How Nigeria’s First $5bn FLNG Project Will Impact Domestic, Africa, Global Economy — Julius Rone

Africa’s natural gas reserves are estimated at 630 trillion standard cubic feet. Sadly, investment remains low in the gas space. However, in a One-on-One interview with members of the African Association of Energy Journalists and Publishers, drawn from 54 African nations, Mr. Julius Rone, Group Managing Director/CEO, UTM Offshore Limited, widely known as the ‘Gas King’ spoke on a wide range of issues, especially, the inspiration behind the project, milestones achieved, lessons learned and expected impact on not only Nigeria but also Africa and global economy. The engagement was Co-hosted by Mr. Camara Sanna, The Gambia-based media consultant and Allen Atwiine, Managing Partner of Surprise Africa, Uganda. Excerpts.

What inspired you to establish UTM Offshore Limited and embark on Nigeria’s first $5 billion floating LNG project?
Thank you very much for having me on your big and reputable platform to share insights into the UTM journey and what we have been doing in Nigeria’s energy sector and Africa at large. As you said in your introduction, UTM Offshore Limited is known, globally for embarking on Nigeria’s first floating LNG project.

I am from the Niger Delta of Nigeria, which is an oil-bearing area. I grew up to see exploration and production activities around me. Therefore, I developed an interest in Nigeria’s energy sector early. That was the first inspiration for me. I needed to demonstrate to the world that indigenous companies can develop the resources. When we conceived the idea of establishing UTM Offshore in 2007, it was targeted at contributing to the development of the industry.

Nigeria is the leading oil and gas nation in Africa. We are also number six in the world but Nigeria did not have a floating LNG. Africa’s two floating LNG plants are owned by international oil companies. We, therefore took it upon ourselves to work toward it. We believe that once we get it right, others will follow. It can be done in Nigeria. It can be done in Ghana. It can be done in Mozambique. It can be done in all other African nations. We are going to deliver the project based on international standards.

How far have you gone on the project and when would the final investment decision, FID be taken?
All the engineering studies have been completed. It is like when you want to build a house, you identify the land, clear the site, and do your engineering studies. Once you finish the design, you prepare to get all your permits from the authorities. In our case, we have gotten approval from the regulator, which is the license to construct the first floating LNG plant in Nigeria that was issued to us about three weeks ago by the Nigerian Downstream and Midstream Petroleum Regulatory Authority, NMDPRA and presented by the Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo.

We are now working toward taking the Final Investment Decision, FID. I just came in this morning from my trip, around the world where we had a couple of meetings, including the United Nations and the African Export-Import Bank, taking the lead in arranging the debt and equity of the project. We had a meeting with them in New York. We look forward to announcing the FID soon. We are very pleased with the level of aggregation of the debt and equity being arranged by the bank.

How will the eventual completion of your project impact Nigeria and the global economy?
The project would impact many stakeholders. Everyone – the community, the region, Nigeria, West Africa and the entire continent – would be positively impacted on completion of the project. It would culminate in reducing gas flaring. Nigeria has signed into the United Nations Global Reduction of Emissions.

The project would create 7,000 direct and indirect jobs across the value chain, which means a lot of people, not only Nigerians but all over the world, would participate in this project. It should be noted that during the construction phase alone, over 25,000 jobs would be created. We would also take several Nigerian youths to different parts of the world where the construction and integration would take place for training.

They would understudy the process so that on completion, they would sail back with the floating LNG, and have the hands-on experience to manage and upgrade the plant of such nature offshore. Also, the project would support the demand for energy in Nigeria, which requires over two million tonnes of the Liquefied Petroleum Gas, LPG for domestic consumption. Currently, over 1.5 million tonnes are imported from the global market. The supply of our LPG in Naira would enhance the value of the local currency.

The impact would go beyond Nigeria as one offtaker is currently discussing the possibility of taking the LNG to South Africa with us. It would benefit the entire continent. By the special grace of God, this would be the flagship project to open up that space for stranded gas offshore to be monetized through a technology that has been broken.

What do you think Nigeria and other African countries can do to conquer the energy poverty?
Like I said conquering energy property has to start from Nigeria. Once it starts from Nigeria, it moves back to other African countries. Today, Africa is in the complete deficit. The governments in African countries must play their parts for investors to come in because governments alone cannot take the continent out of energy poverty.

The government must provide attractive physical incentives for public and private partnership. The government should provide access to funding. Then, there should also be assurance of free entry and exit, meaning that investors that invest in African nations can also take their investments out, if they want, without any hindrances. No investors want to tie their monies down. African countries must simplify their regulatory approval processes to encourage investments.

Also, there should not be double taxation. All investors want to be sure of the number of tax they are going to pay. It should be part of their financial models. Bringing up new taxes later usually affect planning, execution and payment of dividends to shareholders.

Potential investors should be able to visit one website to see all taxes to be expected and plan toward paying them. The governments should not keep changing policies. There should be consistency. There should be security, safety and foreign exchange stability to attract, retain and protect investments.

What is your take on the global energy transition and the quest for Africa’s energy security?
Africa needs to develop its God-given resources. However, developed economies are talking about the energy transition. They have an uninterrupted power supply. I do not think that any part of Africa enjoys that kind of uninterrupted power. This is why African leaders have said it is not possible for them to abandon fossil fuel. The leaders and others have said they have to develop their countries before talking about the transition. They have identified gas as their transition fuel. For example, Qatar has oil and gas.

Qatar decided to use more of its gas than oil. In Nigeria, there is the Decade of Gas Initiative. An executive order also provides incentives to those who want to develop gas projects. The government of Nigeria is also supporting projects with funding to enable people to get into the gas sector. Globally, there is still a window for funding gas projects. So, this is the time for African nations to wake up and encourage investors to bring in their funds to put into the energy sector using gas as their transition fuel.

Why has your organization been a strong supporter of the African Energy Week in Cape Town, South Africa?
Like I said earlier, our emphasis is on achieving energy security. Africa Energy Week is a platform that is propagating that message to African leaders. That is the reason why we continue to support the Africa Energy Week, AEW. We believe that the AEW is committed to achieving this and other objectives. Last year, some presidents and former African presidents attended the event.

In one of the sessions, former President Olusegun Obasanjo of Nigeria requested the late President of Namibia and others to work toward the creation of the African Leaders Energy Council to appropriately respond to global issues. On my part, I suggested incorporating other leaders like presidents to have a session on Africa, while private businesses go on with their meetings. We need to have a cleaner energy to save the environment.

Well, luckily for us, we have gas, which is also cleaner and which we can use for our transition. So, African Energy Week has created the right platform and we support it. The world has to listen to Africa because the continent cannot abandon its huge population to die in energy poverty.

What positive impact has the annual event made in the continent’s energy space and why do you think the 2024 edition is important?
There are indications that the AEW has impacted businesses, investments, and Africa’s economy in the past few years. Last year, we saw significant progress in terms of engagement and participation. We believe that in 2024, it will become more robust because I had the opportunity to speak with, NJ Ayuk and his team recently during the Invest Africa Summit in Paris. Many attendees at that event agreed to meet again in Cape Town for this year’s AEW.

The AEW team was in China discussing with the Chinese Development Bank and other financial institutions. It is easier to set up meetings with different stakeholders through the AEW instead of moving from one part of the world to another to meet them. In other words, the AEW provides a platform for business leaders to meet with the right people, and discuss projects.

What challenges do investors and potential investors in Africa encounter, and how can they be tackled?
There are many problems, including inadequate funding, inconsistent government policies and multiple taxes in African nations. Insecurity is being addressed in some nations, including Nigeria. There is also what I would like to call corruption perception in Africa. Investors do not want to put their monies, where corruption perception is high. Good corporate governance is also desired.

Potential investors would not put in their monies where there would not be checks and balances. Also, African governments need to ensure that all the regulators have processes for giving their approvals to investors and potential investors as seamlessly as possible. Incentives are also required. If they want investors, they need to give them something like tax breaks or waivers.

Also, the method of payment should be made much easier for investors. Investors trading in multiple countries should have a single payment platform to quickly turn their investments around and distribute those services on the continent. First Impact is currently operational. We need more of such services. Investors should be able to sit down in Nigeria and trade with someone from Senegal without asking the person to pay in dollars.

The money should pass through the payment settlement platform. Payment is made in Naira and the other partner in Senegal receives equivalent in Senegalese currency.

What advice do you have for the government and potential investors?
Generally, governments in African nations need to provide a conducive atmosphere for investors and potential investors. All bureaucratic processes must be eliminated. Investors should be able to travel around Africa without visas and other issues. Currently, there is no direct flight from Nigeria to Angola. If there’s a flight, it takes 24 hours or 48 hours to get to Angola or Mozambique. Getting companies registered should not take long.

It should get to a point where investors should fill out necessary forms, submit required documents, and print their certificates. It should be a win-win situation for both parties because the governments benefit from the taxes while jobs are created.

What will you be speaking about at the forthcoming African Energy Week 2024?
I will be speaking on financing and the difficulties of attracting investments into Africa, based on our UTM Offshore experience. I will be sharing the UTM Offshore experience, including lessons learned, and challenges encountered at the event. For oil and gas investments, financing is key. We need to share this experience with others. We will stress the need for investors to have bankable projects. If they do not have banking projects, financiers run away because they are investing other peoples’ monies.

Do you have plans to work with the African Energy Bank when it becomes operational?
We need an indigenous energy bank to fund projects and programmes for a reason. Most European banks are not funding projects in Africa. Already, member states have agreed that Nigeria should host the African Energy Bank and its offices are being set up. When the African Energy Bank is up and running, we can consider working with the bank in our next project.

How integrated is your Environmental, Social, and Governance strategy and implementation process as well as impact on stakeholders, especially communities?
The Environmental, Social, and Governance, ESG, is a critical condition for assessing funding today in international and local banks. Without it, investors would not be able to access funds. So, we take it very seriously. At UTM Offshore we have two leading consultants to handle it. ESG forms a critical part of our development strategy.

In what ways are you committed to local content?
We have already agreed with the Nigerian Content Development and Monitoring Board, NCDMB, regulating local content issues that the youths would be sent for training. They would learn a lot and get involved in the operations and how to run the plant.

Have you secured contract with offtakers in Europe or other continents outside Africa?
As I have noted earlier, the Final Investment Decision, FID would be taken soon. One of the conditions for the FID is the Sales and Purchase Agreement, SPA. We have a potential offtaker of international standards that will offtake the product to Europe and other parts of the world.

What are the challenges UTM Offshore has faced so far, and how are you tackling them, if any?
When developing a project of this nature, some challenges should be expected. Problems have been addressed because we engage reputable consultants in similar FLNG plants. It makes it easier for us because of the experiences they have acquired over the years.

There are four open-sea floating LNGs in the world. One is in Mozambique; two in Malaysia and one in Australia. We also hired a competent company to supervise what they are doing. We are happy because of the support from critical stakeholders, especially the federal government, Nigerian National Petroleum Company Limited, NNPCL, and communities.

In what ways will the project impact the domestic LPG market?
The project would boost the domestic supply of the Liquefied Petroleum Gas, LPG. Nigeria requires commercial quantity yearly. Currently, a large amount of the product is imported from the global market. The project would enhance domestic supply, reduce importation, and conserve foreign exchange. Also, it will reduce transportation costs because of the proximity to the market. This will also sufficiently reduce the price of LPG in the nation.