Main supplier Nigeria admits to “substantial reductions” in quantities agreed
For all the government’s talk of ‘trust in Nigeria’ and confidence that long-term contracts for the supply of liquified natural gas would be honoured, Monday saw the reality: Nigeria won’t be supplying anything like the quantity of gas that Portugal expected.
Confirmation came not from government sources – which continue to try and play down the developing drama – but from GALP, the company holding long-term contracts with Nigeria that have been one of the government’s ‘trump cards’ in trying to steer the country through the maelstrom of rising prices.
The official reason for the ‘substantial reduction’ in previously agreed supplies has been the floods that have hit Nigeria. These are expected to continue for some weeks.
Nigerian authorities have described the situation as one of “force majeure” – and in doing so they cannot be held to any of the ‘liability clauses’ that the government promised would secure cheap gas for Portugal.
What this means is that all the families encouraged to flock to the regulated market on the government’s promise of lower bills now really have no guarantees.
To ensure supplies, GALP will have to “go to the market to seek other supplies to compensate for the Nigerian failings”, explains Expresso – and these ‘other supplies’ will not come cheaply.
It was Expresso columnist Helena Matos who warned of this scenario weeks ago, in a text entitled: “Nigerian fraudsters strike again, only this time they are Portuguese.”
Ms Matos described the government’s assurances – voiced by energy secretary João Galamba as “promising what you don’t have, guaranteeing what you can’t guarantee and doing what you shouldn’t”. She suggested the executive has been acting exactly like the authors of habitual emails that arrive in random inboxes from people in Nigeria, promising fortunes “in exchange for almost nothing”.
So, what can Portugal expect? This is what media sources have been trying to work out.
According to Expresso, gas prices will almost certainly increase.
“While the length of disruption in deliveries of Nigerian gas has yet to be gauged, it is almost certain in the short-term that GALP will have to go to the market (as it has done for several months) to contract more LNG tankers on the spot market whose prices are habitually higher (because they are associated with an urgency for provision by the purchaser),” says the paper.
Right now, Portugal has ‘some months of consumption’ already in storage, but the country “cannot stop receiving periodic deliveries of gas if it wants to maintain the normal function of the industry and of electrical power stations, as well as supplies to domestic clients”.
And due to the drought, hydropower across the entire Iberian Peninsula has been practically halved. This has elevated the importance of gas, explain reports: it is now vital for the generation of electricity.
Thus, after weeks in which the government tried to tell us everything was ‘fine and dandy’, we are faced with the fact that it really isn’t.
Nigeria supplies – or certainly has so far this year – 50.2% of the gas consumed in this country; the second major source being the United States, which supplies 28.3%, at a higher price.
The most dependent system, in terms of Nigeria’s supplies, is Portugal’s LNG network which feeds 1.5 million clients, “including power stations and many industries”, says Expresso.
The only bit of ‘good news’ here is that: “Domestic customers are protected in the short-term until the end of December”; ditto clients on the regulated market.
It is 2023 where everything could change. “Everything depends on the evolution of the market over the next few months – and whether the activity of gas in Nigeria returns to normal” sooner rather than later, explains Expresso.
Force majeure, or just a convenient excuse?
The floods affecting Nigeria have indeed been devastating. According to reports, more than 600 people have died, and close to 1.5 million have been rendered homeless. Nigerian authorities say rising water levels have flooded areas where natural gas is being extracted, forcing stoppages. But as Expresso points out, there have been frequent “disruptions” in gas contracted from Nigeria by Portugal in recent months. These have been blamed on “oil and gas thefts on Nigerian territory and the diversion of methane carriers to markets other than those initially envisaged in Nigeria LNG deliveries”.
Observador too has its doubts: “Sources heard by Observador admit the floods could be being used as a pretext to force a revision of the conditions of the oldest contracts with GALP, namely the price.”
What does the government say?
This is one of the most interesting parts: as of late Monday, the government was still saying ‘there is nothing to see here’. The ministry of environment issued a short statement saying, “right now, there has been no confirmation of a reduction in deliveries of gas from Nigeria (…) Even if this does happen, there is no shortage on the market. Any alarmist information is misplaced, even more so in times of global uncertainty”.
On Tuesday, the message changed slightly. Finance Minister Fernando Medina told reporters that he ‘didn’t see a risk of failure’ in Nigeria’s compliance with long-term contracts, but if this happened, “alternatives would be found”.
The fact that alternatives would be found is not in any kind of dispute. It is the cost of these alternatives that is worrying observers – and how they would affect the rising cost of living in a country marked by low salaries, increasing levels of real financial hardship and a degree already of social agitation.
As Portugal mulls over this particular ‘shock’ within the wider context of global supply uncertainties, reports in Spain describe “dozens of LNG-laden ships” queuing off Europe’s coast “unable to unload”.
The stories explain that Europe, ergo Portugal too, has an added problem – a lack of ‘regasification capacity’: plants that convert the incoming fuel back to gas.
“If the backlog is not cleared soon, those ships may start looking for alternative ports outside Europe to offload their cargo”, writes Euroactiv.com
Other sources have suggested the tankers are actually ‘circling Spanish waters’ waiting for the cost of gas to go even higher…