10 Things to Note as Brass LNG Shareholders Constitute Pre-FEED Team
Shareholders and partners of the Brass Liquefied Natural Gas (LNG) project are reported to have constituted a new pre-Front End Engineering Design, FEED, team and adopted a new technology, ‘APCL’ to ensure the sustainability of the project.
Chairman of Brass LNG, Dr. Jackson Gaius-Obaseki, was reported to state that the commitment demonstrated by the shareholders was very unusual for any project of the kind anywhere in the world. This was while speaking in Lagos at a dinner in honour of a team from Italy’s integrated Energy Company Eni, and after the visitors and other shareholders had undertaken a tour of the project site at Brass Island in Bayelsa State. History The first commercial liquefaction plant was reportedly built in Cleveland Ohio in 1941. In January 1959, the world’s first LNG tanker “MEHTANE PIONEER” carried its LNG cargo from Lake Charles Louisiana, USA to Canvey Island, UK. This event established the fact that large quantities of LNG could be transported across the sea safely and possibly established LNG as an “Energy Transportation Industry” that makes gas available to markets near or far. What Is ‘NLNG’ About? NLNG makes “liquefied natural gas” available to the international market and when our local markets begin to consume LNG they probably will be willing to meet that need too.
Transportation of gas has always been an issue; the cost of laying the pipelines alone was a major issue, but then came LNG which reduces the size of the gas volume by a factor of 600. FEED, FID and IP The FID on the Brass LNG project suffered a major setback when American based ConocoPhillips, in 2013, announced its intention to divest its Nigerian assets. As a result, the other shareholders of Brass LNG took up the remaining 17 per cent stake divested and adopted a new technology, APCL. What Does FEED Mean? FEED (Front End Engineering Design) may be defined to mean Basic Engineering which is conducted after completion of a Conceptual Design or Feasibility Study. At this stage, before the start of E.P.C (Engineering, Procurement and Construction), various studies take place to figure out IP issues, technical issues and estimate rough investment cost. What Does FID Mean? FID means Final Investment Decision. This is the point where the shareholders, usually in Joint Venture (JV) have come together, after reviewing IP, technologies, economics, and the market, and are satisfied with all the details, decide to proceed with a pending project by putting pen to paper and committing their funds, usually into an escrow account.
The decision may be effected by signing a contract with a company that they will collaborate with to ensure its implementation. Oil and Gas Intellectual Property; The basic types of Intellectual Property prevalent in the oil and gas sector are the following; Patents, Trademarks, Copyrights, Trade Secrets and Others like brands, Know-How, Know – Who and Professional Credentials & Credibility.
In protecting innovation, a key benefit of an intellectual property system is that whereas contractual rights are only enforceable against contractual parties; a proprietary right is enforceable against the whole world! Reports have however shown a strong correlation between the presence of intellectual property in oil and gas companies, especially service companies, and their profitability. F. I. D. on Brass LNG project-IP The seemingly endless delays in signing the Final Investment Decision on the Brass LNG project highlight the need for Nigeria’s oil and gas regulators and International and Indigenous Oil and Gas companies to pay attention to the Intellectual Property involved in Oil and Gas transactions. Expertise in Oil and Gas law is desirable but firms need to find Counsel who understand both oil and gas law and IP as IP though intangible cannot be wished away.
What does IP have to do with LNG? Patents A Patent is a document issued, upon application by a government office (or a regional office acting for several countries), which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (i.e. manufactured, used, sold, imported) with the authorisation of the owner of the patent. Patents cover things like gas liquefaction, regasification and LNG transportation technology. Technology vs Patents LNG is intensely technology driven and these technologies are protected by Patents and other IP owned by companies who either directly participate in LNG projects or license out their IP, including Patents to others to use for a hefty fee.
Commodity Sellers vs. Proprietary Industry
If the products of LNG companies were not protected by Patents, they would have been priced as a “commodity”. If their products had been priced as a “commodity”, they may not have been developed and subsequently become available to the LNG industry. But Intellectual Property Rights are enforceable against the whole world and protect the developer’s interest.
Intellectual Property in LNG Joint Ventures?
At the onset of a Joint Venture the members of a JV contribute resources to make the JV successful, some members usually have Intellectual Property that they have developed, own or license and which they ostensibly intend to contribute to the joint venture. Intellectual Property in LNG Joint Ventures become valuable assets to the Oil and Gas companies involved in an LNG-Joint Venture when the parties are aware of the potential issues related to Intellectual Property and recognise that value. They become more valuable when they are registered and steps are taken to prevent competitors from accessing and using them for free. More value is derived when the owner of such Intellectual Property actively seeks to commercialise their intellectual assets by synergising with companies willing to use LNG-Intellectual Assets for a fee.
Some Questions should arise as BRASS LNG constitutes its PRE FEED team
How should IP contributed by different members be managed when a JV is terminated or a member pulls out? Is the party exiting the JV under an obligation to grant a favourable license of its IP to the JV on exit? Is there a mechanism to gather royalties for IP licensed by a former JV member? If the exiting party gives unfavourable conditions to license its JV, what should the JV do? Is the exiting party under an obligation to exit the JV in a timely manner? Are there provisions for compulsory licenses? Do they apply? Is a reactive or proactive strategy preferable?
Joint or Individual Ownership of JV-IP?
There is a need to clearly identify what Intellectual Property the members of a JV own, what they intend to share, license, contribute to the JV and under what terms.
Who Owns the LNG Patents Being Used?
ConocoPhillips is documented as the owner of the patents and processes that were initially scheduled to be used for BRASS LNG production in Nigeria. Patents are negative rights in favour of its owner. Where you do not own the Patent to a technology or process you may wish to obtain a license from its owner. Who owns Improvements on JV-IPs? The members of a JV need to envisage possible improvements on JV IP and then agree on who will own improvements to prior Intellectual Property and fresh IP that emerges while the JV is on, who will protect that IP and how it will be shared among the members of a JV if the member owning the IP leaves.
IP Management When JV is Terminated or a Member(s) Pulls Out
This is a key issue that should be addressed at the formation of the JV and not when a member owning crucial LNG-IP pulls out leaving the other members at the risk of having to sign a harsh license agreement with a former member, or worse still the LNG-IP owning member, may partially pull out making it difficult for a new entity to enter the JV. To resolve the current impasse shall we explore the possibility of compulsory licenses or shall we use alternative technologies? Why Do We Still Flare Gas? The BRASS LNG Final Investment Decision requires adequate feed gas to its LNG plants to form the basis of sales contracts. The projects have to be sold before the plants are built and issues like source and price of feed gas for the LNG plant must have been sorted out. That is just one of the many issues that determine FID. And yes, the length of the contractual cycle can be a bother too. Do we need LNG Storage Tanks? Japan has some massive LNG storage tanks as part of its energy strategy; it buys the LNG and stores it away for a rainy day to cushion the possible effects of high LNG prices. Need for Gas Utilisation There is growing evidence of the assertion that Nigeria is a “gas province with a drop of oil”. What makes our equation sweeter is that our gas is not trapped; much of it is associated and comes out while we drill for crude oil. How LNG Works LNG companies buy natural gas, and remove impurities such as hydrogen sulphide (which can be refined and sold as sulphur), other gases, sand, other compounds, and water (so the water does not become ice during refrigeration). Then the gas is refrigerated to -160 degrees Celsius so that the gas liquefies. LNG (Liquefied Natural Gas) is simply gas in a liquid form. The LNG is shipped to the buyers, who on receipt of the LNG either use it as it is (trucks, ships and other vehicles run on LNG) or turn the LNG back into gas and then pipe to their consumers.
Major pricing systems in LNG contracts
There are three major pricing systems in LNG contracts: Oil indexed contract, the JCC (Japan Crude Cocktail) Contracts, used primarily in Japan, Korea, Taiwan and China, and Take-or-Pay Contracts based on a combination of oil products and other energies used primarily in Continental Europe and Market indexed contracts used in the USA and the UK. LNG Contracts Are “Take-or-Pay” Take-or-Pay Contracts are written agreements between a buyer and seller that oblige the buyer to pay regardless of whether or not the seller delivers the good or service. Generally, the obligation to pay does not involve the full amount due for the product, and protects the seller in the event that the buyer refuses to accept the good or service when delivery is attempted.
The Take-or-Pay contract was mostly used in the sale of food commodities. A farmer may contract with a buyer to purchase the entire batch of harvested crops during a given season. Where the buyer refuses to purchase the entire crops, he or she will still owe the farmer some form of reduced payment as compensation on the transaction, while allowing the farmer to look for other buyers for the crops. Conclusion The LNG Business is cutting edge. Unlike other businesses, LNG allows producers dispose of the product immediately they are produced. Some reports say it takes on average 50 to 60 months to build an LNG plant, which makes it important that the FID is wrapped up shortly so construction of LNG plants commence quickly in order to meet up with the LNG contract window that opens up in 2017. LNG contracts are long term, usually for a 20 (twenty) year duration, and some of the more prominent contracts begin expiring in 2017, thus all things being equal this will be a very good opportunity for Nigeria to expand its LNG market.
Wusu is a Commercial/Gas and I.P. Lawyer based in Lagos.