The Nigeria LNG (NLNG) Ltd.’s growth strategy is currently hindered by contractual violations, creating a significant obstacle for their expansion plans. NLNG is currently disputing the enforceability of a UK arbitration panel’s demand order for an arbitral award, despite the provision in their contract stating that it is final and cannot be changed. The Nigerian company was found to have violated the terms of their contract by neglecting to fulfil the delivery of 19 shipments that were agreed upon in a contract signed in January of 2020.
Delivery of the shipments was scheduled for sometime between October of 2020 and October of the following year. John Beechey, J. William Rowley, and Nevil Phillips were the members of the arbitration tribunal. An earlier report mentioned that Shell Plc had filed a lawsuit against Venture Global LNG (VGL), an American LNG exporting company, for failing to fulfil their agreement to provide LNG shipments. Shell Plc has filed a complaint against VGL, claiming that the natural gas producer has limited supply availability to Shell and other clients.
Trust in long-term contracts is crucial for the stability of the LNG.
More so, this alleged action has resulted in over $18 billion in exports for VGL while causing significant financial losses for Shell and various European companies. Reportedly, Wael Sawan, Shell’s CEO, is feeling a great deal of disappointment in VGL due to their failure to deliver the expected gas volumes from the Calcasieu Pass export project in Louisiana. According to Sawan, the decision made by VGL to divert shipments to the spot market instead of meeting US LNG supply demands has the potential to shake confidence in the market.
Shell’s executive VP, Steve Hill, emphasized that the breach of contract should serve as a warning to the industry. He stated that trust in long-term contracts is crucial for the stability of the LNG business. He emphasized that foundation buyers’ commitment to long-term contracts is crucial for providing regulatory stability, securing financing, and advancing LNG projects. Without buyers signing contracts in good faith, suppliers may view them as mere options and the industry’s expansion will be stunted. Endesa, a major energy company from Spain, is currently engaged in a $585 million arbitration regarding a Nigeria LNG supply agreement that spans over several years.
Increase in activity serves as a testament to the strong desire for LNG.
Furthermore, the focal point of the argument is the reassessment of pricing terms in the agreement. Nigerian LNG is in the process of expanding its operations by awarding the EPC contracts for its Train 7 project to Saipem, Chiyoda, and Daewoo. The company aims to boost its capacity by 35 percent from the current 22 million tonnes per year. Reports have surfaced regarding the proposed expansion of Train 8, hoping to strengthen Nigeria LNG’s standing as a major player in the global single-site operations market.
During a visit to the plant in Bonny Island, Rivers state, Phillip Mshelbila – the managing director of NLNG who is seconded from Shell – noted that recent events, like the Russia-Ukraine conflict, have brought about a series of new advancements in the industry. He pointed out that the increase in activity serves as a testament to the strong desire for LNG. The implications of the breach in Nigeria LNG supply are still uncertain in regards to how it will affect upcoming projects. Maintaining confidence and securing favourable financing options heavily relies on the preservation of supply agreements and contractual integrity.
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Experts in the oil and gas sector have praised President Bola Tinubu for his recent executive orders aimed at streamlining investment in Nigeria’s oil and gas industry. These reforms specifically target barriers to investment and introduce new tax incentives for non-associated gas, midstream, and deep-water projects. Tinubu’s order is viewed by industry professionals as a strong indicator of his commitment to enhancing trust within the sector. According to a source within the industry who chose to remain anonymous, preserving the integrity of contracts is crucial in the oil and gas sector and is essential for supporting President Tinubu’s vision for the industry. In Nigeria, Shell, Total, and Eni collectively own 51 percent of Nigeria LNG, while the remaining 49 percent is controlled by the Nigerian government.
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