By John Helmer in Moscow
Nigerians try to wind up international gas companies against Gazprom “threat”
Gazprom, the world’s largest gas producer and Russia’s dominant enterprise, is not ready for mega-deals with Nigeria, executives told Mineweb this week in Moscow. They also warned the Nigerian Gas Company and government officials against manipulating Gazprom as a billion-dollar bogeyman in schemes to press other international gas producers into bidding higher for their Nigerian targets.
The Russian officials are reacting to a report in Tuesday’s Daily Trust of Abuja, the Nigerian capital, claiming that a Gazprom “technical team will be around for two weeks, while the managing director of Gazprom is expected to arrive Nigeria tomorrow and may hold talks with President Umaru Musa Yar’adua. After the on-going talks with the Nigeria oil authorities, a Memorandum of Understanding, (MOU) will be signed.”
The managing director did not appear. There was no meeting with President Yar’adua. No MoU was signed. Not yet.
A Gazprom spokesman told Mineweb “we are not officially commenting” on the Abuja report. A background briefer from Gazprom said the company had despatched “a couple of representatives” to attend an oil and gas fair in Nigeria this week. The Gazprom source said this is nothing special, and no deal should be expected. The source added: “the next fair will be in China, and we will have our stand there. So what?”
No-one in Moscow is naive about what is at stake for the global gas producers in Nigeria. US estimates suggest that Nigeria holds an estimated 5 trillion cubic metres (tcm) of proven natural gas reserves; that makes Nigeria the seventh largest natural gas reserve holder in the world, and the largest in Africa. The majority of these reserves are located in the Niger Delta.
But far ahead of Nigeria, Russia and state owned Gazprom dominate the global gas reserve, production, and export picture. According to the BP Statistical Energy Review for 2005, Russia holds roughly double the volume of gas reserves of second and third global producers, Iran and Qatar. It also produces more gas than anyone else, far ahead of all other producers, except for the US. In terms of supplying Europe, Russia accounts for 121.9 billion cubic metres per annum, trailed by Algeria with 55.8 bcm, Nigeria with 11.8 bcm, and Qatar with 4.56 bcm.
This is the bone that is sticking in the throats of the anti-Russian gas axis. After spending the Yeltsin decade fruitlessly recruiting local political and oligarch support to allow the European and American internationals to buy control of Russian gas and oil assets, the big gas powers, both producers and consumers, are now doing everything they can to prevent Gazprom building a gas producers’ alliance; putting obstacles in the way of Gazprom’s major new pipeline plans to deliver gas under the Baltic Sea to central Europe (Nord Stream); and around the Caspian and under the Black Sea to southern Europe (South Stream).
Algeria has come under pressure to do nothing to implement the co-operation agreement signed between Gazprom and Algerian state producer Sonatrach in 2006. The US pressures on Iran, where Gazprom announced new agreements this week, are well-known.
Early this week, ExxonMobil — the most aggressive of the US raiders of Russian resource assets a decade ago — declared virtual war against Gazprom, with an attempt to defy its monopoly of gas exports from the new oil and gasfields around Sakhalin Island, in the Pacific. ExxonMobil is the operator of the Sakhalin-1 field, and it is trying to arrange direct export of gas to China. Gazprom says no.
What is happening in Abuja is connected. ExxonMobil and Chevron have both proposed major new projects to produce and export liquefied natural gas (LNG) from Bonny Island and Olokola in Nigeria. ConocoPhillips is a stakeholder in the latter. Recent indications from Washington indicate, that since April of 2007, when Yar’adua succeeded President Olusegun Obasanjo, the US government has been pressed by oil, aluminium and other US corporations to help them gain ground in Nigeria that was lost during the Obasanjo years.
The new US gas projects follow the expansion of the initial Bonny Island LNG production trains, which commenced shipments in September 2006. Production at the Bonny Island LNG plant is now running at about 18 million tonnes per annum, and is headed upward to 22 million tonnes. Anglo-Dutch Shell, Total of France, and the Italians are the stakeholders; Shell is the operating partner.
Roughly two-thirds of the current Nigerian LNG shipped for export goes to Europe; one-third to the US. The idea that Gazprom might threaten this flow, or raise the selling price, has produced scare stories in the Anglo-American media, especially following the first official Gazprom visit to Nigeria last December.
The London market was then told, according to one newspaper report, that “Russia’s state-owned energy group, is seeking to win access to vast energy reserves in Nigeria in a move that will heighten concerns among western governments over its increasingly powerful grip on gas supplies to Europe…’What Gazprom is proposing is mind-boggling,’ the [unnamed] Nigerian oil official told the Financial Times. ‘They’re talking tough and saying the west has taken advantage of us in the last 50 years and they’re offering us a better deal … They are ready to beat the Chinese, the Indians and the Americans.”
A delegation of Gazprom experts and managers had been in Abuja to discuss the future of gas production in the country, and local plans for the privatization of the Nigerian Gas Company (NGC). NGC releases have confirmed the government’s intention to sell off up to 51% of NGC to a domestic or foreign “core investor”, subject to World Bank supervision.
As a potential partner for Nigeria, Gazprom cannot match the internationals in supplying LNG know-how; it must buy this for its own Russian projects from the same western sources, or from Sonatrach. But Gazprom has substantial cash, and its market share gives it and those aligned with it, pricing clout.
In theory, Nigerians should be interested in a long-term pricing relationship with the Russians. In practice, cash for new production, and for the privatization of the National Gas Co. is what the Nigerians want more, and now. A source close to Gazprom told Mineweb: “I think they [Gazprom] are walking around the Nigerian Gas Company. The problem is that Gazprom is not the only one who wants it. So Gazprom now is very silent about what is happening there in Nigeria for well-known reasons. They want the preliminary negotiations to run smoothly.”
The well-known reasons include, not only the anti-Russian gas axis, but two recent episodes of kidnapping of Russians and ransom, in which Nigerian officials are implicated.
Relations between the Russian and Nigerian governments reached their nadir in 2005, when officials in Lagos demanded a ransom for releasing 13 Russian seamen, crew of the tanker African Pride. The vessel had been detained in an operation by Nigerian security forces against other Nigerians involved in a crude oil smuggling scam. The vessel owner and captain, plus the vessel and its cargo, were allowed to escape; the crew were held in a Lagos prison for more than two years on trumped-up charges, as a combination of ransom and bribes were demanded.
A commando operation was one of the options considered in Moscow to rescue the Russians from prison after the Nigerian ambassador, a former general, his intelligence deputy, and others in office in Lagos and Abuja were judged unreliable. The Russian mariners were finally released in December 2005, after a local court sentenced them to time served. In parallel, a sum of money was paid by a Russian state oil company to the Nigerian government, purportedly for rights to an offshore oil exploration concession.
In June of 2007, Nigerian rebels took another group of Russians hostage, this time from the Russian Aluminium (Rusal) operation of Nigeria’s Alscon smelter at the southeastern town of Ikot Abasi. The hostages were released unharmed; no details have been published of the consideration that was negotiated.
Russian sources say they believe Nigerian officials are intentionally trying to stir international companies, especially the British and Americans, into upping their bids for local gas production assets. Gazprom interest is the bogeyman in this effort, Gazprom intimates.
Gazprom and the Russian government have sought to persuade the PresidentYar’Adua to align his gas strategy with the Doha-based Gas Exporting Countries Forum (GECF), in which the Russians are increasingly influential, and in which Nigeria is a member.
This general strategic interest, and the desire for practical co-operation, are acknowledged by Gazprom sources, but they dismiss local and London reporting as highly exaggerated.
A Moscow expert on Africa told Mineweb: “Gazprom currently values its capabilities to participate [in Nigeria], but it is also seriously judging the risks there, such as political and others, which are very high.”
He added: “the Gazprom delegation in December had meetings with government, the Russian embassy, private companies. What we know is that everything is very preliminary there; no numbers were discussed; just intentions. The press is also mentioning other companies, British mainly, which can participate in the project. This tells us that the Nigerian side is trying to wind up several companies to get a better deal.”
And where was Alexey Miller, the Gazprom chief executive, when the Nigerians were claiming he was in Abuja this week? Miller was first in Iran, where he signed an agreement to extend Gazprom’s work on developing additional blocks of the South Pars gas field, and to involve Gazprom Neft in a new oil production project in Iran. Gazprom has been engaged in production at the South Pars field since 1997, along with TotalElf and Petronas of Malaysia. Iran has proven gas reserves of 28 bcm.
Leaving Tehran, Miller went to Kyrgyzstan, where he agreed to expand Gazprom’s involvement as “a strategic investor in the Kyrgyz oil and gas sector and to bring forward a long-term investment program to be targeted at providing the Republic with gas from its own resources”. Current Kyrgyz gas reserves are about 6 bcm.