Naturgy Settles Arbitration with NLNG, Alleges Discriminatory and Antitrust Practices Against IOC Shareholders

30 August 2021
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AllAfrica InfoWire (Washington, DC)

It's been reported by Blueprint newspaper of Nigeria, that there is uneasy calm at the headquarters of the Nigeria Liquefied Natural Gas (NLNG), the state-controlled liquefied natural gas (LNG) company, over the lifting concession given to IOC shareholders over others.

NLNG, which is 49% owned by the Nigerian government through the Nigerian National Petroleum Corporation, has IOC shareholders including Shell Gas B.V which owns 25.6%, Total LNG Nigeria which owns 15% and Eni International, which owns 10.4%.

The NLNG operates an "equity lifting" project in which its joint venture partners — Shell, Total and Eni — have an obligation to off-take, transport and market the LNG cargoes. However, a report by Nigeria's Nation newspaper has revealed that the IOC shareholders who are responsible for the failure of gas supply are given favorable lifting terms over others leading to a series of deferrals, defaults and cancellation, creating an in-house crisis and market tension for the NLNG. In simple terms, it implies that the IOC shareholders abandon cargoes to others when the market is weak and ensure they take all volumes when the market gets stronger, at lower purchase values from NLNG. It is reported that the Government of Nigeria is exposed to losses due to this sharp practice.

According to a source at the NLNG, more than 20 LNG cargoes have suffered deferrals despite demand surge in the international market, and the number could rise to 50 cargoes by December if there are no adjustments made. There are concerns that the deferrals and defaults could malign the reputation of the Nigerian LNG company among international markets as the lopsidedness in responding to market demands are making some important customers look elsewhere.

According to a news report by The Cable, Naturgy, a Spanish multinational natural gas and electric company, recently leveled allegations of discriminatory/antitrust practices against NLNG IOC shareholders, accusing them of sharp practices, it seems it was in NLNG interest to settle matters due to reputational risk, perception of corruption and exposure of the IOC shareholders to International jurisdiction investigations.

It was further reported that Deferral notices were sometimes made just weeks prior to Vessel arrival at Bonny Terminal. This practice, except for rare situations of force majeure, is very well below international acceptable standards. Nigeria's former Minister of Petroleum Resources, Chief Edmund Daukoru, who serves as chairman of the NLNG is reportedly worried about the incessant defaults, deferrals and delays in delivering cargoes to the customers.

Another source at NLNG said: "We continue to see abrupt deferrals, defaults and cancellation of cargoes especially when the market is highly profitable, it seems like a scramble between International Oil companies shareholder lifters and others. This conflict is causing major supply disruptions and a very high level of operational inconsistencies, leading to unnecessary demurrage exposures and penalties. If things continue in this perception and complexities set in, it won't be surprising to see off-takers demand for performance guarantees for future liftings. This will be disastrous on Credit ratings and could impact future financial syndication for LNG project expansion."

It was learnt that the recent trends may hinder the Federal Government's bid to increase the production capacity of LNG by 35 per cent with Train 7  – so as to increase revenue.

Investigation showed that gas supply targets have been impacted due to Eni AGIP's 50 per cent supply mark to the plant, which is considered poor when compared to Shell and Total's positive supply mark off over 90 per cent in recent past months.

A source said: "The Nigerian LNG production capability is still at an impressive level of close to 90 per cent, which if managed properly, and concessions are made by IOC's shareholder lifters, could lead to an avoidance of performance and reputational risks the Nigerian LNG is currently being plagued within Global Markets. Independent third party Gas supply could also be a solution.

The source also said, "Whilst the International Oil Company shareholder lifters have the capacity to take almost all of the LNG volumes produced, there has been a growing concern in Global Markets about conflicts, price-fixing, insider trading and undue advantages.

"These IOCs' shareholders derive better terms and flexibilities over others, supplying in the same market, which could lead to antitrust and anti-competition litigations and petitions.

The increase in Nigeria LNG production capacity is expected to rise from 22 million metric tons per annum to 30 million metric tons per annum.

The criticisms are coming at a time when the price of LNG is soaring globally. In a statement released in response to various articles, NLNG spokesperson stated: "Following some recent reports in the media, NLNG wishes to clarify that as a major player in the global LNG industry, it is focused on fulfilling its contractual commitments."

Tony Attah, the current Managing Director of NLNG, who is a Shell employee, will be leaving his position at the end of this month. He will be replaced by Philip Mshelbila, currently serving as CEO of Atlantic LNG, in Trinidad & Tobago.

In a related development, there have been changes in the Board of the Nigerian LNG, as Total asked its representative, Patrick Olinma, a former Executive Director to proceed on immediate retirement, under unclear circumstances. Total is yet to announce a replacement. Olinma's exit from Total was reportedly greeted with jubilation within Total Nigeria and NLNG.

Olinma, who was once a General Manager in charge of the commercial unit of NLNG, joined the NLNG board in the second quarter of 2020. Mohammed Abdulkabir, the new Group Executive Gas and Power of NNPC, will join the board of NLNG, as the new NNPC representative.

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