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Cablegate: Brass Lng Project Overview

This record is a partial extract of the original cable. The full text of the original cable is not available.

091520Z Dec 04

UNCLAS SECTION 01 OF 03 LAGOS 002470

SIPDIS

SENSITIVE

STATE FOR AF/W
STATE FOR EB/ESC/IEC/ENR/BLEVINE
STATE FOR DS/IP/AF
STATE FOR INR/AA
STATE PASS DOE FOR DAS JBRODMAN AND CGAY
STATE PASS TREASURY FOR ASEVERENS AND SRENANDER
STATE PASS DOC PHUEPER
STATE PASS TRANSPORTATION MARAD
STATE PASS EX-IM FOR JRICHTER
STATE PASS OPIC FOR CDUFFY
STATE PASS TDA FOR BTERNET

E.O. 12958: N/A
TAGS: EPET EINV NI ENERG
SUBJECT: Brass LNG Project Overview


Summary
--------

1. (SBU) This cable provides an overview of a major new
liquefied natural gas (LNG) project in Nigeria. ..Brass
LNG is planned as a world class, greenfield facility to be
located in Brass, Bayelsa State. Brass LNG will be a two-
train facility for liquefaction and shipping, with an
initial production capacity of 10 million tons LNG, 2.4
million LPG, and 0.2 million tons condensate annually.
Brass LNG shareholders include the Nigerian National
Petroleum Corporation (NNPC), Chevron Texaco,
ConocoPhillips, and ENI International. The Final Investment
Decision for Brass LNG is projected for mid-2006. Proposed
downstream gas legislation and new gas fiscal terms could
significantly impact the financial viability of the Brass
project. End summary.

Project Overview
-----------------

2. (U) Brass Liquefied Natural Gas is planned as a world
class, greenfield LNG facility to be located in Brass,
Bayelsa State. Brass LNG Limited incorporated in Nigeria on
December 9, 2003. The site will include a two-train
facility for liquefaction, and shipping facilities. Brass
LNG's products will include 10 million metric tons of LNG,
2.4 million metric tons of LPG, and 0.2 million metric tons
of condensate per annum.

Capital Structure and Financial Details
-----------------------------------------

3. (U) Shareholders for the Brass LNG plant include the
Nigerian National Petroleum Corporation (NNPC) with a 49
percent stake, and Chevron Texaco, ConocoPhillips, and ENI
International, each with a 17 percent stake. The notional
budget for Brass LNG is about $3 billion, but more precise
figures await completion of the Front End Engineering
Design.

4. (SBU) Additional investment for a possible expansion of
Brass LNG might bring the total investment as high as $10
billion. Brass management does not endorse press reports of
projected income of $10 billion annually for the project.

Nigeria's Drive to End Gas Flaring
-----------------------------------

5. (U) Nigeria was chosen as the proposed site for the LNG
plant due to its abundant supplies of natural gas (estimated
at more than 170 to 180 trillion cubic feet, the seventh
largest in the world), and because of the GON's campaign to
end gas flaring by 2008. Natural gas projects such as Brass
will play a significant role in developing an export market
for gas that might otherwise be flared.

Proposed Brass Facilities
---------------------------


6. (U) The conceptual design for Brass LNG involves
locating an LNG processing facility on-shore, next to the
existing Nigerian AGIP Oil Company (NAOC, the joint venture
between parastatal NNPC and Italian ENI) oil terminal on
Brass Island, Bayelsa State. The waters off of Brass Island
are quite shallow, so berthing ships is problematic. The
proposed solution involves a 6-kilometer long trestle, with
a jetty for LNG and LPG ships, turning basin and breakwater,
and a 9-kilometer dredged channel to allow ships to
approach.
Gas Sourcing
-------------

7. (U) Once operations are underway, the various
shareholders will each contribute approximately 850 million
cubic feet/day of gas as feedstock from their existing
fields.

Project Milestones: FEED Contract Recently Signed
--------------------------------------------- ------

8. (U) A number of significant project milestones have
taken place. Shareholders signed the Heads of Agreement
(HOA) for Brass LNG in October 2003. Brass LNG awarded the
contract for the Front End Engineering Design (FEED) of the
facility to Overseas Bechtel Incorporated on 10 November
2004. Completion of the FEED is expected within 12 months,
and includes provisions for a subsidiary of NNPC, the
National Engineering and Technical Company Limited, to
participate in the contract. The project will then move to
the Engineering, Procurement, and Construction phase,
expected to begin in the third quarter of 2006. The project
is planned for completion by the second half of 2009.

End Market
-----------

9. (SBU) According to Martin Hutchison, Managing Director
for Brass LNG, the facility's first LNG sales will likely be
to the U.S., but consideration will also be given to the EU.
Domestic sales are not currently planned, given the
existence of price regulation in Nigeria's downstream
market.

Final Investment Decision
-------------------------

10. (SBU) The Final Investment Decision (FID) for Brass
LNG is expected in mid 2006. According to MD Hutchison,
steps to the FID include satisfactory conclusions on a range
of issues, including:

--Completion of the FEED and resolution of all technical
issues
--Competitive EPC environment
--Community and other stakeholder engagement
--Environmental considerations
--Satisfactory security arrangements
--Price and timing with respect to market entry
--Impact of new legislation

Policy Considerations
-----------------------

11. (SBU) Proposed GON downstream gas legislation and new
gas fiscal terms could significantly impact the Brass
project. The Brass management team is carefully watching
the evolution of these policies and conducting economic
analysis to determine the impact of current and proposed
fiscal terms on the project's viability.

Comment
---------

12. (SBU) There is a growing call in Nigeria for revival
of the domestic gas market, particularly the domestic LPG
for cooking. Nigeria, despite its immense gas reserves, has
the lowest per capita gas consumption in West Africa. The
domestic LPG market collapsed a few years ago, largely due
to the imposition of a number of tariffs and taxes on
imported LPG, including a 30 per cent import duty, 7 per
cent port surcharge, and 5 per cent value added tax.
Additionally, the country lacks a backbone gas pipeline
system for domestic distribution, so LNG cannot easily be
harnessed for power generation. International investors
have not been willing to consider investments in the
domestic gas sector, as prices remain regulated and below
international levels. MD Hutchison frequently speaks on the
need for realistic price signals in the Nigerian gas market
before international investors will be tempted to invest in
this area. Unfortunately, as new export gas projects are
approved and move ahead, the tension within country over the
lack of gas for domestic use becomes ever more acute.

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