The substantial reduction in the production and supply of liquefied natural gas announced by Nigeria LNG as a result of the floods that have devastated that country and have already caused hundreds of deaths sent the orange light on the Portuguese energy market yesterday. The Nigerian company has not yet revealed the real impact of the atmospheric phenomenon on its business and given the availability of natural gas in other markets, it is expected that there will be no supply problems in the near term. But the bill will rise. Galp, which has its main supplier in Nigeria and where it supplies the regulated market, immediately announced that this situation “could lead to additional supply disruptions”.
Environment Minister Duarte Cordeiro dismisses alarming scenarios, but there are many uncertainties. If Nigeria does not charge (and the fact that it has reported problems to Galp raises this suspicion), it will be necessary to source gas from the spot market, where prices are higher. It is rumored in the markets that Nigeria will divert gas to the spot market and in this way increase its revenues, thus ensuring the compensation it has to pay for non-compliance. Now it has even come to invoke a force majeure clause.
Galp informed the Securities Market Commission on Monday evening that it had received a note from Nigeria LNG about the extraction problems of the Nigerian company and that this could affect its supply. A few hours later, the Environment Ministry issued a statement saying “there is currently no confirmation of a reduction in gas supplies from Nigeria”. Duarte Cordeiro’s office said there was no shortage in the market and believed that “any alarming information is inappropriate, especially in times of global uncertainty”.
It is recalled that João Galamba, Secretary of State for Energy, went to Nigeria in September due to complaints from Galp about supply disruptions. The issue was on the agenda as the government opened the door to the transfer of natural gas customers from the liberalized to the regulated market to dampen the surge in domestic bills from October.
If Portugal has to compensate for these non-compliances in the spot market, the consequences of this bill will immediately reach the combined cycle power plants, which produce electricity, and the industries, emphasizes Mira Amaral, former Minister of Industry and Energy. And customers in the regulated market may not escape it either, because if there is a tariff deficit this year, they will have to pay that difference in 2023. Also for Batista Pereira, member of CIP’s National Strategic Energy Council, the cost of gas will become the major issue if Nigeria fails to meet its contractual obligations. As he says, “Basically everything indicates that there will be no supply problems, it is not acceptable that there will be gas outages, there will be significant cost increases”.
The US has ramped up liquefied natural gas production and Portugal has benefited from this availability. However, Nigeria is by far the country’s main supplier. As Mira Amaral says, “we still need Nigeria, which provides about 50% of the natural gas needs, which comes from the US, about 28%, is not enough”. In addition, long-term contracts, such as those with Nigeria, are cheaper than those on the spot market. Batista Pereira recalls that gas from the US is more expensive due to the costs of extraction, transportation and subsequent gasification (it arrives in a liquid state), but Portugal has benefited from the existing supply on the market. The CIP consultant adds that, ironically, the country has also bought some ships (gas comes by sea) from Russia since the beginning of the war, when there were years when it didn’t buy anything. “It’s the availability of the market,” he emphasizes.
Mira Amaral recalls that natural gas has “increasing importance for energy production”. Second, combined cycle plants accounted for 45% of total consumption up to September, up from 33% in the same period last year. “Due to the drought, the little wind and the premature closure of coal plants, the country is dependent on natural gas. If the supply threatens to be interrupted, we panic,” he emphasizes. National reserves account for only 5% of the country’s annual consumption.
Until August this year, according to data from the Directorate-General for Energy and Geology, the country imported a total of four billion cubic meters of natural gas, much of it LNG (3908 million cubic meters), with Nigeria accounting for more than half of its LNG imports (2 billion), followed by the US (1.2 billion), Trinidad and Tobago (290 million), Russia (280 million) and Equatorial Guinea (35 million).
Ricardo Marques, of IMF – Information on Financial Markets, believes that “if the Nigeria issue is resolved within 15 days, there will be no consequences”. The analyst also believes that “there is no shortage of gas” as producers like the US, Trinidad, Australia, Norway and Algeria are increasing exploration while increasing stocks in Europe, which are nearly full. He even reveals that “33 ships are waiting to unload in Spain”. At the same time, prices are falling. According to him, the price of gas on the Iberian market yesterday was 33 euros, a year ago it reached 85. In Europe three weeks ago it was around 200 euros and yesterday it was sold for 72 euros.
Source: DN
