$8.5bn Brass LNG's FID may suffer further delay

2010-02-04
THE PUNCH Newspaper-Martin Ayankola


The Final Investment Decision for the Brass LNG project, which is one of the major projects that will catapult Nigeria to being among the largest liquefied natural gas producers in the world, may still not be taken this year.

Shareholders in the estimated $8.5bn project were earlier said to have been planning to take the FID by mid-2010.

But our correspondent gathered on Wednesday that there were still major hurdles on the way of the project that must be cleared before the FID could be signed and that they might delay the FID till next year or beyond.

A top official of Brass LNG Limited told our correspondent that the company was yet to secure the remaining 28 per cent feedgas needed by the project.

“We have secured 72 per cent but we are still working hard to secure the remaining 28 per cent. Without the 28 per cent, we cannot be talking of the project commencing because the shareholders will need to be sure of hundred per cent gas before they would invite tenders for construction of the project.

“It is from the tenders that we will know the cost of construction which would enable us take a Final Investment Decision.”

He added, “You should also know that credit financiers would like to ensure that all the feedgas for the project is secured before they can even be ready to release their funds.”

”I want you to know that getting gas is not an easy task, because it takes a very rigorous process and the process might take between three months and much more than a year,” the source added.

Projects of that magnitude are funded through equity and loans, the source said.

Our correspondent also gathered that the company was still holding discussions on gas supply with Shell, Chevron and ExxonMobil and that no deal had been struck with any of them yet.

”It is not true that Chevron is coming on the board of the project. What we are just doing with Chevron is discussing gas supply, which we are also doing with Shell and ExxonMobil. Sometimes discussions like this could end quickly or take months,” he said.

The source added, “Doing Invitation to Tender for construction could also take months while the board sitting down to take the FID decision will also take some time, so I can not say the FID will happen this year. It may well be next year.”

Meanwhile expenditure by shareholders on the pre-Final Investment Decision works at the site of the $8.5bn Brass LNG project at Brass, Bayelsa State, had risen to about $1bn by the end of 2009.

The Federal Government also last year showed strong support for the project as the Vice-President, Goodluck Jonathan, visited the site on April 30, 2009, to assess the extent of work there.

“Expenses on Front End Engineering Design, constructing of access roads and preparing the sites for the plant trains could hit $1bn by year end,” a source close to the project had earlier in 2009, told our correspondent.

“This shows that despite the delay in taking the FID, the shareholders are fully committed to the project,” he added.

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.

Sources close to the project told our correspondent that the shareholders had earlier suspended taking the FID earlier slated for December 2008, when it became obvious that they could only guarantee 72 per cent of the gas needed for the project.

“The shareholders then agreed that they should ensure they get the remaining 28 per cent gas needed before proceeding with the construction of the project,” a source close to the shareholders said.

Furthermore, it was gathered that the shareholders wanted to complete the contractual process before taking the FID.

The contract for the Front End Engineering and Design of the proposed plant was awarded to Bechtel Corporation in late 2004.This followed the completion of conceptual studies that assessed the viability of building an onshore Liquefied Natural Gas facility in the region of Brass Oil Terminal operated by Nigerian Agip Oil Company.

The FID for the project had suffered several postponements as it should have been taken in December, 2006 and later in December, 2008.

Attacks by militants had been the major cause of delay before the issue of gas supply inadequacy and fiscal issues came into consideration.

When an FID is taken, it means the shareholders had taken a firm and legally binding decision to do the project.

The plant is designed to have two trains each producing five million tonnes of LNG and it is designed to last for 20 years.

All volumes from trains one and two have already been committed as buyers have signed Sales Memorandums of Understanding to buy the company‘s LNG over a 20 year period.

The buyers include; BG Group, which signed MOU in January 2006 to buy two million tonnes of LNG per year. BP also signed MOU in February 2006 to buy two million tonnes of LNG per year, while Suez Global LNG Trading S.A. signed MOU in March 2006 to buy two million tonnes of LNG per year.

Our correspondent gathered that the shareholders had been working hard to get the 28 per cent remaining feedgas for the project.

Therefore, to encourage the companies to supply the gas, the shareholders are dangling two incentives before them.

The first is a participatory stake in the project, while the other is a chance to be an off-taker of the liquefied natural gas to be produced from the plant.

 

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