-By Felix Douglas
The Nigerian Liquefied Natural Gas (NLNG) is one of the successful gas companies across the globe buying and selling gas.
Recently the Managing Director and Chief Executive Officer, Tony Attah, had an interview with Patricia Roberts of the CWC group in London. In the dialogue he asserted the fact that NLNG has 6 Trains and has taken Final Investment Decision (FID) while awarding Engineering, Procurement and Construction (EPC) of Train 7.
Attah made it known that the gas company got support from the Federal Government of Nigeria including all the stakeholders involved in the project. The company has balance sheet of over $11 billion.
Train 7 will be fully digitalized. NLNG is working with Nigerian Content Development and Monitoring Board (NCDMB) in order to streamline jobs that will be done in-country. The project will create 12000 jobs while 55% to 100% construction will be done in the country.
Attah is optimistic that gas is still relevant in Nigeria and that the country has been on the back of oil for 70 years, but now it is time for gas to thrive.
Excerpts:
QUESTION
In December 2019, NLNG has plan for 8millions tons expansion and since then the company successfully progressed with the EPC contract after project financing. No one could have expected challenges in last five months because of Covi19 which slowdown the project and the work on site. What challenges did NLNG face to get into this stage?
ANSWER
This has been a very long journey, the last FID for Train 6 was in 2004 so, essentially it takes more than 15 years to finally get Train 7 going. Personally, it is emotional because between 1999 and 2006 we were on the fastest growing NLNG companies in the world and just after our 6th Train it came to a halt and all the attempts to get Train 7 now is taking 15 years. In that window we have gone from actually being 10% of the market to less than 7% today with the arrival of the United States and Australia, of course, with the shale revolution. In Train 7, we got a lot of support from the presidency under the leadership of President Mohammadu Buhari, we visited him and said-this is NLNG, we have 6 Trains with in-country value. The President said hold it, I was part of this project from the outset. Why are you still at Train 6? I expected you to be at Train 12 by now and we were all turned aback. He has been committed to the Train 7 project and I must give credit to him and the government.
The support was very viable. We also got a lot of support from the Minister of State for Petroleum Resources, Chief Timipre Sylva, who has actually declared 2020 as the year of gas and has since lent his supportive hands to us. In the course of this journey, there is a game changer which is the Nigerian Content Act. The law didn’t exist when we had the first FID in 2004. But now we have to contend with the act. The support from the Executive Secretary of NCDMB was quite immense, the biggest support was received from the shareholders who believed in the company and pedigree of what NLNG has achieved. Essentially, they took that decision to say this is a great project you have proven that you can operate, you have proven that you can deliver project over the last 25 years, we will support you to progress forward.
As it affects Covid-19, no one saw this coming, we have tried to understand what the reality is, but some of the internal analyses say that we are at war. A lot of people will liken this to the first war and the Spanish flu, but here we are with the reality of how the United States versus China trade war started which is still ongoing. This is Covid-19 straight war from China and some say, Is this a Chinese response to the US-China trade war? As the trade war goes on there is also Covid-19 on the other hand, which has been declared trade war against an invisible enemy, the virus and out of the blues, there was Saudi and OPEC-Russia price war. Amidst these wars, it culminated into a catastrophic which no one has ever seen called the negative oil price and horizon impact of that in the entire market. The dislocation and disconnection that happened since then is only a matter of survival for most operators in the industry. How do you execute in a Covid war? I think we are not alone in trying to find an answer to this kind of question, so, it is an ongoing process for us.
QUESTION
Due to Covid-19, a lot of companies have run for cover shying away to take FID to implement project. But NLNG has gone ahead in awarding EPC. Was it a difficult decision to take?
ANSWER
Definitely not an easy thing, if it was an easy road, we would have taken it 15 years ago even when there was no Covid. I must say, it is divine in a way. In the most difficult of times we made decision and moved ahead. It underpins the fact that NLNG is resilient and has the capacity to demonstrate the ability to deliver under such circumstances.
Addressing the subject of funding. Funding aspect for us is about the robustness of our business. Our business is in order. NLNG has paid a primary loan of $5.5billion last year to a bank and for us that is a creditability. This is a solid preamble with big balance sheet of over $11billion it has proven that we can pay back where the company is earning money. NLNG is not a green project, it is a brown project. This has enhanced the gas company. Today, it is consolidating on that brown credibility so as to ensure that it delivers the project. It gives confidence to the market. We are absolutely delighted that we are able to attract financing and funding in the face of tough situation. We went out looking for money but we got twice of what we were looking for in the market place and that is a testament of confidence that the market has on Nigeria and indeed on the company, Covid or not we can deliver.
QUESTION
Do you think there will be any delay in construction of the project?
ANSWER
No, I don’t think there will be delay but that will almost be predicting how soon Covid will end. For instance, I was listening to my doctor who said this is a virus that is not going to end soon. Just like HIV we have to try to understand it, most importantly, we have to learn to live with it and make ends meet. We are already working to deploy technology around the three main guidance that we got, social distancing, washing of hands with soap and wearing of face mask. Within these three, how do you maintain social distance in achieving the right sanitary condition on site and having the right workers under a very difficult condition? They have to work with mask and learn how to breathe. It is a process that we are studying. I believe we will just learn to live with the virus and move on as much as possible. Essentially, it is about starting first and understanding fully what it takes to keep going.
QUESTION
In terms of short term with plunging volatile prices in Europe. How is NLNG managing the day to day issues of Covid-19. Is it the difficult market we ever had?
ANSWER
This is where your first statement of being envious of the CEO in the energy world is really very hard. It is a cyclical market. Ordinarily, I believe that the fundamentals of the market will not change drastically. We didn’t expect that this will get to the level with these three words coming together the way we describe them. But we actually saw the market changing gears last year. We saw the decoupling of energy prices at some point. So, we were already beginning to learn how to adjust, accept the changing energy mix and transition in terms of a low scenario before the present situation arose. But this is even worse because in the model we developed to be able to respond, it was purely conventional demand and supply, suddenly we have the Covid situation it both affected demand and supply which is even more difficult to riposte. NLNG has relied on its social capital and relationship with its customers.
Secondly, the commercial dexterity and creativity of our commercial teams being able to fashion out options possible so that our partners can keep going. We made a choice from the beginning to manage in crisis mood most importantly, keep our people safe; staff, families, societies, communities and neighbours. While keeping them safe, we ensure the business is running. This itself is already a challenge under normal condition but to operate in Covid time makes it more difficult. Absolutely, NLNG is pursuing those two objects. Today, our plants are in operation and we will continue to bring volumes to the market supply to our customers and work in partnership with those who are having difficulty to find creative solutions to ensure they stay afloat. It is a survival game until this wind blows away.
QUESTION
In terms of NLNG Train 7 some of your shareholders will act as offtakers. They will be managing your portfolio. Do you think that will help in project financing for equity investors also as the offtakers?
ANSWER
You know the business has a lot of reliance on the offtakers. In gas business, the market should be sought before you produce it. It is a conversation among stakeholders that when I lend you money, I need you to show me the market. So, it is not just enough to produce. In this game,it is really about the market. I must say that definitely it added to the credibility of the project but by far more importantly we have already demonstrated that the company on its own is very viable. We started the sales and marketing of Trains 1-3 in 2017 out of gas taken to power. We had almost 7million tons for real marketing. I must say the offer was very humbling to me. We put on 7million tons for remarketing and we got offers of more than 60 million tons. Honestly, the company has credibility. Frankly, from financing point of view the pedigree of our shareholders have been able to build the confidence of the company.
QUESTION
For Covid pandemic and the uncertainty of demand, are all these adding more pressure to NLNG in terms of bringing new Trains for remarketing in some of the volumes in Trains 4-6?
ANSWER
Definitely, it will bring some pressure going by what we went through to remarket 7millions tons. We have learnt a lot and it is the first time we are remarketing any volumes in one or two years. NLNG took a decision to start remarketing early which affords the company opportunity to learn about what it takes to remarket 1million tons. Imaging Trains 4,5 & 6 going through the same process. NLNG is more prepared now and the company has learnt a lot over the years remarketing its first set of Trains. I believe we will go through the same format.
There are lessons learnt from the last set of Trains which we hope to apply. Presently, NLNG is being confronted with Train 7 offtakers that are guaranteed. We are not necessarily marketing Trains 4,5 & 6 with Train 7 which have been already established. So, it is a matter of dealing with the process. I think by then Covid should be out of the way. But first, remarketing opportunities for 4,5 & 6, should be after 2022 hopefully, we understand the virus get the vaccine and find a solution.
QUESTION
NLNG is joining the club of developers of projects. There is 100million tons all around the world under construction. Do you think that the global energy industry in 2020 will go through a lot of uncertainty?
ANSWER
There are opportunities ahead and in essence Covid from the market point of view is not all negative. Just as you said there is 100millions tons capacities in construction but quite a few that have been turned down. The forecast of hitting 700million tons in another couple of years hoping that the extant 350 will be doubled is not possible. For every project that has been turned down there is a hope in future projections that will bring about tightness in the future which is an opportunity.
Cyclical pattern of the market will not change and the fundamentals will not disappear at least not drastically but I expect a lot from the changing energy mix as a result of climate change and the energy transition. A lot will depend on what happens to China, India and better part of Asia. China is still the highest user of coal generating more than 900Gigawatts from coal. If it reduces by 10% to 20% and switch to gas that creates massive opportunity for gas and LNG. But I believe overall the fundamentals that we are trying to do in future particularly in LNG, is about the population growth that has been projected at 7million in the world in 2040 which is twenty years’ time. We expect to add another 2 billion people. That is adding one Chinese, one Indian, twenty Nigerians across the world, these people will need energy and the question is where will that come from? But then the challenge is that we need energy and it has to be clean. The world does not need fossil fuel which is the impeding dilemma that must dealt with.
I believe that of all the fossil fuel, gas is the cleanest and by far has a lot of attraction to renewables. There is no energy mix that has renewable without gas. That gap will soon be breached to meet demand of the future. Gas is still relevant in the future.
QUESTION
Are you still bullish and optimistic of energy demand growth throughout 2020s?
ANSWER
Definitely, as a matter of fact we have strategic maturation of Train 8
QUESTION
Tell us about your strategy and how do you see Nigeria progressing with gas production and development in 2020?
ANSWER
The Nigerian story is one that will not be complete without gas and I mentioned upfront that the Minister of State for Petroleum Resources declared 2020 as a year of gas. Gas is a major resource in Nigeria. I have been at a conference where someone accosted me and asked, where are you from? And I said am from Nigeria and he said Oh yes! That gas country that has some oil. I asked him how do you mean by- that gas country? When it is an oil nation, he said no! no! I have looked at your numbers, you actually have by far more gas in barrels of oil equivalent. You do have gas reserves. We have proven 200 Trillion Cubic Feet (tcf) of gas and another 600tcf but need to prove them.
Nigeria is number 9 in the world in terms of gas reserves, if the 600tcf is proven, the country will move straight to number 4 ahead of Turkmenistan and that is a major opportunity to really just jump start the sector.
Today, we have a gas master plan and gas policy since 2017 but a lot will depend on the fiscal and how the government is able to sensitise gas development which must be done. It must be done! With the energy transition that I mentioned, it comes to mind that at some points in the history of Nigeria, coal was the mainstay before discovering oil. There is still coal at Enugu in Nigeria but nobody talks about the last one which is having fossil fuel disappear in another fifty years and the country has maximized value from it.
I believe that it is time for gas and there is great opportunity for NLNG coupling position to keep developing these Trains. The government must do justice to ensure that the reserves it has are brought into production and a lot will depend on what she does for this to be actualized.
QUESTION
Can you tell us about development in the domestic market in Nigeria because there is skepticism that potentially NLNG could shuttle tankers around Nigeria with some of the domestic market with Liquefied Petroleum Gas (LPG)?
ANSWER
Yes, as I mentioned we have already modeled what you are describing around LPG. As at 2007, the entire national capacity on LPG was 50,000 tons. But since we got involved as market makers, we have grown that capacity into more than 60,000 tons out which at present we deliver what is about 45% in the market. We have looked at the model. It is not subsidy model but it is one that has proven to work and we are currently looking at bringing LPG into the country but essentially, LPG for us is a coastal business where we need a path way for our vessels to sail.
NLNG sees huge opportunities for two reasons; one with the global market dwindling, there will be high demand for gas and other forms of energy in Nigeria and indeed entire Africa. More than 50% of the population does not have access to energy in the world including Africa. So, the domestic LPG project that we are looking at is to be piloted in Nigeria then will go regional, before looking at Africa as a whole. It is a project that is ongoing and there are people who indicated interest, we are working with them to see how much capacity they are able to develop or build to make this real. Initially to date we stay on the supply side, but have come to terms recognizing that the market is changing. NLNG is a price taker and the company has established that the price is no longer within anybody’s forecast or control. There is a future in which NLNG has to be a market maker so as to have the extant for the full value chain coming to fusion in-country.
Yes, we are thinking of the domestic market in the same model and manner of LPG which has been successful and I believe that NLNG can come into Nigeria as well.
QUESTION
Your idea of being able to supply gas to remote areas with small quantity. The gas to power story for Nigeria’s reserve. Do you see that happening in the next few years or in much longer term?
ANSWER
As I have emphasised earlier we have already started working on it. I can’t put a specific date when it will start but essentially it is one that I believe in a long time will come to fusion but as everyone would say, where is the infrastructure, where is the market? Looking at gas in the domestic market, there is quite a lot that needs to be done. NLNG has proven pedigree as I mentioned in the LPG space and the company is hoping to apply same model to bring LNG into the country. This will be in partnership with others that are active in that space.
QUESTION
Is Nigeria looking at floating production in the future or is that on agenda, accessing of Deepwater reserve from cost competitive point of view, is the country floating production for monetization?
ANSWER
We are aware of the reserves offshore. I know of Wadoru which has 1.4tcf that is Deep Offshore. The reserves offshore of 200 million tcf that are referenced is likely onshore. There has to be a trade off in terms of creditability of raw materials and position your plans if you are to develop an asset base like Wadoru which is about 10 to 12tcf in Deep Offshore.
We have considered bringing Wadoru gas back to onshore into a plant like ours but clearly it will not be economical. Logically, that kind of reserve will be floating. Floating offshore will depend on the source of the gas. Most of the gas referenced are already onshore, you may find that in Nigeria, it is perhaps more optimal to position onshore but not rule out the opportunity. Reserves are onshore and as such if you are referring to Train 8, it will be onshore.
QUESTION
Is there any plan to digitalize the gas industry to improve processes of supply cost chain for Train 7 and anything new about the project?
ANSWER
The world is going digital and you either aligned or you are left behind. A lot of projects were done in the early 90s in analogue mode with some digitalization systems. The future is digital either in machinery or Artificial Intelligence (AI), we cannot afford to be left behind in terms of digitalization. This already exists in Trains 1-6, we digitalized well into the future to stay relevant and be current.
NLNG views new project such as Train 7 with an eye for the future because the project builds an asset that should last at least 25 years. We look forward for 25 years. What NLNG is building is with the mindset of the future. That future is digital. The company is projecting overall digital operations.
The focus is how do we syncronise, digitalized for efficiency and reposition as a cost leader on the back of digitalization? But as it affects Train 7 there has to be a difference, everything should be digitalized. However, we still have to answer the question around cost competitive and 100% digital. Can you really afford Trains 1-6 if it is not 100% digital? Well! Train 7 stands 100% digital.
Digitalization is about to adapt or be wiped out. So quietly, we have to adapt.
QUESTION
What measures are NLNG putting in place to ensure that the EPC contractors use Local Content, give us some clarifications on EPC relationship on designing key resources they need?
ANSWER
It is an excellent question; I would have been surprised if it wasn’t asked. Let me confirm that even though it took 15 months to get to the gate of the FID, we started fully aligning for the first project and set the Front End Engineering Design (FEND). NLNG took the decision in order to go into the EPC contracting process and reach FID within 15 months which is record time.
Normally a typical field alone would need about 18 months. But to be able to deliver field EPC contracting and make a decision in 15 months is an achievement. NLNG works in active partnership with the Nigerian Content Development Board (NCDMB) to know what elements of project would be restricted and those termed as Nigerian Content.
In Train 7 55% of engineering are procurement services of goods which will be sourced in-country 55% to 100% of construction will be done in-country. It is huge opportunity to create what is more than 12000 jobs. NLNG complies with NCDMB through partnership from the field stage. There is a master plan that has been approved for the project. We shall work with it. Contractors will align on that plan and they are duty bound to deliver the project. But it is subject to assurance process by the Board, there is no other way to do it without value to the society, it helps for capacity development participation to grow overall capacity in-country. So, Nigerian Content is a major factor and we shall comply within delivering Train 7.
QUESTION
On the LNG project, what would you say are the local benefits for the local people?
ANSWER
Let me take opportunity from local content stand point. At present, in the Niger Delta where NLNG operates, the biggest problem is underpinned by poverty and unemployment. These two issues feed on each other. We had militant groups in the 90s and it was resolved by an amnesty programme of the Federal Government. The programme provided capacity building and employment for about 5000 to 10000 youths. Through Train 7, NLNG is in a position to create at least 12000 jobs which is a massive opportunity for the communities to be employed over six-year life of the project. For us that is a major contribution. In the course of the project, there will be all sort of programmes that will help immediate communities to build capacity and participate.
NLNG has a social programme link to sustainable development enabling communities to build capacities to participate. This is a major improvement. We built 6 ships couple of years ago. The company has trained more than 600 seafarers just on the back of building ships, it has impacted 600 people in ship building and ship maintenance. They were trained to be able to sail.
As a boost to local capacity, we got to a position where Nigerian made products were shipped to Korea to be used on those ships. The entire furniture items on the ships were made in Nigeria. Nigeria’s owned cable were exported to Korea used in the country to the extent that some Korean companies are presently buying directly from those Nigerian companies. NLNG is a market maker which has created a new opportunity for the company. Train 7 has immensely contributed to local capacity.
QUESTION
With your direct experience and leadership in NLNG what would you do to encourage other companies in the use of local talent and content?
ANSWER
The future is about being self-sufficient. Self-sufficiency plays in the local community where you are able to hydrate, build capacity and use it. This is what every company should desire to achieve. As a matter of fact, the future of survival would be around cost leadership. Those who can bring down their cost, be efficient, nimble and agile are the ones who will survive while others will be wiped out. Current statistics show that after Covid 70% of companies will not survive. Those that survive have to be nimbler with cost. Part of the efficiency in cost is being able to adapt around your locality and building capacity. It is a business opportunity more than a burden. Companies should work within the means available to them in order to grow capacity and meet their needs.
QUESTION
If you have one wish or advantage for the 2020s what would you do?
ANSWER
2020 has a great future as I said we live in the block of 30. We are at the first 30 when our founding fathers dreamt of a company like this. We now have the second wave of 30 being in corporation since 1989 to 2019, 30 years within which the company has proved its pedigree of being a global player. We have helped in building a better Nigeria.
NLNG has commenced strategy on how to get to the next 30. The projection is 2020 to 2050 which is 50 years. The company carried out a realigning transformation journey in 2019 and achieved more than 98% reliability which is a world class delivering the highest volume ever from plants capacity. We have come into 2020 carrying the euphoria of success from our transformation agenda and of such we are bullish and bold.
The profit is in the cost until you able to extricate it from the cost, you will not be competitive. Business needs discipline and accountability. Considering the level of resources Nigeria has, there is a positive future.
NLNG has 22 million tons of LNG plant, the company is growing at the back of Train 7 to 30 million tons with a reserve base of 200tcf. In terms of gas reserves, Australia is number one in the world and has 150tcf but the country has 88 million tons and it is going for 128tcf.
Mozambique has 100tcf and the first move the country made is to go for 50 million tons plants, two projects, but 50 million tons on the back of a 100tcf.
At the end of Train 7 30 million tons out of 200tcf with potential 600tcf, there is a potential to become global leader in LNG. NLNG vision is to keep moving forward to build Train 8, then add from 8 to 15. Nigeria needs to maximize the benefit and value of gas which is the future.
Gas takes the center stage in terms of energy mix, it acts as a better partner to renewables moving forward. It is about national relevance and future of next generation. Massive goals for Nigeria.
QUESTION
You mentioned Australia and Mozambique producing a lot of supply. Is it easy to grow value in the LNG business, and what is your view on growing volume to add value as well?
ANSWER
Every business is about value, why producing volume if you can find value for it? Some sites will shut down if they cannot find market anymore. NLNG is a value-based company with pedigree. In terms of its relationship capital and customer preservation, it continues to create mutual understanding. Value depends on what it means to the company and the customer.
There is need to look inwards, from the Nigerian point of view it is time for gas.
In the energy world, people only think about gas to power. There is need to focus on gas to industry and gas for industrialization. Also, gas to petrochemicals, fertilizer and transport. what can be done with gas is endless.
I believe while gas remains relevant, there will be value. There will always be a place for gas. But one thing that will remain topical would be price. Price is the only variable in terms of value and maybe the biggest factor of future discussion.
QUESTION
Where does NLNG go from Train 7, will the company develop its Trains, what will 2025 provide for Nigeria?
ANSWER
How will it look like for NLNG? When NLNG set out to build the Trains, the company had ambition to build only Trains 1 & 2. Essentially, that was the best project and ambition the company and country had. But, as time went on it progressed to a 3rd Train and went on to build 4, 5 & 6, in almost a quick succession.
Although there was setback between 1989 and 1990. NLNG was incorporated in 1989, FIDs were late, it took 10 years when the first project was built, Trains 1 & 2. Fifteen years between Train 6 and 7.
Train 7 project has begun and maturation of Train 8 follows. Again, ambition to build Train 7 and perhaps 8 with a future for 9 to 12. The circle is likely to repeat itself and I believe there will always be market for LNG. Definitely.
QUESTION
If you are a CEO of an energy company you have to believe there is a tough time for all CEOs because strategies and business environment are changing fast. The submissions show pragmatic and optimistic picture for gas. Obviously, NLNG’s role in the industry will move gas forward. We will love to have you again to ask what has happened?
ANSWER
I will definitely look forward for another opportunity to showcase our achievements. Nigeria has been on the back of oil for more than 70 years and from the NLNG perspective, it is time for Nigeria to fly on the wings of gas.
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