This year alone, multinational oil companies have provided more than $1billion in alternative financing for gas projects in Nigeria, and experts say this may be a viable model to unlock the country’s gas potential. Last week, Shell Nigeria, a subsidiary of Royal Dutch Shell, signed a $300m deal with Nigerian Independent, Shoreline Energy, to develop market and distribute natural gas around Lagos.
The deal is expected to see Shell help Shoreline develop a transmission network for distributing gas around Lagos, based on a 20-year concession granted to downstream gas company, Gasland Nigeria, which was acquired by Shoreline in 2015.
In the last week of August, French oil giant, Total, joined other investors including Greenville, and Gas Aggregation Company of Nigeria signed a $500m deal in the first three mini Liquefied Natural Gas, LNG, plants in Nigeria.
In June, global drilling giant, Schlumberger also struck a deal to provide $880m in financing for the Madu and Anyala gas development projects on OML 83 and 85, operated by indigenous firm, First Exploration & Production Development Company.
The project will be developed with an existing Floating Production Storage and Offloading (FPSO) and is designed to add 50,000 bbls of oil per day and 120 MMscf of gas per day. Project FID is expected to be made in December 2017, with first oil production in 2019.
Under the agreement, Schlumberger will contribute the required services and capital for the project development until the first oil is drilled. The joint project team will leverage the technical expertise of Schlumberger and the extensive local knowledge of the partners.
Industry operators tell BusinessDay that more of these deals are underway, indicating a growing trend of big oil companies assisting local oil firms with financing for gas sector projects in Nigeria. “This alternative financing approach could be key to unlocking Nigeria’s gas potential,” says a team of oil sector researchers at EcoBank, led by Dolapo Oni.
“While local commercial banks remain technically unable to provide the long-term low-interest loans required to finance gas projects, partnership with these multinationals who have access to cheaper capital from developed capital markets could be the solution. More importantly, the absence of the NNPC from this particular deal, except as an industry regulator, reduces the risk of any government interference, as it is an entirely private sector deal,” said the bank’s research team.
However, these deals are not inspired by altruistic motives, as these multinational oil firms are seeking opportunities to expand their markets. For some, it is part of a global strategic plan to diversify income sources in a world where huge oil incomes are no longer a certainty.
Shell’s investment in Shoreline gives it an opportunity to move into a fast growing Lagos gas market. Shell is seeking to transform into a global gas company, developing gas for use in heavy transport such as shipping and building new LNG to supply underserved markets. Last year, it paid $52 billion to buy BG Group Plc and got control of gas deposits from Kazakhstan to Australia.
“Although Shell owns a downstream gas subsidiary that has been operating downstream gas pipelines since 1998, they are not part of this deal, as they do not have concession for this part of Lagos. This deal gives Shell access to a fast-developing axis in Lagos, which will benefit from the Lekki Free Trade Zone, upcoming Dangote Refinery and several more industries,” says Ecobank research team.
Schlumberger is spending billions of dollars in Nigeria and around the world, buying up stakes in its customers’ oil and gas projects, investing in the same ventures it supplies with equipment and expertise.
According to the company, this new business model gives it a say in drilling decisions, oilfield management and even on hiring other Schlumberger units for service contracts. The expanded operational authority saves Schlumberger from bidding for each of the many jobs that typically require separate contracts on a large drilling project – effectively locking out the firm’s competitors.
“Given the enormous gas reserves and projected increase in power demand, I believe this investment model is viable,” said Chijioke Mama, an energy lawyer based in Lagos. Mama adds, “However, to be sustainable, the numerous challenges facing the gas sector have to be tackled, namely, pricing, infrastructure and robust regulations.”