5,800 MMSCF/D Gas Monetised Represents One Million B/D Equivalent — Kupolokun

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5,800 MMSCF/D Gas Monetised Represents One Million B/D Equivalent — Kupolokun

Vanguard (Lagos)

August 10, 2004

Funsho Kupolokun

PRIOR to 1999, Nigeria had no gas exports and was the largest flarer of gas in the world, releasing more than 2 million standard cubic feet per day of gas to the atmosphere, with adverse environmental consequences.

Consequently, the Federal Government*s natural gas aspirations on assumption of power in 1999 included the following:

Eliminating gas flaring and addressing the attendant environmental issues

facilitating development of the domestic power sector

Increasing private sector participation

Capturing economic value of gas thereby generating as much revenue from gas (as oil) within the decade

Since 1999, the flare ratio has been reducing steadily such that the ratio is currently less than 40% in comparison with 68% in 1999. This is due in part to the shift in policy from penalty to promotion of new gas projects.

The natural gas sector today is characterised by a flurry of activities such as:

The West African Gas Pipeline (WAGP) project which is a true landmark in West African co-operation.

Brass LNG.

Gas-to Liquids at Escravos.

Independent Power Plants (IPPs) – Afam, Kwale/Okpai and others at various stages of development.

We now process 1~500 million standard cubic feet per day of gas for export and with Trains 4/5 and 6, it will reach 3,500 million standard cubic feet per day (MMSCFD) of gas, much of which will be associated gas.

That is about 600,000 barrels of oil per day equivalent. It is perhaps pertinent to inform this gathering that with the other ongoing projects, i.e. WAGP, Brass LNG, GTL, Afam and Kwale/Okpai IPPs as well as the substantial boost in domestic gas consumption as a result of the transformation going on in the power sector, the quantum of gas monetised at the end of these projects would be about 5,800 MMSCFD of gas representing a phenomenal 1 million barrels of oil per day equivalent.

Since production started in 1999, the Nigerian LNG has been one of the fastest growing endeavors in the world. Among others:

Train 3 was commissioned in November 2002

Trains 4 & 5 FID was taken in March 2002 and first gas-in is expected for 2nd quarter 2005

Upon start-up of Train 6 in October 2007, it would add 4.1 million tonnes per annum (mtpa) of LNG bringing total output of LNG from Nigeria to 22 mtpa.

This growth of NLNG that I have described is the most rapid in the history of the LNG business. After the long and arduous struggle that finally resulted in the loading of our first cargo in October 1999, we now confidently look forward to NLNG becoming one of the largest LNG complexes in the world, when Train 6 comes on stream in October 2007.

Although the sixth train is of the same design as Trains 4&5 of the NLNG P1us Project and is being implemented as an extension of NLNG Plus, under what is called the 2 + 1 concept, the overall NLNGSix Project is large and complex and includes the addition of storage and loading facilities for LNG and its by-products, extensions to utilities systems, upgrading of the electrical infrastructure and control systems and some additional processing units.

We in NNPC have remained vigilant in the fulfilment of our Shareholder governance role, on behalf of the Government and people of Nigeria, to ensure probity and transparency in all the contracting activities and to ensure that the contracting strategies give the Project and the nation the best value for money.

We are also committed to the highest international environmental and safety standards and Sustainable Development through Community Assistance and Development, Nigerianisation of the workforce and management and enhancing the utilisation of Nigerian equipment, materials and services i.e. Local Content. We shall exercise this governance on a continuous basis and we shall benchmark our performance against other countries in the business.

Prior to the major third party financing exercise for NLNGP1us in 2002, all the LNG Plant financing of more than $ 4 billion was provided directly by shareholders. 49% of the funding was by NNPC and 51 % by the private Shareholders, Shell (25.6%), Total (15.0%) and ENI (10.4%). Upstream gas supply by joint ventures of NNPC with the Nigerian affiliates of the NLNG Shareholders and Phillips Petroleum were also multi-billion dollar investments.

Government provided an enabling fiscal and legal environment for the Project, provided NNPC with its share of project funding and directly, or through NNPC, removed many obstacles which would otherwise have been unsurmountable. We are beholden to Government and its agencies for the following:

The special enabling legislation of Decree No. 39 of 1989, including Government Guarantees and Assurances and providing a generous tax holiday, exemption from import duties and many importation regulations, foreign currency accounting, etc. The legislation was amended by Decree No. 113 of 1993 to give further concessions.

The Escrow Agreements signed in 1994, under which all the funds for the Base Project were lodged in offshore accounts. There have been subsequent Escrow Agreements for all additional projects, including NLNG Six.

Support for the $1.06 billion financing in 2002 for the NLNG Plus Project arranged by Citibank and involving the Export Credit Agencies of the UK, the USA, Italy and The Netherlands and with the participation of the African Development Bank and Nigerian commercial banks. Although the loan is without recourse to Government, letters of support were granted by the Special Adviser to the President on Petroleum, the Federal Minister of Finance, the Federal Attorney General and the Governor of the Central Bank.

High priority and special privileges have been granted to the Upstream gas supply projects. The six trains of NLNG will take us much closer towards our goal of eliminating gas flaring by 2008. However, other projects are required since, even with NLNG, existing domestic gas projects and the Escravos Gas Integrated Project, no more than 15% of Nigeria*s gas reserves of about 187 TCF is committed.

There will soon be a well articulated Gas Policy, with fiscal terms that will encouraged rapid development of the industry, prepared after extensive consultation with all the stakeholders. The policy will improve the prospects of the large number of gas projects waiting to be sanctioned.

Our efforts will include the encouragement and facilitation of indigenous industrial capacity for greater local involvement in the oil and gas industry which, at present, is largely external to the Nigerian economy.

On the subject of Local Content, I should state that the NLNG six project, like the NLNG Plus and Train 3 Expansion Projects before it, has a Nigerian Content Plan approved by the Shareholders. I commend NLNG for putting the plan in place and I challenge them to exceed all the targets in the plan and also to give us ambitious Local Content plans for continuous and increasing Local Content after the completion of each phase of the Project.

The FID for NLNG six is another step forward in Nigeria*s industrial and economic development. It is a complex project with many technical, commercial, contractual and financial elements. It has been achieved by the good work and professional excellence of NLNG staff and its Technical Adviser, Shell Gas Nigeria B.V., The Hague, and as a result of the support and commitment of its Shareholders, the Nigerian Government and the host communities.

There are still challenges ahead. The plant must be built and commissioned on schedule and all the Upstream gas supply projects have to be implemented. The upstream facilities, the plant and the ships must then all be well operated and managed. If we continue with the professionalism, co-operation and commitment that has brought us to this point, we shall overcome all difficulties and continue to go from strength to strength. May God bless our efforts so that they continue to yield wonderful fruits. Thank you for your attention.

Mr. Funsho Kupolokun is the Group Managing Director of the Nigerian National Petroleum Corporation and Chairman of the NLNG board. He made this presentation at the signing of the final investment decision for the NLNG train six in London recently.



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One Response to “5,800 MMSCF/D Gas Monetised Represents One Million B/D Equivalent — Kupolokun”

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