Featured case: Demand and Supply Conditions in the
Global Liquefied Natural Gas Industry: Effects on the
Nigeria Liquefied Natural Gas Company

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The case

NLNG logo Who – the protagonist

Babs Omotowa and Isa Inuwa, CEO and Deputy CEO of Nigeria Liquefied Natural Gas (NLNG).

What?

NLNG became a limited liability company in 1989 to harness Nigeria’s vast natural gas resources and produce Liquefied Natural Gas (LNG) and natural Gas Liquids (NGLs) for export.

The Nigerian Federal Government, Royal Dutch Shell, Total LNG Nigeria Ltd. and Eni S.p.A are the four shareholders.

Why?

Feeling the pressure after reports of increasing supply of LNG in global markets, Babs and Inuwa knew that a detailed analysis of global demand and supply conditions was needed to appreciate the short run trajectory of prices.

Both the local communities in the Niger Delta region, where the country’s oil and gas deposits are mainly found, and the Federal Government trusted NLNG to form a plan that would ensure the company’s short and long term survival. The former counts on NLNG as a source of employment and the latter as a continued stream of tax revenues.

When?

The supply of LNG has been on the rise for a number of years, but it was in December 2015 when NLNG were forced into action.

Where?

Nigeria is located in West Africa with a population of more than 150 million people. It is Africa’s most populous country as well as being the largest economy and exporter of crude oil.

Oil contributes to 14% of Nigeria’s GDP and mostly resides in the Niger Delta, the delta of the River Niger, which flows into the Atlantic Ocean.

The area is notoriously known for the kidnapping of oil industry employees for ransom, but these occurrences have reduced since the election of Goodluck Jonathan, as president of Nigeria, in 2010.

Key quote

“We will help to build a better Nigeria by utilising the country’s gas resources and helping to put out gas flares, thus diversifying the economy and clearing up the environment.” – Babs Omotowa.

What next?

Faced with strong supply competition and challenges to conventional pricing terms, NLNG needed to create a new strategy for renewing long-term buyer contracts, which were soon to expire, whilst forming a new business model to meet the needs of global demand centres that were coming on stream.

 
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Demand and Supply Conditions in the Global Liquefied Natural Gas Industry: Effects on the Nigeria Liquefied Natural Gas Company
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Teaching note
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The author

author

Olumide (Olu) Ijose

Olu talks about the pressures NLNG were under and the African economy.

Under pressure

Olu said: “Babs and Isa were under a lot of pressure, including from the government, to keep NLNG afloat, so it was good to see how students reacted in a high-pressure scenario.

fracking

“I also wanted a subject that is contemporary where students could research and easily find additional information.

“For example, with the supply boom from hydraulic fracturing (fracking), companies in the US are investing tens of billions building out an LNG infrastructure that is globally focused. The business case is quite straightforward: LNG is seen as a much cleaner source of energy, global demand is increasingly higher, contracting conditions between buyers and sellers have never been more flexible, and the supply of gas is abundant.”

Public at risk

Olu continued: “The nature of economic activity in a country is directly tied to the welfare of its people.

“Developing countries, especially those in Africa, are natural resource dependent and are always negatively impacted (sometimes severely) when the price of the commodity underpinning their economy falls.

“Nigeria is a prime example. It’s average growth rate before oil prices (LNG prices are indexed to oil prices and also declined) crashed in 2014 was 7% and has since been in a recession. So people’s livelihood being at risk in such economic conditions, adds to the case, especially from a policy perspective.”

Importance of field research

He added: “The field research option I took was critical to this case.

“Capturing the emotion of the situation would have been impossible without the interviews, and I felt it was important to focus on the LNG sector in Africa, as so much research is done on other parts of the world.”

African economy

keyboard

Olu concluded: “I hope that the case will encourage interest in studying the drivers of economic growth in Africa, and creating the conditions for these economies to be more competitive with regards to attracting direct foreign investment.”

About the author

Olu Ijose teaches International and Strategic Management to graduate and undergraduate students at Governors State University, US.
OIjose@govst.edu

This case was published by the Indiana University CIBER case collection.

 

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