Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
Australian and Nigerian LNG Projects: Insights for
Resolving Challenges Facing New LNG Projects
Lynda Andeobua, Samanthala Hettihewab* and Christopher S. Wrightc
The greater cost-effectiveness and cleanliness of Liquid Natural Gas (LNG) makes
it a preferred fuel. As a result, the world demand for LNG is forecast to increase at
seven percent per annum throughout the 21st century. LNG projects involve heavy
capital investment and high risks of environmental impacts. These challenges need
to be anticipated and well managed if the LNG industry is to retain its sustainable
and bright future. This paper considers the issues and challenges of managing
LNG projects through the experience a major LNG supplier of the industry Nigeria
LNG Ltd. - who own the fast growing Bonny Island plant. While there is a clear
difference in economic development levels between the Nigeria and Australia, both
are major LNG producing and exporting nations. Nigeria achieved rapid massive
growth in LNG production while coping with the challenges of its harsh and often
unforgiving natural and social environments. This paper’s descriptive analysis of
the Nigeria LNG Ltd. experiences and coping mechanisms should be of great
interest to LNG producers worldwide, particularly those who (like Australia’s LNG
industry) are rapidly expanding output in world that is becoming every less
accommodating to such expansion.
Keywords: Liquefied natural gas, Challenges, Australia, Nigeria
JEL Codes: M00, M10, M14
1. Introduction
Liquefied natural gas (LNG) is natural gas (methane) that is condensed by cooling
until it liquefies (normally at a temperature and pressure of -161°C and one
atmospheric; Kumar et al. 2011; Foss, 2012). The global market for LNG is of
growing importance to the world and it has become a key source of energy.
According to Ernst & Young (2013), the world’s first commercial-scale LNG plant
started in Arzew (Algeria) in 1964 and the modern global LNG industry is 50 years.
Large quantities of natural gas are now being traded as LNG which facilitates long
distance trade and brings gas from remote reserves to markets. In the coming
years, demand for LNG is expected to grow in the Asia pacific, North America,
Middle East, Europe and Africa (Langdon 1994; Jacob, 2011). As a consequence of
this demand, massive amounts new LNG capacity has been proposed—as much as
350 million tonnes per year (mtpa). If accomplished, these proposed projects would
double the LNG current capacity of less than 300 mtpa, by 2025. This positive long_______________________
aMs.
Lynda Andeobu, Federation Business School, Federation University Australia, POBox 663,
Ballarat, Vic 3353, Australia. Tel 03 53279167 Email: l.andeobu@federation.edu.au
b*Dr.
Samanthala hettihewa, Corresponding Author, Federation Business School, Federation
University Australia, POBox 663, Ballarat, Vic 3353, Australia. Tel: 03 53279158, Email:
s.hettihewa@federation.edu.au
cProf.
Christopher S Wright, Higher Education Faculty, Holmes Institute, Australia. Tel: 03 96622055
Email: cwright@homes.edu.au
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
term outlook for natural gas is driving the willingness of buyers’ to sign long term
contracts and sellers to commit investment capital to develop LNG projects (Ernst &
Young, 2013).
Australia and Nigeria are among the leading LNG exporting nations in the world and
major centres for LNG investment. As a result, LNG projects developments have
taken on increased importance for the Australian and Nigerian economies. Australia
exported about 1,070 bcf of LNG in 2013 with Japan purchasing about 80 percent of
Australia’s exports (EIA, 2014). Nigeria’s LNG exports accounts for more than 8
percent of globally traded LNG. Japan is the largest importer of Nigerian LNG
receiving 24 percent of total exports in 2012 (EIA, 2013).
The objective of this study is to examine the issues and challenges of managing
LNG projects in Australia and Nigeria and to provide insights on Nigeria’s experience
which Australia and other LNG producing nations could leverage upon. The Nigeria
LNG project was nearly three decades on the drawing board, primarily due to
financing and control issues. The issues and challenges facing LNG Projects are not
well studied. The research questions in this study include: what were and are the
issues and challenges of building and managing the Nigeria LNG project?; How did
Nigeria LNG resolve with these challenges to achieve a phenomenal growth?; How
important is Nigerian scenario and experiences for LNG operations in Australia?
As a result of the growing importance of LNG globally, Australia has invested
significantly in LNG with projects currently under construction totalling about A$300
billion (see Table 1). Australia’s LNG exports are expected to increase significantly
over the next decade (Eslake 2010; Jacob 2011). Investments of this magnitude
come with issues and challenges. This study should provide significant insights for
Australia and other LNG producers.
This paper is organised with: The study significance and literature review followed by
an overview of the Australian and Nigerian LNG industries; Next the issues and
challenges of managing LNG projects in Australia and Nigeria are discussed;
Methodology is presented along with the reasoning for using a non-statistical
evaluation and six propositions to consider; The conclusion, limitations and future
research conclude the paper.
2. Significance and Literature Review
The LNG industry is capital-intensive and fast growing. LNG has become a
significant commodity in global markets. Nigeria and Australia have invested billions
of dollars on oil and natural gas Projects (see Tables 1& 2). Nigeria LNG Ltd. is one
of the most viable and successful companies in the world. A company which is
successful in Nigeria’s harsh natural and social environments has much insight to
offer to others.
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
The Changing Global LNG Industry
In recent years, LNG has evolved into a global, market-driven commodity and is
expected to play a significant role in meeting the world’s growing requirement for
clean energy (Small, 2005; Sakmar, 2010; Kumar et al., 2011). The world
liquefaction capacity is expected to increase fivefold by 2030, with most of the
increased capacity in the Middle East and Australia (International Energy Agency,
2010; Kumar et al., 2011).
LNG is the only commercially available technology for transporting natural gas over
long distances and open water. LNG imports to Asia have increased almost five folds
in the last decades. It is expected that Asia LNG imports will grow by more than 80%
in the next few years.
The International Energy Administration (2010) forecast that global natural gas
consumption is set to reach 137.7 Trillian cubic feet (tcf) by 2017 and this reflects its
greater preference in power generation. The environmental benefits of natural gas
are clear, natural gas emits 43 percent fewer carbon emissions than coal and 30
percent less emissions than oil, for each unit of energy delivered (EIA, 2009; Kumar
et al., 2011). Gas demand will increase by 44 percent between 2008-3035 - an
average rate of increase of 1.4 percent per year (Kumar et al., 2011). For countries
that lack indigenous natural gas resources and delivery infrastructure, LNG
represents a rapid and cost-effective means of introducing natural gas into their local
fuel mix. From 2007 to now the number of LNG-importing countries increased from
17 to 25.
Graph 1: Global Growth for LNG Trade
Source: Small 2005; Nigeria LNG facts &Figures, 2014
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
The Australian LNG Industry
LNG has a very strong economic significance for Australia and will continue to be a
central element in Australia’s future economic prosperity. The nation’s gas resources
are third to coal, iron ore and uranium and are large enough to support projected
domestic and export markets beyond 2030 contributing to employmet and tax
revenue. (Roarty, 2008; Leather et al.,2013). However, concerns remain in
determining the best mechanisms to tackle the challenges arising from managing an
LNG plant (Leather et al., 2013). Currently, Australia exports over three-quarters of
the LNG it produces; Japan and China being the major importing countries (see
Figure.1). In 2008-09, energy exports accounted for 33 percent of Australia’s total
exports of goods and services. In the last five years, the value of Australia’s energy
exports increased by 232 percent (Briggs, 2010).
Gas reserves in Australia are located at several onshore and offshore sites across
Northern Australia, Western Australia, Victoria and Queensland. About 90 percent of
Australia’s known conventional gas resources are centred along North West
Australia in three main basins: Carnarvon, Browse and Bonaparte (see Figure 2).
Figure 1: Australia’s LNG exports, 2013
Source: IEA, 2014 p.13
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
Figure 2: Australia’s gas reserves and major locations
Source: Department of Resources, Energy & Tourism (2005) p.9
LNG Projects in Australia
Australia could become the world’s third largest LNG exporter early next decade,
behind Qatar and Nigeria (Briggs, 2010) There are three LNG sites in production and
other ‘mega-projects’ are e planned/under-construction with many of them in North
West Australia and Queensland (Briggs, 2010; Christie et al., 2011; Leather et
al.,2013). Table 1 shows Australia existing and planned LNG liquefaction terminals.
If all planned projects proceed, annual exports could exceed 80 mtpa (3.9tcf), almost
four times the current capacity (IEA, 2010; O'Keeffe, 2012; Chevron Australia, 2013).
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
Table 1: Australia existing and planned export liquefaction terminals
Peak
Project
Target
Companies
output
Capital cost
name
start year
(Bcf/y)
Existing LNG terminals 2013-2014
Northwest Shelf
LNG
Darwin LNG
Pluto LNG
Woodside, Shell, BHP Billiton, BP,
Chevron, Mitsubishi & Mitsui - 16.7% 780; 5 trains1 Operational
each
ConocoPhillips 57.2%, Santos
11.4%, Inpex 11.3%, Eni 11%, Tepco 170; 1 train
6%, Tokyo Gas 3%
Woodside 90%, Kansai Electric 5%,
206; 1 train
Tokyo Gas 5%
$11.5 billion for T1-3;
$3.5 billion
for T4; $6.5 billion for T5
Operational
$3.84 billion
Operational
$14 billion
400; 2 trains
Q4 2014
$20.4 billion
430; 2 trains
Q3 2015
$25.5 billion
750; 3 trains
Q3 2015
$54 billion
375; 2 trains
Q4 2015
$18.5 billion
430; 2 trains
Q1 2016
$29 billion
400; 2 trains
5Q4 2016
$32 billion
175; 1
floating
terminal2
Q1 2017
$11.4 billion
Projects under construction
Queensland
Curtis LNG
(CBM)
Australia Pacific
LNG (CBM)
T1: BG 50%, CNOOC 50%; T2: BG
97.5%, Tokyo Gas 2.5%
Origin Energy 37.5%, ConocoPhillips
37.5%, Sinopec 25%
Chevron 47.33%, ExxonMobil 25%,
Gorgon LNG
Shell 25%, Japanese gas & electric
utilities 2.667%
Gladstone LNG Santos 30%, Petronas 27.5%, Total
(CBM)
27.5%, Kogas 15%
Chevron 64.14%, Apache 13%
(announced plans to sell its share in
Wheatstone LNG July 2014), KUFPEC (Kuwait) 13.4%,
Japanese gas & electric utilities
9.455%
INPEX 63.45%, Total 30%, CPC
Ichthys LNG
2.63%, Japanese gas & electric
utilities 3.94%
Prelude LNG
Shell 67.5%, Inpex 17.5%, Kogas
10%, CPC 5%
Planned projects
Fisherman's
Landing (CBM)
LNG Ltd 81.11%, CNPC subsidiary
144; 2 trains
19.89%
Arrow LNG (CBM) Shell 50%, PetroChina 50%
384; 2 trains
in Phase I
100; 1
floating
terminal
Woodside 31.23%, Shell 26.63%, 560; 3
Browse LNG
BP 17.21%, PetroChina 10.23%,
floating
Mitsui 7.35%, Mitsubishi 7.35%
terminals
300; 1
BHP Billiton 50%, ExxonMobil 50%
Scarborough LNG
floating
(operator)
terminal
Sunrise LNG (Joint
Woodside 33.44%, ConocoPhillips 192; 1
Development
30%, Shell 26.56%, Osaka Gas
floating
Area- Australia
10%
terminal
and Timor-Leste)
Cash Maple LNG
PTTEP (Thailand) 100%
Originally
$1.7 billion
2016; Delayed
2018; EIS plan
submitted; FID $24.2 billion
delayed
On hold; 2019 N/A
2020; FID
expected Q4
2015.
2020/21; FID
anticipated
2015
To be
determined
$40-56 billion
N/A
$5 billion
Source: IEA, 2014 p.12&13
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Proceedings of 4th Global Business and Finance Research Conference
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ISBN: 978-1-922069-76-4
The Nigerian LNG Industry
Nigeria is among the top 10 largest oil and gas producers in the world. The Nigerian
economy is largely dependent on its oil and gas sector which supplies 95 percent of
its foreign exchange earnings (Nigeria LNG, 2013). The major driver of LNG projects
in Nigeria has been the government desire to create more wealth and employment
and to diversify the economy (Ojide et al., 2012).With a proven gas reserve in the
country of 197 trillion cubic feet estimated to last 109 years and unproven reserves
of about 600 trillion cubic feet to last about 300 years, Nigeria has the 5th largest gas
reserves in the world (Gowon, 2012).
Figure 3: Nigeria liquefied natural gas (LNG) exports 2012
Source: IEA, 2013 p.18
The Nigeria LNG project is a vital part of the Federal Government’s diversification
program. Figure 4 shows the proportion of shareholding of Nigeria LNG Ltd.
Figure 4: Nigeria LNG Ltd proportion of shareholding
Adapted from: Nigeria LNG Facts & Figures 2014
Established in 1963, Nigeria LNG commenced execution of the project in 1993. The
shipment of gas from the Bonny plant to overseas buyers in Asia and Europe
commenced in late 1999 (Ojide et al., 2012). Currently, more LNG projects are being
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
developed which include NLNG Train 7, Brass LNG, and OKLNG which will add
about 50 million tonnes to Nigeria’s national output (Gowon, 2012).
In 1963, an effort to develop Nigerian LNG was initiated by Shell and British
Petroleum but could not be concluded. The Second attempt was made in 1977 and
preceded until 1979 when Nigeria was returned to civil rule and the project still faced
a number of challenges (Nigeria LNG, 2013). The Nigerian Government was
committed to establishing an LNG plant and incorporation of Nigeria LNG Ltd in
1989 (Nigeria LNG, 2012) which then generated about US $ 51 billion revenue, paid
US$9 billion as shareholder dividends and US$10 billion to joint venture companies
(Gowon, 2012).
Table 2: Selected oil and gas projects in Nigeria
Operator
Project
Chevron
Chevron
Chevron
Chevron
Olero Creek Restoration
Project
Escravos Gas to Liquids Plant
Dibi Long-Term Project
Sonam Field Development
Nsiko
Eni
Zabazaba-Etan
Chevron
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
Shell
Shell
Shell
Shell
Shell
Total
Total
Etim/Asasa Pressure
Maintenance
Bosi
Erha North Phase 2
Satellite Field Development
Phase 2
Uge
Bongo Northwest
Bongo North
Bongo Southwest (Aparo)
Forcados Yokri Integrated
Project 2
Southern Swamp Associated
Gas 2
Usan Future Phases
Egina
Liquids
(bbl/d)
Natural gas
(MMcf/d)1
48
na
33
70
30
na
na
na
215
na
120
na
50
na
140
60
260
na
20132014
2014
2016
2016
2017+
20152016
20132015
2016+
2016+
80
na
2016+
110
40
100
225
20
na
60
15
90
na
85
na
50
200
na
na
2016+
2014
2016+
2016+
20152016
20152017
2016+
2017+
Est. Start
Source: IEA, 2013 p.11
In Nigeria, natural gas production grew by three-folds in seven years from 1988
driven by zero-gas flaring policy and demand for LNG. According to Nigeria LNG
facts and figures 2014,
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
“NLNG Ltd will continue to consolidate its position as one of the largest producers
and
exporters of LNG in the world, maintaining its position as a major, strategic
and reliable Supplier. Currently, NLNG Ltd delivers about 7% of global supply”
(Nigeria LNG, 2014 p.35)
Graph 2 shows Nigeria LNG production trends from 2000 to 2008 and graph 3
shows Nigeria LNG growing production capacity from 2001 to 2013.
Graph 2: Growth trends of Nigeria LNG trains 1-6
Adapted from: Nigeria LNG facts &Figures, 2014
Graph 3: Nigeria LNG production capacity (2001-2013)
Adapted from: Nigeria LNG facts &Figures, 2014
Nigeria LNG production in 2007 doubled the 2004 production level (Nigeria LNG,
2014). As at 2000, Nigeria LNG had only two trains which carried about six million
tons of LNG per annum. In 2015 train 7 is scheduled to start production. When train
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Proceedings of 4th Global Business and Finance Research Conference
25 - 27 May 2015, Marriott Hotel, Melbourne, Australia
ISBN: 978-1-922069-76-4
7 becomes operational, production will increase to about 30 million tonnes of LNG
per annum (Nigeria LNG, 2014).
Graph 4: Nigeria LNG shipments (2000-2006)
Adapted from: Nigeria LNG facts & Figures, 2014
Graph 4 shows Nigeria LNG shipment milestones.
Economic Significance of LNG Projects to Australia and Nigeria
Thus establishment of LNG projects in Australia and Nigeria will generate direct and
indirect benefits including : wealth and employment creation; increased standard of
living; economic growth; skills enhancement and new opportunities in the global
supply chain and the formation of other strategic alliances.
3. The Issues and Challenges of Managing LNG Projects in
Australia and Nigeria
Nigeria: Although Nigeria LNG has been consistently meeting its contractual
obligations, it had daunting challenges, as Shonekan (2012) explains:
Internal factors





Gas pricing
The Niger Delta Crisis
Community concerns about how the benefits will be shared
Environmental issues
Government underfunding- Inability of the Government to meet funding
obligations
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Proceedings of 4th Global Business and Finance Research Conference
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ISBN: 978-1-922069-76-4
External factors
 Escalating construction costs
 Price volatility
 Labour shortages
 Financing and counterparty credit issues
 Gas quality differences between markets and changes within the global LNG
market.
Australia
The simultaneous construction of seven LNG projects has resulted in severe skilled
labour shortages and escalation of labour costs. Average salary levels in the
Australian oil and gas sector is the highest of the 53 countries surveyed (Balfe,
2014). In Eastern and Western Australia, the anticipated increase in demand for gas
in overseas countries has seen domestic users facing tight gas supply. Other
challenges include escalating construction costs. Instead of new projects being
proposed, there are cancellations (Browse LNG, Arrow LNG), project sponsors
proposing to sell their stakes (Browse LNG, Gladstone LNG), sustained community
opposition making land access more difficult (Chandra, 2013). Coal seam gas (CSG)
reserves are proving harder to find than expected with increasing expensive wells
likely to be required. For some projects no longer predicting project expansion; rather
sponsor companies are becoming cautious (Chandra, 2013). Also, shale-based LNG
producers in the US Gulf Coast and Canada make it difficult for new Australian LNG
projects to secure markets (Balfe 2014).
4. Research Methodology
This study uses a qualitative approach to derive insight from publicly available
information on Nigerian and Australian LNG firms. Responses to a questionnaire by
225 of the 300 permanent employees of Nigeria LNG on the performance from 200013 are used in the descriptive analysis. Given that there is only one Nigeria LNG
project and the number of full-time employees is insufficient for a rigorous
quantitative statistical analysis, quantitative testing of hypotheses is not appropriate.
Extant literature on Nigerian LNG and the survey responses are reviewed to
structure the propositions. In the following sections those propositions are
juxtaposed with the situation in Australia.
Propositions (P)
LNG company success and sustainability are dependent on:
P1: Effective environmental conservation policy and community relations
strategy,
P2: An effective risk management policy and framework,
P3: Health, safety, and environmental efforts that are ≥ international standards,
P4: Identification and adequately mitigation of expected risks,
P5: Shareholders willing to bear the financing burden and internally generated
funds ploughed back into the project, and/or
P6: The strength, influence, and reputation of key shareholders
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Proceedings of 4th Global Business and Finance Research Conference
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ISBN: 978-1-922069-76-4
5. Qualitative Analysis for and Against the Propositions
P1: Effective environmental conservation policy and community relations
strategy
NLNG has a very strong policy on conservation of the environment. Based on its
policy of giving due regard to environmental conservation in all areas of its
operations, the company, has completed Environmental Impact Assessment (EIA) of
its Bonny plant and has set up the machinery to develop a workable Environmental
Management Plan (EMP) to minimise environmental consequences of its operations.
The objective is to ensure compliance with government regulations and NLNG
company policy; integrate the environment fully and to rationalise environmental
activities to effectiveness.
Nigeria LNG through its community relations serving the interest of the communities
in which it operates. In terms of effective community relations efforts of NLNG, 80
percent of the responding NLNG Ltd staff said satisfied-or- very satisfied, supporting
the argument that for a sustainable success of high risk LNG entities, positive
contribution to all its stakeholders and effective environmental conservation policy
and community relations strategy must be in place and pressurising the LNG
projects in Australia to enhance their policies in this category.
P2: An effective risk management policy and framework
NLNG Ltd. has clearly stated:
 Shared Values for: Health, safety and environment (HSV); Discipline and
professionalism; Commercial orientation; Partnering with host communities; and
Team-work, trust and mutual respect.
 Published policies on: Sustainable development; Smoking; Alcohol and drugs;
and HSV.
This important issue is answered by the following observations:
 NLNG Ltd has implemented many programs to meet the ongoing responsibilities
it owes the Bonny Island host-community seeking to improve the living standards
and conditions of the community.
 During the construction and operational phase, NLNG Ltd assisted local
communities in adjusting to the socio-economic impact of the LNG project.
The questionnaire responses on satisfaction with the NLNG Ltd risk management
indicate that the percentages for satisfied-or-very-satisfied proportion for satisfaction
are:
o 80% for Policies,
o 73% for Housekeeping,
o 80% for Community Risk Management, and
o 74% for Other Practices.
These responses suggest that the NLNG Ltd. has an effective risk management
policy and framework. The lesson for other nations is that for sustainable success
and growth it is essential to have effective risk management policies and
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Proceedings of 4th Global Business and Finance Research Conference
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ISBN: 978-1-922069-76-4
frameworks, which are transparent, simple to understand and workable for all level of
employees and employers.
P3: HSE efforts that are ≥ international standards
NLNG Ltd’s HSE policy seeks to conduct its activities in such a way as to take
foremost account of the health and safety of its employees and of others and to give
proper regard to the conservation to the environment (Nigeria LNG, 2013). The
company has put in place a systematic approach to HSE management, and
implemented a HSE Management System. NLNG Ltd aims to play a leading role in
promoting best practice in the LNG industry on these matters. Further, adequate
training and education programs reduce HSE issues. In terms the HSE efforts of
NLNG Ltd conforming to international standards, 74 percent of the responding NLNG
Ltd permanent staff agreed or strongly agreed.
Based on proposition 3, LNG success requires regard and care for the local
economy around operations and a high level of the health, safety, and environmental
standards.
P4: Identification and adequately mitigation of expected risks
NLNG Ltd seeks to implement an effective risk management plan and framework
that identifies new and existing risks. The company also has various insurance
policies which include third party liabilities as a way of mitigating the problems and
claims which might arise in the course of carrying out its LNG project. The firm’s
protection and indemnity cover provides coverage to third party to the tone of US$5
billion dollars.
In terms the insurance coverage of NLNG Ltd being adequate, 69.8 percent of
responding NLNG Ltd permanent staff agreed or strongly agreed.
High risk nature of LNG industry requires carefully managed risk management
process in place for all sectors of the entity. As large scale disasters are improbable
but not impossible, hedging of risk at high level is essential for all firms involved in
LNG projects.
P5: Shareholders willing to bear the financing burden as internally generated
funds are ploughed back into the project
NLNG Ltd. has experience successfully financing deals which have helped the
growth of the firm. More importantly, the company’s shareholders were willing to
bear the financing burden by providing subordinated debts and permitting internallygenerated funds to be reinvested into the project. The Base Project (Trains 1&2), at
a cost of USD$3.6 billion, was financed by NLNG's shareholders. The expansion
project (Train 3) at a cost of USD$1.8 billion was also financed in a similar manner
as the Base Project. Apart from the new equity injection by the shareholders,
revenue and surpluses from the Base Project were re-invested in the Expansion
project. The NLNGPlus project (Trains 4&5) were financed by five international and
six Nigerian banks. NLNGSix project, consisting of Train 6 and additional
condensate processing and LPG storage facilities was financed by a combination of
revenue from shareholders and bank loan.
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Proceedings of 4th Global Business and Finance Research Conference
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ISBN: 978-1-922069-76-4
Nigerian experience supports the notion that shareholder willingness to re-invest a
significant share of profit to company projects eases the financial and interest-rate
risks.
P6: The strength, influence, and reputation of key shareholders
Nigeria LNG at a total cost of $9.348 billion 2012 USD is owned by four partners
(Nigeria LNG, 2014):
a) The Nigerian Federal Government via the Nigerian National Petroleum
Corporation (NNPC)
NNPC is one of the largest firms in sub-Saharan Africa and was established in 1977.
It is the corporate entity through which the Nigerian Government participates in the
oil and gas industry. NNPC and its 12 subsidiaries (strategic business units)
dominate all sectors of the industry. NNPC owns a 49 percent share of NLNG Ltd.
b) Shell Gas BV(SGBV)
SGBV, a member of the Royal Dutch Shell Group of Companies, was incorporated
under the laws of the Netherlands and has been investing in large and most
complex global gas projects over 40 years. Shell Gas holds the largest equity share
of LNG capacity among international oil companies, with a leading position in LNG
shipping, marketing and trading of natural gas and power in Europe, North America
and Asia Pacific. SGBV owns 25.6% of the shares in NLNG Ltd.
c) Total LNG Nigeria Ltd – is one of the largest firms in the world and is active in
all sectors of the petroleum industry and explores in more than 130 countries.
It is Nigeria's fourth largest oil and gas producer. Total owns 15% of the
shares in NLNG Ltd.
d) ENI International – is one of the world's major integrated oil and gas
companies which operate in more than 70 countries. Eni owns 10.4% of the
shares in NLNG Ltd.
The above information suggests that LNG success is added by strong and reputable
shareholders.
Concentration of Power – Balancing the benefits and Risk
While a concentration of power authority and influence is beneficial to an enterprise
many societies fear the harm the abuse that may also arise. The Political and social
differences in Australia and Nigeria make it difficult to generalise the proposition 6. In
most developed countries, democratic values play a considerable role in businesses
and for last few decades the concentration of business power in few hands has
tended to be discouraged. Thus trade-off between benefit through controls by
government and/or a few hands and costs from the social impact of concentrated
power has to be evaluated to generalise the proposition 6. Trust and social
legitimacy, corporate social responsibility may also play a key role in this debate.
Lessons for Future success
Australia LNG firms and other LNG firms can benefit from the Nigerian experience.
The Nigeria LNG plant is regularly benchmarked with other LNG plants around the
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Proceedings of 4th Global Business and Finance Research Conference
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ISBN: 978-1-922069-76-4
world and it continues to rank amongst the top performers. NLNG has within a short
span of time; grown to become a very reliable supplier of LNG to different parts of
the world (Nigeria LNG, 2014). The company has remained successful, though faced
with a number of challenges. Some of these challenges are however similar to those
faced by LNG firms’ in Australia.
6. Summary and the Conclusion
While rapid development of large-scale LNG projects is underway in Australia, these
projects face a number of challenges that need substantial investments across the
value chain and government support to ensure stable supply and price. Nigeria LNG
has remained a beacon to Africa and to the world in its handling of many ongoing
challenges that are technical, social, environmental, and political). This study
focused on Australian and Nigerian LNG projects. In future research, more
sophisticated and quantitative analysis that considers LNG projects in other nations
may further improve the understanding of the challenges faced by LNG producers.
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