Train 8: Nigeria LNG expansion plans threatened by contract breaches
Nigeria LNG is challenging the enforceability of an arbitral award’s demand order issued by a United Kingdom arbitration panel, despite a contractual provision that makes an award by the arbitral tribunal final and binding.
Nigeria LNG was held to be in breach of contract by failing to deliver 19 cargoes under a contract it executed in January 2020. The cargoes were due for delivery between October 2020 and October 2021.
The arbitration tribunal comprised John Beechey CBE, Mr J William Rowley KC and Mr Nevil Phillips.
In a related development, Shell Plc has made claims against Venture Global LNG (VGL), a United States-based LNG exporter, for its breach of contract to supply LNG cargoes.
According to a Reuters report, Shell Plc has escalated its dispute with Venture Global LNG. It accused the liquefied natural gas producer of restricting supply access to it and other customers while exporting over $18 billion in LNG, costing Shell and other European companies Billions in lost profits.
According to a media report, The Shell Chief Executive Wael Sawan is “very disappointed” with US player Venture Global LNG over the non-delivery of contractual gas volumes from its Calcasieu Pass export project in Louisiana arguing that its actions could undermine confidence in US LNG supplies, claiming that Venture Global choose to sell LNG cargoes into the often lucrative spot market.
In a similar report, Shell Executive Vice President Steve Hill at The recent Gastech event stated the following about Venture Global breach of contract, “ This is a wake up call for the industry. The LNG business is underpinned by trust in long term contracts.” The long term commitment that foundation buyers make enable the regulatory certainty, the financing and the development of your LNG Porjects. If contracts are seen as options for suppliers, then buyers simply won’t sign them and the industry won’t grow” he said.
It is further reported, that the Spanish Utility Giant Endesa, have been involved in a $585 million arbitration over a long-term Nigeria LNG supply contract. The dispute centers around a price review in the contract.
Nigerian LNG is embarking on its expansion plans with the award for the EPC contracts for its Train 7 project to Saipem, Chiyoda and Daewoo, with an expectation to increase its capacity by 35% from the extant 22 Million Tonnes Per Annum (mtpa). They have been reports on the expansion plans for a further Train 8, to solidify Nigeria LNG’s position as one of the largest single -site operations globally.
The Managing Director of NLNG, Mr Phillip Mshelbila, who is seconded from Shell, had stated during a visit to the NLNG plant in Bonny Island, Rivers State, that recent events such as Russian/Ukraine conflict, have ushered in a wave of new developments in the LNG sector, he expressed that the surge in activity underscores the robust demand for Liquified natural gas.
It is yet to be determined the impact Nigeria LNG supply breach will have on the development of future projects, as supply agreements and the sanctity of contracts is a fundamental requirement to maintain confidence and enhance favourable financing options.
Read Also: Court rejects ex-Nigeria LNG manager’s bid to stop N1.6b suit
Oil and Gas industry experts had commended President Tinubu’s Executive Orders on Oil and Gas reforms which is primarily focused on removing obstacles to investment in Nigeria and introduction of fiscal incentives for non-associated gas, midstream and deepwater developments. Many industry experts see this order as sign of seriousness by President Tinubu to boost confidence in the industry.
An industry source, who declined to be named maintained that the sanctity of contracts is a key fundamental in the Oil and Gas industry one which must be sustained to encourage Mr President’s vision for the Industry.
Nigeria LNG is significantly owned by Shell, Total and Eni, with the Nigerian Federation controlling a 49 percent stake.
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