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NIGERIA - The NLNG Background.

Nigeria's LNG venture was first conceived in the 1960s. It was delayed continuously and Shell, the project leader, faced countless problems in Nigeria including a bloody civil war and successive military coups. Shell moved decisively to get the project off the ground in 1989, when NLNG was formed with state-owned Nigerian National Petroleum Corp. (NNPC) holding 60%. The rest was held by Shell and its partners in Nigeria's biggest oil producing venture - Elf and Agip. But there were technical problems, like the choice of process, and political obstacles. Shell kept pushing and got potential clients to sign MoUs in 1991.

In late 1992, when the project was to be finally contracted, the board of NLNG was changed as previous NNPC members were dismissed. Some of the latter were accused of corruption and others of incompetence. A new NLNG board was formed and decided to review the choice of process, with Shell insisting on APCI's, and to seek about $2.5 bn in finance through a combination of commercial and concessionary loans. A group led by Bechtel then emerged as a likely winner for the main engineering contract in competition with the TSKJ group consisting of Technip (close to Elf), Snamprogetti (ENI) and Kellogg/JGC. There was also keen competition for the EPC contract between the Bechtel-led group including Thyssen, Chiyoda, Spie Batignolles and Ansaldo; and TSKJ, which won the EPC contract at a lower price eventually. For the project to be properly funded, Shell had since early 1993 persuaded NNPC to cut its stake in NLNG from 60 to 49%. In late 1993 the partners agreed to deposit part of their capital dues into escrow accounts, as a guarantee they will fund the rest from early 1996. The government then amended a 1990 decree to improve the

incentives: no tax or duties to be paid on exports of LNG and the plant's LPG output.

Shell was given more powers as project manager and the right to nominate NLNG's managing director. Shell's Theo Oerlemans took up this post. (Until then Oerlemans, a Dutch heavyweight, who was head of Shell's gas operations in Asia, Australia and the CIS). The APCI process was adopted for the plant. (In 1986, after French-Italian lobbying, Shell reluctantly agreed NLNG would have the Tealarc process developed by Technip and Snamprogetti. But Shell never liked that process).

In a carefully worded MoU signed in December 1993, the partners agreed LNG exports would begin in 1999 (not in 1997 as was announced previously) and that the shareholders had until mid-November 1995 to commit themselves irreversibly to the venture. In late 1995 the World Bank's IFC withdrew from NLNG. Ownership was then changed to: 25.6% for Shell, 15% for Elf and 10.4% for Agip, with NNPC's stake kept at 49%. On Dec. 15, 1995 NLNG awarded the EPC contract to the TSKJ group and its value was reported at $2.2 bn, with the work to cover Trains A and B, underground gas gathering pipelines, related infrastructure and a housing complex for NLNG's staff.

In February 1997 Shell made Steven Ollereanshaw managing director of NLNG, to succeed Oerlemans from March 1. Ollereanshaw was previously head of Shell's western upstream division in Nigeria. The project's total cost was then cut to $3.7 bn (previous estimates ranged from $4.6 bn to $6 bn and capacity was to be 5.7 BCM/year) including BGT's tankers but excluding upstream investments. Having secured firm purchase contracts, on March 16, 1999 NLNG's board approved the Train C project - capacity: 3.7 BCM/year of LNG and over 1m t/y of LPG, both for export. The board also agreed that revenues and surpluses from Trains A and B will be reinvested in the expansion, and that the TSKJ group will build the third train.

The Gas Feed: The first gas feed to Train A was received in April 1999 from the Obiatu gas plant of Agip, which is committed to supply most of its available associated and free gases to NLNG. Elf's Obite gas field, now being developed, will be one of the French company's structures to feed the NLNG complex. But a bigger volume of gas will be fed by Shell.

Trains A and B will require 900 MCF/day (8.7 BCM/year) of feed gas. Under long-term supply agreements signed, the feed will be provided 53.3% by Shell, 23.3% by Elf and 23.3% by Agip. The gas will be pumped to the Bonny complex through a 200 km pipeline system. For Train C, which will process 100% associated gas, the feed will be 400 MCF/day to be provided by the foreign partners in the same way as mentioned above. Shell's supplies to Train C and, eventually, to the much bigger Trains D and C, will come mainly from new deep offshore fields - including Bonga which will be producing 350,000 b/d of oil and a lot of associated gas - and partly from shallow water fields. These are part of Shell's $8.5 bn Nigeria investment plan to 2008 which will raise oil production by 600,000 b/d.
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Publication:APS Review Gas Market Trends
Geographic Code:6NIGR
Date:Aug 16, 1999
Previous Article:NIGERIA - The Tankers.
Next Article:NIGERIA - Regional Export Pipeline.

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