NIGERIA - Two JVs Merged Into OKLNG.

Two ventures were on April 13 merged to create a single 20m t/y giant - OKLNG - with four 5m t/y trains. The first was a Chevron-BG partnership. The second was led by Shell. The complex will be in the Olokola free zone, providing a deep-water site for large methane tankers.

Under NNPC's auspices, it was agreed that each train will belong to a separate firm. The partners have also agreed in principle that, eventually, the complex could have additional trains for the total capacity to reach about 30m t/y, depending on world LNG demand, by 2012/13.

The joint company to operate the complex will be called OKLNG OpCo. NNPC gave Chevron a deadline of March 2006 to make its final investment decision and thus become the operator. Failing that, Shell has the opportunity to take a decision within the following six months and become the operator instead. The first LNG shipment is tentatively scheduled for mid-2009. The final schedule, crucial for marketing purposes, is expected before October 2006.

The partners will bring their natural gas to the complex and will lift their LNG share there. A single technology will be selected. There will be a joint strategy and contracting for the front-end engineering and design (FEED) work and the engineering, procurement and construction phase. Most likely the EPC contractor is to be an international consortium.

It is also planned that the excess electric power production from the installations of the future industrial unit as a whole will be injected into the Nigerian network. The project will help put a stop to associated gas flaring in Nigeria.

The Background: The merger brought together a Shell-led group and partners in a project formerly known as Brass LNG. In late 2004, representatives from NNPC, Chevron and BG had met with the governors of Nigeria's Ondo and Ogun states to discuss their project, which they had proposed to located in the Olokola free trade zone on the coastal border between the two states.

The Nigerian newspaper Punch then reported that the government had already approved construction of the $6 billion project, adding that it aimed to start producing 10m t/y of LNG (1,300 MCF/day of gas) in 2008. This prompted BG and Chevron to stress the highly preliminary nature of their talks, and to describe values, volumes and dates as "speculative".

The disclosure was particularly embarrassing for Chevron, raising doubts over its commitment to the ConocoPhillips-led Brass LNG venture with ENI and NNPC. Chevron spokeswoman Nicole Hodgson said: "We are a partner in Brass LNG, [which] is making progress. It is currently in the FEED process. These are two separate projects [one led by ConocoPhillips and one led by Chevron of OKLNG], and that's how they'll be evaluated". Chevron added that its OKLNG conceptual study "will consider available gas supply, marine LNG loading concepts, available LNG technology options, LNG market options, project economics and the social and environmental impact of the potential project".

Brass LNG had originally been expected to be Nigeria's second venture next to NLNG, and an agreement on the 10m t/y FEED study was signed in November 2003. However, details of what fields might supply feed gas had remained sketchy. One curious aspect was that Olokola, 100 km east of Nigeria's former capital Lagos, was not particularly known as a gas-producing area. But the final choice of Olokola as the site for the merged 20m t/y OKLNG complex was motivated primarily because it had a deep-water coast and was a free zone. There had been speculation in late 2004 that the Escravos Delta, 100 km further south along the coast where Chevron produces oil and gas, might be chosen as the site for the Chevron-BG project.