Financial Times: Shell faces delay on Nigeria gas project: “Royal Dutch Shell, Europe's second biggest energy group, and its partners in Nigeria's largest liquefied natural gas project face delays that could cost them more than $1.2bn, a draft of the project's five-year strategic plan warns.”: Monday 14 November 2005
By Carola Hoyos
Royal Dutch Shell, Europe's second biggest energy group, and its partners in Nigeria's largest liquefied natural gas project face delays that could cost them more than $1.2bn, a draft of the project's five-year strategic plan warns.
The possible delays are the latest in a series of problems with LNG projects around the world and could help drive up already high natural gas prices, analysts said.
Nigeria, in particular, has been seen as a promising hub of natural gas supply for regions such as the US and Europe, where indigenous gas production is beginning to dwindle.
LNG is the super-cooled form of natural gas that allows it to be transported via tanker rather than pipeline.
Nigeria LNG (NLNG), jointly-owned by Royal Dutch Shell, France's Total, Eni of Italy and Nigeria's state oil and gas company, has put in place contingency plans to head off a shortage that could be as much as 50 LNG cargoes in 2006 and early 2007, according to the draft report dated October 5, 2005.
If those measures are successful, the project will be able to meet its contractual obligations, said the draft report, which was obtained by the FT. NLNG's most recent corporate risk review identifies the availability of adequate gas supply as a critical risk. Its risk matrix shows the issue has a high likelihood of occurring and would have a critical impact.
The $5.75bn NLNG project will supply much of the natural gas needs of Europe and the US in the coming decade.
Chris Haynes, NLNG's managing director, acknowledged that the report's analysis of gas supply was broadly correct, but pointed out that NLNG updated the expected supply numbers for the project on a regular basis.
He said that supply would be tight in 2006, but insisted that NLNG would be able to meet the commitments it had made to its customers and that the project's suppliers were working hard to ensure the operations were maximised. He said the issue would not affect NLNG's decision on further expansion plans.
Frank Harris, analyst at Wood Mackenzie, an Edinburgh-based consultancy, said: "While the NLNG partners may meet their contractual obligations to third parties by either implementing some of the fixes outlined in the memo and/or by under-delivering cargoes to themselves, any sustained deliverability issue could harm the project's reputation."
Mr Harris said opting to take fewer cargoes for itself would put Shell, in particular, in a challenging position. "Shell currently has extremely limited quantities of LNG contracted from other supply sources," he said.
Another analyst agreed: "This is quite a serious amount of gas if they have to buy LNG off the market; it's quite tight."
Mr Haynes said the partners would not need to reduce the cargoes they had agreed to supply for their own operations.
The news of the problems has clouded, but not had an impact on, the launch of NLNG's new tranche of cargoes (train 4) this week. The project will expand to train five by the end of the year.
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