Natural Gas: Demand Pressure and Price Plunge hit LNG Revenue

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Friday, May 22, 2020 / 11:10 AM / by CSL Research / Header Image Credit: Alibaba

 

Much has been discussed about the impact of the COVID-19 pandemic on the global economy as well as the Nigerian economy. In addition, the impact on crude oil market has been well documented over the past 2 months. However, the dynamics of the Liquified Natural Gas (LNG) market seems to have fallen under the radar. Nigeria being among the top 10 producers of LNG as well has having one of the biggest deposits of natural gas, has seen revenue from gas exports plummet significantly. Similar to the crude oil market narrative, Nigeria's gas revenue has been battered by both lack of demand as well as a dip in price.


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Yesterday, Punch newspaper quoted the GMD of the Nigerian National Petroleum Corporation (NNPC) stating that 12 cargoes of LNG were stranded in the global market in March for the first time ever. The European market has always been an attractive market for LNG exporters like Nigeria given its more favourable pricing relative to the US and other markets. Nigeria remains one of Europe's top suppliers of LNG, however it has begun to see buyers with options to defer deliveries postpone offloading while new orders have remained almost non-existent. This has led to tankers acting as floating storage for LNG according to Kpler, a commodity research and tracking firm. Pricing has also not been favourable given the glut in the market. Compared to January 2019, natural gas exports to US market have seen price crash by 43.5% while exports to European markets have seen price crash 70.8%.


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Nigeria's revenue from natural gas exports was US$1.03bn (N314.5bn) in 2019, however, with current dynamics, it is difficult to see how Nigeria makes half of 2019's LNG revenue. Certainly, this will have a negative impact on the dividend that NLNG would be able to remit to the FG.


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