Monday, January 7, 2008
Russian move on Nigerian gas sector bodes ill for west.
7 January 2008
Financial Times
Matthew Green and Dino Mahtani
Russia's moves to tap Nigeria's huge energy reserves will send shivers through western governments already concerned about a shortage of global gas supplies.
Gazprom, Russia's state-owned energy giant, has offered to invest billions of dollars in developing the gas sector in Nigeria, where western majors have traditionally put most of their efforts into extracting oil.
Nigeria, Africa's biggest oil exporter, is believed to have some of the largest untapped gas reserves in the world.
Gazprom's move, revealed in Saturday's FT, comes at a time when North American and European governments are increasingly turning to gas imports to meet rising demand as domestic production falls.
Western nations are also particularly keen on securing supplies of liquefied natural gas (LNG) - gas cooled to a liquid so it can be transported by tankers around the globe - to reduce their dependence on vulnerable pipelines.
Demand for LNG is set to reach 16 per cent of global gas demand by 2015, but supply conditions are tightening.
Delays in implementing LNG plants in Egypt, Australia, Indonesia, Russia and Iran could give Nigeria, with its giant gas reserves and accessibility for US and European markets, even more strategic importance.
Gazprom has yet to submit detailed proposals to the Nigerian government for developing its gas industry, but the company says it is willing to help capture gas currently burned as waste during oil production in the Niger Delta.
Nigerian energy officials say Gazprom executives have tabled no specific proposals to build a new LNG plant in Nigeria, which currently has a single LNG export facility.
But Nigerian officials believe that ultimately the Russians will aim to export gas through their own LNG plant, or perhaps via Nigeria's planned TransSahara pipeline.
" Gazprom is talking about co-operating across the whole spectrum of Nigeria's gas industry," said a senior Nigerian energy industry official. "But their ultimate aim is to export gas to the market in Europe and America, and that would presumably be through LNG."
Analysts say Gazprom has also signed an accord to help develop an LNG plant in Nigeria's neighbour, Equatorial Guinea, which might also provide a potential route for exporting Nigeria's gas reserves to the west.
Concerns over cost, security, political risk and the environment as well as problems sourcing raw gas supply have hindered oil multi-nationals in meeting growing LNG demand.
"Because you have a multiplicity of factors it's not that there is a silver bullet out there that could solve these problems," said Frank Harris, an LNG expert at Wood Mackenzie, energy consultants.
Consuming countries had some cause to celebrate late last year, when a group of major companies including Chevron, Total, BP and Eni decided to build an LNG plant in Angola.
But out of 11 LNG projects thought by industry analysts to be ready for an investment decision last year, only two, in Angola and Australia, have come through. Together they should add 10m tonnes per year of production capacity - 80m less than if all 11 projects had been sanctioned.
Three projects in Nigeria are falling behind schedule because of security concerns. Gazprom's offer to generate power in Nigeria from gas also raises questions about how much will be left for export.
"The Russian government wants Gazprom to anchor the expanding relationship between Nigeria and the Russian Federation," a Nigerian oil official said.
"They now have to come down to the detail of what they want to do. We are waiting for them."
