Relief for Nigeria gas as investors eye long-term contracts

Nigeria gas is back on demand as investors switch spotlight back to long-term Liquefied Natural Gas (LNG) contracts raising the prospects of higher revenues in the form of dividends for the fourth biggest exporter of natural gas.

The prospect of higher dividend is a huge relief for Nigeria as $365.1 million in dividend from its 49 percent stake in the NLNG saw it through its 2016 recession. The economy entered another recession in 2020, the second in four years, and could do with all the revenue it can to jumpstart an economy slowed down by Covid-19.

Nigeria is targeting N208 billion in dividends from NLNG in 2021 - it received N144 billion in 2020, 79 percent more than the N80.3 billion it expected and despite the economic challenges the pandemic caused.

“If this materialises, it will be a significant pay-out in dividend in naira terms competing with the N238.4 billion expected from VAT,” Ademuyiwa Adegun, an Abuja-based gas commercial advisor, said.

Victor Eromosele, former general manager, finance, and chief financial officer of Nigeria LNG Limited, said the global shift to long-term contracts would create a better outlook and opportunities for Nigeria’s LNG capacity of 22.5 million tons per year.

The global shift would provide unique prospects for countries like Australia or Qatar to increase their market share, which could have been the case for Nigeria if the government had not abandoned the $20 billion Brass LNG project in Bayelsa State and the $9.8 billion Olokola LNG project, located on the border town between Ogun and Ondo states, Eromosele explained.

“This would have been an ideal time for Nigeria to gain more market share in the global market,” he said.

NLNG exports around 300 cargoes of liquefied natural gas annually from the Bonny plant, representing about 40 percent of global LNG supplies.

All efforts to reach NLNG’S head of media relation AnneMarie Palmer-ikuku to respond to this report proved abortive as she did not respond to calls and messages.

The market for liquefied natural gas is split between the spot market and long-term contracts.

The spot market for gas refers to the trade of large physical cargoes or parcels in one-off transactions for near-term delivery while the long-term contract typically obligates the transaction to occur at an agreed price with further financing agreements for projects with high capital costs and long payback periods.

Ninety percent of the global LNG market including that of Nigeria is sold based on long-term deals, but around a tenth of the market is spot, with flexible prices.

A severe winter in Asia, which started in December, saw Japan, China and South Korea turn to the spot market and led to higher demand for LNG with price surging from an all-time low of $1.82 per million British Thermal Units (BTU), eight months ago to $6.90 as at Monday, February 15, with traders now booking cargoes for delivery in warmer months.

As a result, the development has seriously compromised investors’ appetite for spot market deals.

“Spot LNG in Asia is now like toilet paper rolls during the pandemic; you look at the empty shelves and you grab the last one at any price,” a global gas investor who pleaded anonymity said.

Although the price spike affects mostly spot LNG, while long-term deals are currently being priced at around $6-$7, most market analysts say the spike could also undermine the formation of a flexible spot LNG market as many buyers may prefer to stick to longterm contract deals.