NLNG’s prolonged shutdown threatens gas production

The Legal Attorney Blog can authoritatively report the continued shutdown of operations by Nigerian Liquefied Natural Gas Ltd is a looming danger to the country’s annual production of 22 million tonnes of gas.

Last Tuesday, NLNG spokesman, Andy Odeh, said the force majeure it declared in October 2022 due to widespread flooding that disrupted supplies continued.

Force majeure refers to unexpected external circumstances preventing a contracting party from meeting obligations.

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“The force majeure still subsists as the unavailability of upstream gas suppliers’ major liquids’ evacuation pipelines, occasioned by sabotage and vandalism, still impacts feed gas supplies,” Odeh said in an emailed response to an enquiry on the issue.

Force majeure is a standard clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or sudden legal change, prevents one or both parties from fulfilling their obligations under the contract.

He added that it had continued collaborating with customers to “minimise the impact of the consequent gas supply shortage”.

The company is an Incorporated Joint Venture owned in the following proportions: Nigerian National Petroleum Company Limited, 49 per cent; Shell Gas B.V., 25.6 per cent; TotalEnegies Gaz & Electricité Holdings, 15 per cent; and Eni International N.A. N.V. S.àr.l, 10.4 per cent.

It has a production capacity of 22 million tonnes per annum, mainly delivered to European clients, including Galp and Endesa, with long-term contracts.

It also operates over 70 spot agreements across major LNG markets.

NLNG is also the largest gas supplier to the Nigerian market.

In October last year, NLNG said all of its upstream gas suppliers had declared force majeure, forcing it to also make the declaration. It exported roughly 18 cargoes last September, according to Refinitiv data.

The country relies on fossil fuel exports for 90 per cent of its foreign exchange and roughly half its budget.

Last year, former President Muhammadu Buhari, during the Nigeria International Petroleum Pre-Summit Conference and the official launch of the Decade of Gas in Abuja, said that NLNG generated $114bn in revenues over the years and paid taxes worth $9bn.

He also noted that about $18bn was paid dividends to F.G. and $15bn in feed gas purchases.

NLNG’s prolonged shutdown threatens gas production

Also, last year, NLNG’s Managing Director, Tony Attah, during a press conference in Abuja, announced the firm’s sales and purchase agreements with off-takers for the supply of domestic LNG, adding that its revenue generation since 1999 had exceeded $110bn.

Similarly, the company’s General Manager, Production, Adeleye Falade, during a panel session at the 45th Nigeria International Conference and Exhibition 2022 in August, said it lost almost $7bn revenue in 2022 due to a gas supply shortage.

As the company’s gas production woe continues, power generation companies have lamented gas shortages in plants connected to the national grid.

This comes from the findings that generation had dropped below 4,000 megawatts daily.

“The SO (System Operator) must invest in infrastructures and incorporate operational procedures that will improve its real-time grid visibility, enabling it to enforce grid discipline among the various market participants,” the Nigerian Electricity Regulatory Commission has said.

Over the years, power generation hovered between 5,000MW and 4,000MW and recently dipped to below 3,000MW daily.

Experts say at least 30,000MW is required for the country to reach sufficiency.

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