Africa Energy Series webinar recently beamed a spotlight on Nigeria Liquefied Natural Gas (NLNG)’s Train 7. In a live interview, the NLNG Managing Director/CEO, Mr. Tony Attah, spoke on the progress made on Train 7 amid the current COVID-19 pandemic, industry climate, opportunities inherent in the project, forecasts on the global gas industry and opportunities for Nigeria to harness energy transmission. Excerpts:
Congratulation on the signing of Engineering, Procurement and Construction (EPC) Contract for Train 7. Can you share your experience on how you arrived at this point?
I, personally, will say that all the stars line up for train 7 but a lot of people remind me that we have support from the Presidency under the leadership of President Muhammadu Buhari, who when we visited him, we told him that this is Nigerian LNG, and that we have the strength, and will add values to the country.
He said to us that he was part of the project from the onset, and asked why we were still at Train 6? He said that he expected us to be at train 12 by now. He then gave a commitment, and I give credit to him and the government. We got that support which is very invaluable. We also got a lot of support from the Minster of State for Petroleum Resources who actually has declared year 2020 as the year of gas and has really lent his supports to us.
In the cause of this journey, there is a game changer which is the Nigeria Content Act, a law that did not exist when we took the Financial Investment Decision (FID) on Train 1 and 2 in the year 2004 and we had to contend with that but then the support from the Executive Secretary of the Nigerian Content Development Monitoring Board (NCDMB) was very encouraging. However, the biggest support we got was from the shareholders who believed in the company and believed in the pedigree of what we can achieve and what we have done so far. They took that decision to say this is a great project, you have proven that you can operate, you have proven that you can deliver projects over the last 20 years and we will support you to go on which is how it was launched. As for COVID-19, no one saw it coming but we have even tried to understand the reality but some of the internal analyses that have come to us will suggest that we are at war.
A lot of people would liken this to the First World War but here we are, with the reality of what it started like the United States versus China Trade War, as a matter of fact that was still going on, then “boom,” COVID-19 began, straight out from Wuhan, China, and some other people even say: “Wait a minute, is this a Chinese response to the US-China Trade War?” But then you have the trade war going on, you have COVID-19 which also has been declared as a trade war, war against an invisible enemy, which is the virus and out of the blues. Sadly, we then have the Saudi-OPEC-Russia price war. So, these three wars could bring the catastrophic outcome you saw on something no one has ever seen; the negative oil price and the overall impact of that in the entire markets and dislocation.
As it were, we are really at the moment just getting to tackle it. We have the EPC contract, how do you make investment decision, how do you execute in a COVID war? I think we are not alone in trying to find answers to that kind of question so it is an ongoing process for us.
With COVID-19 pandemic, NLNG has gone ahead to execute the EPC. Was it that difficult in itself as a decision or was it relatively an easy thing to accomplish?
Definitely, it wasn’t an easy thing. If it was easy, we would have taken it 15 years ago when there was even no COVID. It’s divine in a way that at this difficult time, we got the decision and we moved ahead. For me, it is really appealing, the fact that the Nigeria LNG is very resilient and we have the capacity to be able to demonstrate that we can deliver under multiple circumstances. But in addressing the subject, the funding aspect, for us, is about the robustness of our business and the business model, the belief that the market has about this brand. We have paid back a very primary loan of $5.45 billion.
Last year, we paid back the loan and, for us, that lends more credibility to the brand already. This was a very solid brand underpin by a very big balance sheets of over $11 billion. We have proven that we can pay back and we are earning money; we are not a green project. We are a brown project and I think that really helps. But today, we are consolidating on that brand’s credibility to just be able to ensure that we deliver the project itself to fall in the same manner but one thing again that gives confident to the market. We are absolutely delighted that we are able to attract financing and funding in the face of the toughest situation. We went out looking for money but we got twice what we were looking for in the market place. That for me is a testament of the confident that the market has on Nigeria that with COVID-19 pandemic or not, we have got to deliver.
Do you envisage any delay in the project?
No, I don’t think there will be any delay. For instance, I am listening to my doctor that says look, this is a virus that is not going to go away soon just like HIV, we have to learn to understand it the more, most importantly, we have to learn to live with it and live in its midst. We are already working to the technology according to the three main guidelines of its preventions such as social distancing, washing hands with soap and also wearing face masks. So among these three, how we achieve social distancing with the right sanitary conditions of the site and have workers, under very difficult conditions, work with masks and carrying on duties, is a process that we are studying. Essentially, we would be able to adjust to these new defects and live with this virus and move on as much as possible. It’s about starting first and understanding fully, what it takes to keep going.
How is Nigeria LNG managing the day to day issues of COVID 19?
It is a cyclical market and I believe that the fundamentals of the market would not change drastically. We didn’t expect that this would get to this level with these three worlds coming together the way we described them.
We actually already saw the market changing gear last year, using the company of LNG prices for brand at some point and we also saw convergence of prices between Asia, Europe, Egypt and other countries sometimes getting close.
Those were the things we have never seen before. So we are all beginning to adjust to that and beginning to accept that, perhaps, the change in energy mix and energy transition will begin to take effect in terms of a lower for much stronger scenario and we were barely adjusting to that and now this. This is even worse because a model we developed to be able to respond was purely conventional to manage the demand and supply but suddenly, we had a situation where COVID did not impact one, it impacted both demand and supply and made it even more difficult to respond but, so far, we had relied more on our social capital and relationship with our customers most importantly, but secondly, with the commercial dexterity and creativity of our commercial team, who keeps coming up with options of possibilities that would partner with our customers to keep going.
We made a choice from the beginning to manage in crises mode, most importantly, keeping our people safe, people in the widest contest of ourselves, staff, friends, society, communities, neighbours and to keep the business up and running. That, in itself, is already a challenge under normal conditions but to now operate in COVID times makes it more difficult but we are absolutely pursuing those two objectives today. Our plants are up and running and we will continue to bring volumes to the market, supply our customers and work in partnership with those who are having difficulties just to find creative solutions to stay afloat until this wind blows away.
In terms of Nigeria LNG Train 7, some of your shareholders are going to be managing. Do you think that will really help the project financing and equity interest of off-takers?
You know, the business has a lot of reliance on the off-takers. You actually have to find the market before you even produce, so it’s a conversation we have when people say; “I will lend you money but I need you to show me the market.” So it’s not just enough to say I can produce. This game is really about the market. I must say that it added to the credibility of the project but more importantly, we already demonstrated that the company on its own was very viable. We kick-started the sales and marketing of Trains 1-3 in 2017, out of the gas to Japan, we put down about seven million tons for re-marketing and I must say that the offer was very humbling for me. We put down seven million tons in the market just to remarket and we got offers for 60 or so million tons. So, what it has shown is the fact that the company has credibility. But quite frankly, on the finance point of view, you can’t diminish the pedigree of shareholders from the confidence that we have built.
When you look forward to the next few years, there is this remarketing of volumes of Train 4, 5 and 6. We discovered that you have been very active, renewed some contracts and so on but with this COVID-19 pandemic, don’t you think that the demand will be affected and also that you will have more pressure when adding re-marketing of some of the volumes?
Definitely it will bring some pressure, going by what we went through to re-market seven million tons and even more. But we have learnt a lot and this is the first time we are remarketing any volumes. I will imagine that Trains 4, 5, 6 will go through the same process but most importantly, we are more prepared now and we have learnt a lot over the re-marketing of the first two Trains. There are lessons learnt from the last one which we hope to apply, but I am just feeling comforted that the Train 7 off-takers are guaranteed in addition to re-marketing of Trains 4,5 and 6 with Train 7 which has already been established. So, I think it is a matter of dealing with the process and I think that by then, COVID should be out of the way. Our first re-marketing opportunity for Trains 4, 5, 6 should be after 2022. By then we will have either understood the virus or we will have eliminated it with vaccines; or one way or the other we would have found a solution.
There are about 100 million tons under construction around the world today. What do you think the world global LNG industry would look like in the 2020s?
I believe there are opportunities ahead and, COVID from the market point of view is not all negative. Just as you said, there is 100 million tons capacity under construction around the world but quite a few have also been turned down or cancelled. So the forecast of hitting 187 million tons in another couple of years is not going to happen. For every project that has been turn down there is a hole that has been created in the future projection and I believe that that would bring about tightness in the future which then is an opportunity for those of us who have really put the chest out for the business. But overall, in terms of where this market is heading, I think the cyclical pattern of the market will not change; I think the fundamentals of the market will not disappear or change drastically, but I expect that a lot will happen more from the changing energy mix as a result of climate change and the energy transmission than from where all these are coming from but a lot would depend on what happens to China, India and the better parts of Asia.
Just look at China today, China is still the highest user of coal, generating what is more than 900 GW, to reduce that by 20 per cent and switch to gas. That creates massive opportunity for them. Overall, I believe the fundamental that will drive the future of energy, particularly, LNG is about the population growth that has been projected at seven billion or so now and by 2040, which is just 20 years away 2 billion people will be added. Those people are going to need energy and the question is, where will that come from?
I believe that of all the fossil fuels we have, gas is the cleanest and by far it has a lot of attraction but I don’t think there is any Energy Mix that has renewable without gas to be able to bridge that gap and meet the demand of the future, so gas is still relevant.
You are still quite optimistic about the relevance of and demand for gas in year 2020?
Definitely, that is why Train 7 has gone ahead and as a matter of fact, we have started the maturation of Train 8.
How do you see Nigeria progressing with gas production and development in the 2020s?
I think the Nigeria story is one that would not be complete without gas, and I have mentioned that the Minster of State for Petroleum has declared 2020 the year of gas. Gas is a major resource in Nigeria. Clearly, this has been acknowledged all over the world, so we have proven 200 TCF of gas reserve and we have another 600 TCF that we know about that need to be proven. Today, as number nine in term of gas reserves in the world, if we prove the 600TCF, we go straight to number nine on the chat. As for me, that is a major opportunity to jump-start the sector.
In Nigeria today we have a gas master plan and gas policies from 2017 but a lot will depend on fiscals and how the governments is able to incentivize its gas development. This has to happen with the energy transition that I mentioned earlier. At a point in the history of Nigeria, coal was the mainstay before we found oil. There is still coal in Enugu, Nigeria, but nobody talks about it and the last few years is the fear of fossil fuels disappearing in another 50 years and the country has not maximized value from it. We believe that it’s time for gas and there is great opportunity with NLNG in proper position to keep developing these Trains. The government then must ensure that the reserves that we know about are actually brought into production and a lot will depend on what it does for it to happen.
Can you tell us about the solid development that has happened to Nigeria domestic market?
Yes, as I mentioned, we have already modelled something around LPG. As at 2007, the entire national capacity of LPG was 50,000 tons but since we got involved as market makers, we have grown that capacity into more than 650,000 tons out of which we today deliver what is about 45 per cent to the market.
We have looked at the model, it’s not a subsidy model but it is the one that has proven to work and we are currently looking at bringing LNG into the country but essentially, LNG to us is a coastal business where it really needs parts of our vessels to sea, so within that, we see huge opportunity in two reasons. Firstly, with the global markets, we see very high demand for gas and other forms of energy in Nigeria and indeed entire Africa. As you know, more than 50 per cent of the population that does not have access to energy in the world is in Africa. So, the domestic LNG project that we are looking at is to be piloted in Nigeria, then, we go regionally and look at Africa as a whole. It’s a project that is already on and as we speak, there are quite a few people who have indicated interest and we are working with them to actually see how much capacity they are able to develop or build to make this real. Initially and till date, we stay on the supply side but we have come to terms with recognizing that with the change in market. Today, we are price thinkers and we just established that the price is no longer within anybody’s forecast, view or control. We already perhaps have a future where we have to be a market maker for this to be able to have the essence of full value chain coming to fusion in the country.
Yes, we are thinking of domestic LNG in the same model and manner that we did of LPG which has been greatly successful and I believe that LNG can come into Nigeria as well.
Do you see this project happening in the next few years or will it take a longer time?
Yes, as I said, we have already started working on it. I can’t put a specific date as to when it will happen but essentially, I believe this is one project that in a short time this will come into reality.
As everyone would say, where is the infrastructure? Where is the market? Looking at the gas domestic market today, we know that a lot still needs to be done. But essentially, we believe that we have a role to play there, in the market making opportunity to just help define and shape what it will take and we have a proven pedigree as I mentioned, in the LPG space, and we are hoping to apply the same model to just be able to bring the LNG into the country and, of course, be in real partnership with others that are active in that aspect.