Lessons Europe Can Learn from Nigeria’s LNG Export Blockage

On July 12, the Nigerian Maritime Administration and Safety Agency (NIMASA) removed after one month the barrier on LNG cargoes entering or leaving the loading bay at the Bonny terminal in the Niger Delta that it had imposed on Nigeria LNG Ltd. (NLNG), Africa’s biggest liquefied natural gas exporter. The panic that was during this time exhibited by European customers of NLNG shows the extent of Europe’s LNG export dependence and the necessity for European shale gas production legislation to proceed.

Europe’s LNG imports originate principally from Algeria (38 percent), Nigeria (24 percent) and Qatar (18 percent). Since the beginning of the 2008 financial crisis, European LNG consumption entered a period of  recession. Therefore, European partners are losing their power over their suppliers. The inefficiency of European stakeholders in this recent Nigerian crisis is an illustrative case of this power decline.

NIMASA is Nigeria's top regulatory and promotional maritime agency. Formerly known as the National Maritime Authority (NMA), it is responsible for regulations related to Nigerian shipping, maritime labor and coastal waters. The agency also undertakes inspections and provides search and rescue services. NIMSA is a public body and its board includes representatives from the Ministry of Labor, the Ministry of Transport, and the Nigerian Navy.

NIMASA provides about 7 percent of global LNG supply. Nigeria LNG is Africa’s biggest liquefied natural gas exporter and its LNG accounted for 9 percent of Nigeria's exports in 2012.

Beside this strategic role of LNG in Nigeria’s economy, Nigeria LNG's shareholders include three international energy giants: Shell (25.6 percent), Total LNG Nigeria (15 percent) and ENI (10.4 percent). The state firm Nigeria National Petroleum Corporation (NNPC) owns only 49 percent--which gives decision-making power to Western energy companies. 

Nigeria LNG’s traditional customers are Spain's Repsol, Italy's Enel, Britain's BG Group, France's GDF Suez, Portugal's Galp, and Turkey’s BOTAS. During the blockage European customers of NLNG in Europe were in panic –however, neither European governments, nor European buying companies or international investors were able to influence the blockage

NIMASA claimed Nigeria LNG did not pay a required 3 percent levy.  Nigeria LNG disagreed with this interpretation of its tax obligations, citing exemptions in the law.  When the dispute entered a deadlock, NIMASA on June 21 barred LNG cargoes from entering or leaving the loading bay at the Bonny terminal.

In following week, more than 20 LNG tankers remained moored outside the Bonny Island loading bay. On June 28, Nigeria LNG (scared it would not be able to satisfy its obligations to European buyers) declared force majeure, a legal clause allowing it to miss shipments. However losses amounted to $475 million in revenue. On July 12, Nigeria LNG relented, agreeing to pay the disputed levy of $140 million.

This crisis showed that NIMASA does not worry about its warnings from its main international customers warning. It also has opened a debate on who might be able to influence Nigeria’s decision-making, if European consumers are not sufficient.

That question’s answer might lie in the global trends of LNG consumption. Global LNG demand continues to increase in Asia, driven mainly by China and India with a consumptions increase trend of about 10 percent each year.  Other Asian countries (such as Japan, Thailand, Malaysia, Pakistan, Indonesia and Singapore) have also turned to LNG imports to mitigate their energy demands. The total LNG supply to Asia is expected to grow from 203 bcm in 2010 to 222 bcm by the end of 2013. 

On European side, LNG consumption trends are much less promising. Market analysts have predicted that in the years leading up to 2020 there will be more upside risks for European prices as demand continues to exceed expectation. Even though LNG demand from European countries is expected to remain strong over the long term, the current slide nevertheless points to recession.

Last week, Nigeria signed a deal for economic cooperation with China that included comprehensive financial cooperation in support of Nigeria’s economic development and a preferential buyer credit agreement. This rapprochement showed that Asian states cannot only become a reliable consumer for Nigeria, but also a source of financial support. 

On the supply side, LNG production growth internationally is led by Qatar and Australia. In addition, the US has recent huge unconventional shale gas discoveries, leading to a reduction in its reliance on imports. LNG, which sees natural gas super-cooled and transformed into liquid for transport on tankers, now represents around nine percent of global gas demand, and that number looks set to continue to increase. 

These trends are not easy to change in the short-term. Moreover, European banks have not yet proposed to the Nigerian government any form of credit as attractive as their Chinese counterparts. Therefore, this crisis serves as yet another reminder of the necessity for Europe to replace its imported LNG with European LNG—a step that could only occur if European shale gas regulations became effective. 

Olgu Okumuş is an affiliated lecturer in energy diplomacy at Sciences Po, Paris and director of strategy development at LEO Advisors. She is also a PhD candidate at Sciences Po, Paris, where her research focuses on Turkey’s energy transit policy.

She can be reached at olgu.okumus@leoadvisors.com