Omotowa: LNG Market Remains Robust, Despite Shale Gas
Managing Director/CEO of Nigeria LNG Limited, Mr. Babs Omotowa recently spoke to journalists in Lagos on the huge potential of the global gas market. Ejiofor Alike was there. Excerpts:
You signed long term contracts of 20 to 25 years with buyers and now that the shale gas is in the market, your customers may want to terminate those contracts because they have seen cheaper source of gas. Are you not worried that shale gas is threatening LNG business? During the 2014 Nigeria Oil and Gas conference, I spoke indeed about shale gas and even methane hydrates, which has significant challenges, and I think some of what I spoke about then has come to pass because we have seen the impact of shale gas and shale oil has indeed affected the price of crude oil to the level as we are seeing today. So, I do not think that anything has changed from that perspective; shale gas will be with us for sometime; it will affect prices.
Methane hydrate at some point will also start to affect us. But does that change the opportunity of Train 7, I guess is your question and our belief is that it does not. Why we say that is that the growth in demand both for energy continues to rise.
When you look into the future, we estimate that there will be about nine billion people in the world by the 2050. Majority of the growth of those nine billion people will come from the developing countries, who will need energy for a lot of things.
And so the demand for energy will continue to rise from that perspective. But even in that rise, the demand for gas will rise even more because the world is changing more to more environmentally friendly hydrocarbons, climate change issues and also the fact that gas is much more affordable will continue to mean that there will be growth.
So, while indeed the supply side is growing in terms of shale gas, and we are seeing the impact today affecting price, the demand side will also continue to grow and will continue to see even more demand on the gas side. It is fair to say that the price may not be as high as it used to be in the past.
And indeed we have seen a situation where the prices in Asia which used to be between $15 and $20 by mmbtu has now come down to about $7 but we are still confident that the business case will continue to be robust for Train 7 and that we will be able to deliver additional value, despite all these stress.
But the message I gave in NOG 2014 remains true; that if we do not move fast with this project, the windows of opportunities will close because other countries , including Australia, Mozambique, Tanzania – all these other countries are also making progress with their own gas findings and will be in the market ahead of us.
The challenge is not that we will not sell gas; the challenge is that at what price and the later you are in getting to the market, the likelihood that your price will be lower remains there. So, the opportunity is there; it remains, the challenges will remain but we are optimistic that as long as we can get into the market on time, we will remain profitable. Why are you planning to build Train 7 to export gas when there is no gas to meet the domestic needs, especially in the area of power generation? I think as you said, the problem is not one of gas. We are one of the largest gas reserves in the world. We are in the top 10 and that is even for gas we found by accident. Most of the gas you see in Nigeria today that we are using were accidental finds. We are not going after gas. When you look at a lot of what we have now found when we actually gone for gas; if you look at fields, offshore for example, if you look at fields like Bosi - we are talking of fields that are up to five or seven trillion cubic feet of gas, just in one field. This is beyond what you need even for some LNG plants in the world. So, we have much more than enough gas; our problem is not the availability of gas in the country; our challenge is how quickly can we explore them, produce them and make available and infrastructures to make them available to domestic facilities.
So, when you are looking at requirements for either power or petrochemicals, it is not because the gas is not in the ground. Our challenge is that we need money; we need the right fiscals to be able to explore them; to be able to produce them; to be able to transport them to those facilities. Those are the works that need to be unblocked; what we call the non-technical issues. But in terms of the gas, the country has more than enough, - 180 trillion cubic feet, but remember that we have 600 trillion cubic feet that we have not even touched. So, our focus as an industry, working with the government is continue to unblock all these issues of funding, fiscal environment, the infrastructures that we need to provide the gas. With the abundant gas resources in the country, why is it that there is no gas to generate electricity? One can look at various countries to be able to answer that question – how have those countries solved the problem.
I think the first thing to realise is that in many countries, the key for power is about diversification and if you have learnt anything in this country, even in the economy, it is about the need for diversification. Let me give you two examples. Russia, for example has the highest gas reserves in the world.
Russia has more than 10 times, what we have in terms of gas reserves but Russia produces less than 25 per cent of its power is produced from gas because they produce power from several other sources.
They produce from nuclear; from hydro; coal and you need to diversify your sources of power because you cannot rely so much on one. When you look again at a country like China - just in one hydro power station, the country produces over 20,000 megawatts of electricity.
So, even from hydro, you can generate a lot. So, I think the first think hopefully as investigative journalists you will be able to find is that diversification of power sources is important for us as a country.
We cannot just be producing gas and thinking that we will generate all our power from gas, transport it thousands of kilometres, either by pipeline or by overhead because you will just lose much in that and Nigeria is so blessed as we say.
We have hydro; we have coal, solar, and wind. So, diversification is going to be very important. Still on gas alone, I think the issue as I mentioned is that we have enough gas. It is not about the availability; our challenge remains how do we explore this gas; how do we produce it, how do we transport it to the places where we need them. To do that successfully, what you need are a couple of things – you need a very clear regulatory framework; nobody will invest if they don’t know what the rules of the game are and I think as a country, we have been working hard on our PIB. Hopefully a right legislation will be passed that will give comfort to those investors who will come to invest and when they do, they will invest in exploration; in the production activities and transportation. Of course, we still have challenges, as we said with financing because these projects are very expensive.
None of them will be less than $1 billion. So, funding will need to be arranged and then of course, in the project construction, you will also need to ensure that the neccessary support comes to be able to get those projects delivered on time and all the necessary approvals are received on time.
And of course, finally, when those infrastructures are completed, we need to secure them.
As of today, there are still lots of sabotage and bunkering activities on pipelines. So, even when you explore and produce the gas, it is difficult to transport it. I think even this year alone, the joint ventures upstream reported that on a daily basis their pipeline continue to be attacked and that means that they cannot even produce.
When they explore and produce, they cannot even transport. And so, we need to continue to work on those issues.
So, I think that as an industry, we will continue to work with the government and will continue to resolve these issues. Progress is being made and we just now need to make sure that we will be able to get all the things that are required to make the sector work. Now that a new administration is coming on board, how are you going to work with the new government to ensure that the FID for Train 7 is signed?