before, according to the International Group of Liquefied Natural Gas Importers.
Forty-nine percent Nigerian owned, NLNG fortunes have immense implications for Nigeria’s economy.
The company contributes about 2 percent to Nigeria’s GDP, has paid over $5 billion in taxes and employed 2,000 Nigerians directly and another 18,000 through vendors and contractors.
On NLNG’s Train 7, Okonedo said it remains a strong, lucrative business case with immense benefits for the country, the shareholders and other stakeholders.
“Once we can guarantee feedgas commitments from our suppliers for Train 7, we will commence Final Investment Decision (FID) preparations,” said the company’s communication personnel.
Olufola Wusu, a commercial/Oil & Gas, lawyer and Policy Consultant with Megathos Law Practice based in Lagos sees a convergence of long and short-term market as long-term contracts will feature shorter term options and more flexible options which can be negotiated by both parties.
“The long vs. spot market paradigm is of significant interest when there are a number of sources of supply; the market is saturated with sufficient gas and growing consumer flexibility that can easily adapt to risk-rewards of short and long trade while balancing base and peak consumption,” said Wusu.
In 2009, India signed a 20-year LNG deal with ExxonMobil Corp., but the Asian giant has since renegotiated the terms after its rate for LNG exceeded spot market pricing. India also in recent years has reworked its gas supply contract with Qatar.
A survey conducted by Black & Veatch (BV), global leader in engineering, procurement and construction (EPC) services in the sector on natural gas market which asked operators how they are configuring long-term strategies to accommodate rapidly growing natural gas supply found that more than 60 percent of operators say the current LNG oversupply will likely abate by 2025.
The survey also found that U.S. emergence in the LNG space comes in part from low production costs and ‘a profound shift in contracting practices — the latter amounting to a price restructuring that now challenges LNG’s long-standing overseas suppliers,” said BV researchers.
The United States is diving into the Asian LNG spot and long-term market with both feet. China’s LNG consumption is forecast to account for 40 percent of global consumption by 2022, according to the International Energy Agency (IEA), and the US aims to capture one of the few new long-term contracts in the market while positioning to fight for market share in the growing spot market.
Following Donald Trump, US president’s visit to Beijing last week, Delfin Midstream, a US-based gas company, sealed a preliminary 15-year sales deal with city gas distributor China Gas Holdings to develop the first floating facility to export U.S. natural gas to China.
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