A major Nigerian energy company stated that it cannot deliver natural gas as promised in its contracts after deadly flooding hindered its operations.
Nigeria LNG Limited (NLNG) declared a “force majeure” this week, meaning it is unable to fulfill its contractual obligations to supply the fuel used around the world to generate electricity, heat homes and run factories after flooding led to a “significant disruption of gas supply.”
The NLNG is a joint venture between the Nigerian government, which is the majority shareholder, and energy giants including London-based Shell and Italy’s Eni. With a capacity to produce over 20 million tons of liquefied natural gas, or LNG, per year, it is Nigeria’s largest gas firm, but its production capacity was only at 68% because of oil theft and pipeline vandalism that has plagued the country.
The force majeure may “cause the NLNG markets to tighten further” before winter when it faces higher demands for gas, said Olufola Wusu, an oil and gas expert who was part of a team that helped review Nigeria’s national gas policy.
“The chances are that if we are unable to meet local demand, it is highly unlikely that we will have sufficient gas to export. And it means that some of our customers may be forced to seek LNG from other suppliers,” Wusu said.
Analysts fear that if the disruption in gas supplies persists, it would cause a further decline in government earnings at a time when Nigeria faces a cash crunch caused by declining crude production over the years.
About 3.8 percent of global monthly supply could be affected, risking higher prices, Rystad Energy said.
Flooding this year, the worst in a decade, has killed more than 600 people, displaced 1.3 million and “aggravated what was already a bad situation” for the national gas company, said Toyin Akinosho, a Nigeria energy consultant.
Floodwaters also have submerged many of the riverside communities in the oil-rich Niger Delta region where Nigeria’s crude oil facilities are located, threatening the operation of local and international oil companies. Nigeria is a member of the OPEC oil cartel that produces crude for world markets.
Akinosho expressed doubts about how quickly the disruption could be addressed to allow Nigeria to resume shipping gas to the EU, which gets 14 percent of its LNG imports from the African nation, as well as other buyers in North America, the Middle East and Asia.
A spokesman for Timipre Sylva, Nigeria’s petroleum minister, declined to speak on the issue, and the gas company did not immediately respond to questions about its options for addressing the flooding.