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Masterplan seeks to supply domestic market first

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Masterplan seeks to supply domestic market first

By Matthew Green

Published: June 24 2008 03:00 | Last updated: June 24 2008 03:00

Some ends up at Lake Charles in Louisiana. Yet more goes to Cove Point in Maryland, or works its way down to Altamira in Mexico. The rest finishes its journey in the ports of Spain and Turkey, Korea and Japan.

With so much of Nigeria’s natural gas exported, it is perhaps no wonder that the country’s leaders are seeking ways to put more of it to work at home.

Umaru Yar’Adua, the president, wants foreign energy companies to invest at least $20bn in the building of the pipelines and processors needed to harness Nigeria’s deposits for fuelling the power stations, chemical plants and factories of the future.

That looks like a tough sell. Shipping Liquefied Natural Gas (LNG) – gas supercooled for easier transport – to Europe, the US and Asia is highly profitable for western majors; selling within Nigeria is not.

The government, however, senses an opportunity. Nigeria’s reserves – the seventh largest in the world – will play a pivotal role in meeting the fast-growing global demand for LNG. Nigerian officials say that of all the world’s exporters, only Qatar is building capacity faster.

With newer entrants from Britain’s BG Group to Russia’s Gazprom jostling for a foothold alongside established majors such as Royal Dutch Shell, ExxonMobil, Chevron and Total, Nigeria’s leaders should be in a stronger position to demand that locals also get their share.

“The master-servant relationship is sort of in flux, if you will,” says Jason Ambrose, managing director of Palantir Solutions, the oil and gas consultancy. “I think a country with the potential of Nigeria sees for itself that it really doesn’t necessarily need to cater to these oil companies, it can plot its own policy and chart its own course.”

The new gas masterplan, unveiled this year, declares in no uncertain terms that the government will be seeking to prioritise domestic use of its 182,000bn cu ft (bcf) of proven reserves over export.

With big gas producers such as Indonesia and Russia cutting foreign sales to fuel their own economic growth, Nigeria’s sentiments might sound like bad news for tight global LNG markets. The country’s sole LNG plant, owned jointly by the government, Shell, Total and Eni, already accounts for about 10 per cent of world supply and is likely to expand. If possible LNG projects at Brass and Olokola get the go-ahead, then Nigeria’s weighting in the calculus of global energy security could increase further.

Privately, however, Nigerian energy officials say the last thing they want to do is threaten exports. A long-awaited West African pipeline to supply gas to Ghana, Togo and Benin is due to open this year. The government is also seeking investors for a pipeline to carry gas across the Sahara to export terminals on Algeria’s Mediterranean coast. Nigeria has so much gas, the argument goes, there is enough to satisfy both local and foreign demand.

Gas is indeed so plentiful that western companies have had few qualms about burning it as a waste product during oil extraction. The country is estimated to flare as much as 2.5bcf of gas a day, an amount second only to Russia, and almost as much as Nigeria exports as LNG. Only 0.5bcf is supplied to the domestic power sector, where gas shortages are one of the biggest culprits behind Nigeria’s near-constant blackouts.

The government’s failure to devise a pricing policy to make investment in domestic gas infrastructure commercially viable is partly to blame. The masterplan envisages setting up just such a mechanism to ensure domestic industries – in particular power stations – can buy at affordable rates. But the price for suppliers is likely to be well below what they could earn exporting as LNG.

Western majors, obsessed for decades with Nigeria’s oil, have shown more recent signs of progress towards harnessing gas, mainly for export, but also for some power projects. The amount flared is falling, though the government has threatened tough action to ensure faster progress towards a total ban.

Perhaps reflecting frustrations with their traditional partners among the big oil companies, the government says it will seek to break their “stronghold” over gas. Nigerian officials speak in glowing terms about overtures by newcomers, in particular, Gazprom, the Russian energy giant.

Gazprom has offered to make a multi-billion dollar investment in gas gathering projects this year. The company is also mulling participation in the planned trans-Sahara pipeline. “Those people who are already there would prefer to have it all to themselves, but times have changed,” says one senior Nigerian energy official. “There is room for more players.”

With other newcomers such as Centrica of the UK and Germany’s Eon also seeking deals, the next few years could mark a significant reshaping of Nigeria’s energy landscape.

For the country’s 140m people, the big question will be how fast the government can ensure that gas ends up improving their lot, and not simply cushioning the lives of consumers half a world away.

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