To say that the Brass Liquefied Natural Gas (LNG) Project has been streamed with too much tentativeness is an understatement and this concern is providing ammunitions for critics who have started questioning the issue of genuine commitment of the shareholding partners to the timely take-off of the project.
Incorporated on 20th February 2004 as a company, four stakeholders in September 2006 signed the Shareholders Agreement for the Brass LNG Project. The shareholders were Nigerian National Petroleum Corporation (NNPC), ENI International, Phillips (Brass) Limited (an affiliate of ConocoPhillips) and Brass Holdings Company Limited (an affiliate of TotalFinaElf).
The shareholding structure of the company reflects that the Nigerian National Petroleum Corporation holds 49 per cent; Eni, 17 per cent, Conoco Phillips, 17 per cent and Total, 17 per cent respectively.
The most important contract agreement for the project- the Final Investment Decision (FID) had suffered several postponements. It was initially slated to be taken in December, 2006 but was later adjusted to December, 2008 as a result of other contributing tentative factors.
When an FID is taken, it means the shareholders had taken a firm and legally binding decision to do the project.
Attacks by militants were initially blamed as the major cause of the first rescheduling. ConocoPhillips, one of the shareholders, had in 2006, pushed for an indefinite postponement, following a surge in militant attacks and kidnappings in the Niger Delta.
But now, the problem of availability and sourcing of the natural gas feedstock for the project seems to have assumed the front burner in the joint venture concerns.
In 2008, after assessing the availability of gas from the participating international oil companies, it was discovered that they could only guarantee about 70 percent of the natural gas feedstock needed for the project. And that was over a year ago. So the shareholders decided that they get the remaining 28 per cent gas needed before proceeding with the sealing of the FID.
How the shareholders are going about sourcing the over 30 percent of theof the remaining gas feedstock could best be described as blurred and at worst obscured. With most of the production operations terribly slowed down in the onshore, swamp and near shore arenas, the only option left for the supply of the balance feedstock remains the deep offshore arena and that is where the big problem lies.
Most of the participating companies that are expected to contribute gas for the project mainly produce from onshore and swamp terrains. Except maybe ConocoPhilips that has remained at best a marginal producer, other participating companies in the Brass LNG Project are complete aliens in near and deep offshore production arena.
Also, fiscal issues including sourcing of offshore funds to finance the project seem to be competing for the top slot in the critical concerns of the participating shareholding companies.
The shareholders believed that all the contracting processes should be completed and issues of funding resolved before the signing of the FID and the earliest time to resolve them will be in the middle of 2010. This is yet another re-scheduled and tentative date.
It should be emphasized that the company is yet to seal the final Sales and Purchase Agreements with the identified buyers which in real terms, represents the Final Investment Decision by the front-end receivers of the liquefied gas from the Brass Plant. And this is where the bigger problem lies because from the situation on ground, the 2010 date looks like an obvious tentative arrangement.
Despite assurances by the Federal Government that the shareholding partners are fully committed to the project, it still remains unclear how contending issues including funding, shareholders relationships, and most importantly, militancy in the region are being addressed by government.
When the project was conceived in 2004, the prevailing market price for crude oil hovered in the range of $100 and above. All that changed at the onset of the ongoing global economic meltdown which has caused a crash in the oil market with the Nigerian premium grade, the Bonny Light selling at about $50 per barrel with definite assurance of further downward slide.
Also at the time, most of the international oil companies operating in the Niger Delta that were expected to supply the natural gas feedstock were operating at full capacity. But the situation has changed with some of the operators recording over 50 percent shut-in of their production capacities.
In addition, the Engineering Procurement and Construction (EPC) Phase was expected to be funded by a combination of third party loans and shareholder equity. In the light of the ongoing global economic crisis, only a very few third-party financiers may have enough funds to commit to a project that is heavily characterised by too much tentativeness including the recent in-house bickering and back-stabbing that saw ConocoPhilips loose the driving seat in the project to ENI (Agip).
Export Credits Agencies (ECAs) was expected to form a key part of the Brass LNG project’s financial plan. These agencies provide government-backed loans, guarantees and insurance to corporations seeking business opportunities in developing countries and emerging markets. However, now it is going to be harder with the global economic meltdown to convince these ECAs that funding the project will not jeopardize their credit facilities.
The federal government should actually take the driving seat in the project to provide the highly-needed inertia and stability but the problem is that as it stands now, the Nigerian government does not have two coins to rub each other in the name of financing projects of such magnitude. In addition, the federal government should address the Niger Delta issue with sincerity and genuine commitment because as long as it lingers, the Brass LNG project may remain a mirage for a very long time to come.
IFEANYI IZEZE IS AN ABUJA-BASED CONSULTANT ON STRATEGY AND CRISIS COMMUNICATION ([email protected])
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