VZCZCXRO9959
PP RUEHMA RUEHPA
DE RUEHOS #0208/01 0790738
ZNR UUUUU ZZH
P 200738Z MAR 07
FM AMCONSUL LAGOS
TO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHUJA/AMEMBASSY ABUJA PRIORITY 8474
RUEHC/SECSTATE WASHDC PRIORITY 8652
INFO RUEHBJ/AMEMBASSY BEIJING 0087
RUEHWR/AMEMBASSY WARSAW 0222
RUEHCD/AMCONSUL CIUDAD JUAREZ 0202
RUEHIT/AMCONSUL ISTANBUL 0203
RUEHSO/AMCONSUL SAO PAULO 0210
RUFOADA/JAC MOLESWORTH AFB UK
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 03 LAGOS 000208 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY 
SIPDIS 
 
DOE FOR GPERSON, CGAY 
TREASURY FOR ASEVERENS, SRENENDER, DFIELDS 
COMMERCE FOR KBURRESS 
STATE PASS USTR FOR ASST USTR FLISER 
STATE PASS TRANSPORTATION FOR MARAD 
STATE PASS OPIC FOR ZHAN AND MSTUCKART 
STATE PASS TDA FOR NCABOT 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
 
E.O. 12958: N/A 
TAGS: EPET PGOV ENERG NI
SUBJECT: NLNG'S TRAIN 6 ON LINE, TRAIN 7 FINAL INVESTMENT 
DECISION IN 2007 
 
LAGOS 00000208  001.3 OF 003 
 
 
Sensitive But Unclassified;  Business Confidential; Handle 
Accordingly 
 
¶1.  (U)  Summary:  Nigerian Liquefied Natural Gas (NLNG), the 
first company in Nigeria to produce liquefied natural gas 
(LNG) for the export market, will bring Train 6, now 
two-thirds complete, and take a final investment decision 
(FID) on commencement of Train 7 in early 2007.  The company 
anticipates that fully 50 percent of this gas from Trains 1-7 
will be sold into the U.S. market.  One study shows that NLNG 
will be one of the two least expensive producers in a field 
of 25 producers serving the United States. 
 
¶2.  (U)  Nigerian Liquefied Natural Gas (NLNG) was the first 
company in Nigeria to produce liquefied natural gas (LNG) for 
export.  In a recent business briefing NLNG executives told 
Pol-Econ Chief NLNG's business model for Trains 1-6 has been 
highly successful.  Shell, Total and Eni, each in seperate 
joint venture (JV) partnership with the Nigerian National 
Petroleum Company (NNPC), sell gas to NLNG.  Each joint 
venture brought its own share of cash as an initial 
investment in NLNG;  the funds were placed in escrow and 
available for NLNG to draw on as needed. 
 
¶3.  (U)  NLNG currently has five trains, producing 18 million 
tons per year (mtpa) of LNG, from which they deliver 262 
cargoes (approximately one every 1.5 days) to customers each 
year.  Train 6, which will begin operation in 2007, is 66 
percent complete.  Upon completion of Train 6, the company 
will have the capacity to produce 22 million mtpa of LNG, and 
5 mtpa of natural gas liquids (NGLs), and to deliver 400 
cargoes to customers per year.  Other company assets include 
4 LNG tanks with a total capacity of 340,000 cubic meters, 4 
liquefied petroleum gas (LPG) tanks with a total capacity of 
260,000 cubic meters, and 3 condensation tanks with a total 
capacity of 120,000 cubic meters.  With the completion of 
Train 6, investment in the project will total USD 12 billion. 
 
 
¶4.  (U)  NLNG's subsidiary, Bonny Gas Transport (BGT), 
currently has 20 vessels, and will have a total of 24 vessels 
under long term charter by 2007.  BGT currently owns 12 
vessels and 14 newly built tankers have been secured for 
Trains 4-6 (8 for Trains 4-5 and 6 for Train 6).  The ships 
average 138,000 cubic meters.  Because they are not very 
large, their size allows them to call at any port, providing 
maximum flexibility. 
 
NLNG To Ship 50 Percent to United States 
---------------------------------------- 
 
¶5.  (U)  NLNG's markets are changing.  Trains 1-3 shipped 53 
percent of product to Iberia and 47 percent to France, Turkey 
and Italy.  Trains 4-6 shipped 61 percent of product  to the 
United States, 34 percent to Iberia and 5 percent to France, 
Turkey and Italy.  As a result, trains 1-6, taken together, 
send 35 percent of their gas to North America, 43 percent to 
Iberia and 22 percent to France, Turkey and Italy.  When 
Train 7 comes on line, fully 50 percent of gas produced at 
the plant will be sent to the United States, and 50 percent 
to the EU. 
 
Trains 7-8 Very Price Competitive in U.S. Market 
--------------------------------------------- --- 
 
¶6.  (SBU)  A consultant's study showed that NLNG has the 
 
LAGOS 00000208  002.2 OF 003 
 
 
second most price competitive company, behind Atlantic LNG, 
in the North American market.  In the study, OK LNG ranks 
third, while Brass is 10th, and ExxonMobil 11th in terms of 
price competitiveness.  As a result, NLNG plans by 2010 to 
operate Trains 1-7 with three shipping berths, and have room 
to add Train 8 and an additional berth.  The company hopes to 
produce more than 30 million tons per year of LNG, 7 million 
tons per year of natural gas liquids (NGLs)and complete 550 
LNG loadings per year using 32 dedicated ships.  The final 
investment decision (FID) for Train 7 will be taken in early 
2007, and production from that Train will begin in 2011.  In 
mid-February, media reports indicated that BG Group, a UK 
firm, had signed a purchase agrement with NLNG to buy 2.25 
million metric tons per year of liquefied natural gas from 
NLNG's Train 7.  Under the terms of the twenty year deal, 
cargoes would be supplied on an ex-ship basis to BG at its 
Lake Charles, Louisiana facility.  Early in March, 
Foster-Wheeler Energy Limited, the Nigerian subsidiary of the 
U.S. engineering firm by the same name, and Chiyoda of Japan, 
announced that they had won the contract for the Front End 
Engineering Design (FEED) contract for construction of Train 
¶7. 
Business Challenges 
------------------- 
 
¶7.  (SBU)  The company shares with other companies the 
challenge of doing business in the volatile Niger Delta. 
Although local communities are in support of the NLNG 
project, NLNG is aware that it is vulnerable should the 
Movement for the Emancipation of the Niger Delta (MEND) seek 
to disrupt its operation.  The company is urging the 
Government of Nigeria to ensure peace and security and to 
police the pipelines and waterways, and is working with the 
local communities on development issues. 
 
¶8.  (SBU)  The company faces competition from other LNG 
producers for investments from NNPC.  NLNG has strong revenue 
streams, but much of the revenue will have to be reinvested 
in order to construct Trains 7 and beyond.  If the NNPC 
chooses to reinvest revenues from NLNG Trains 1-6 in Trains 7 
and 8, then NLNG will be able to grow its business and 
provide additional NLG to the U.S. market.  However, if NNPC 
decides to use the funds elsewhere such as to invest the 
money in other projects such as Brass or Olokola (OK) LNG 
then NLNG will have a difficult time expanding.  Because 
Brass and OK LNG are comparatively new projects, they require 
NNPC functionaries to take more trips abroad to confer with 
co-investors than does a mature project like NLNG; this 
factor may sway functionaries' decision as to where to 
invest.  NNPC or other GON-induced delays to Train 7 could 
damage Nigeria's international business reputation, and put 
at risk the 8 mtpa of LNG that NLNG has sold under Memorandum 
of Understanding (MOU) to major international buyers as the 
basis of its proposed Train 7 expansion, NLNG officials 
warned. 
 
Nigeria's Gas Resources 
----------------------- 
 
¶9.  (U)  By NLNG's count, Nigeria has oil reserves of 
approximately 35 billion barrels of oil or oil equivalent. 
It also has approximately 5,300 billion cubic meters or 187 
trillion cubic meters of proven natural gas reserves.  Of 
that amount, approximately three fifths is associated gas. 
NLNG estimates these natural gas reserves can support 30 LNG 
trains of 4 mtpa for 25 years.  To date, proven natural gas 
 
LAGOS 00000208  003.2 OF 003 
 
 
reserves are the result of exploration for oil.  Now, 
however, companies are beginning to explore solelyfor gas in 
deepwater concessions. 
BROWNE