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Europe plays catch-up in race for gas

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Europe plays catch-up in race for gas

By Matthew Green in Abuja and William Wallis in London

Published: September 17 2008 03:00 | Last updated: September 17 2008 03:00

For half a century, western companies have honed the delicate art of lobbying Nigerian leaders for access to one of the richest oil exploration frontiers on the planet.

Now a new “great game” is playing out in Abuja, the capital, pitting Russians against Europeans in a race to secure control of Nigeria’s vast reserves of gas.

The competition is part of a wider campaign by the European Union to reduce its dependency on Russian energy, waged across an arc of territory stretching from central Asia to the Gulf of Guinea.

But there are few places where the outcome is as hard to predict as Nigeria, where President Umaru Yar’Adua’s repeated trips for treatment abroad have heightened a sense of growing political uncertainty.

The focus for today’s struggle is a proposal to build a 4,300km pipeline across the Sahara desert to connect Nigeria’s gas res-erves – the world’s seventh largest – to Europe via Algeria’s Mediterranean coast.

Fears in the EU that Moscow will use its energy muscle to back an increasingly assertive foreign policy have placed a greater premium on finding new sources of supply. Russia already pumps a quarter of Europe’s annual consumption of 300bn cubic metres.

The €15bn ($21bn, £12bn) trans-Saharan pipeline could provide 20bn to 30bn cubic metres – just enough to weaken Russia’s grip.

Andris Piebalgs, the EU energy commissioner, visited Abuja last week to offer financial support for the plan, but he looked very much as if he were playing catch-up.

A week earlier Gazprom, the Russian gas monopoly, signed a deal with the Nigerian state National Petroleum Corporation (NNPC) to work towards a joint venture to produce and transport gas. The accord crowned a year-long charm offensive backed by Vladimir Putin, Russia’s prime minister.

Mr Piebalgs dismissed concerns that Russia might gain a dominant position in Nigeria, but he admitted that Nigerian officials felt the Europeans had been slow to back the transSahara scheme. “They think they could do it without our help,” he told the Financial Times in Abuja. “They didn’t see until now too much activity from our side.”

The EU might draw comfort from divisions among Nigerian officials over whether they should embrace Gazprom at the expense of long-established European companies such as Royal Dutch Shell and Total. But Gazprom has sweetened its appeal by offering big investments in the gasgathering systems needed to fulfil Mr Yar’Adua’s ambition to harness gas reserves to tackle Nigeria’s chronic power crisis and spur faster economic expansion.

“Double-digit growth is only going to be possible with the right [gas gathering] infrastructure,” said Tanimu Yakubu, Mr Yar’- Adua’s economic adviser. “Until now the international oil companies have not been interested in that. Nigeria is opening up to other players. Gazprom is one.”

But Nigerian officials also stress they do not want anyone to gain a monopoly over their reserves. “We are producing the bulk of our gas and oil output with the support of our European and American partners,” said another senior energy adviser. “We’re not going to abandon them just because the Russians, or the Chinese or the Koreans, have promised us massive investment.”

Nigeria’s slow progress in developing its gas industry suggests a mega-project such as a trans-Saharan pipeline may face obstacles. A newly completed west African gas pipeline has failed to start operating. Oil companies still “flare” almost as much gas as waste as they export as liquefied natural gas – gas supercooled for shipping. Although the country’s existing LNG facility, which supplies 8 per cent of global LNG output, is expanding, plans for two similar plants are on hold. Mr Yar’Adua has unveiled a “gas master-plan” to address policy concerns holding back investment, but implementation is at an early stage.

Given the uncertainty, some analysts argue that it might make commercial sense to encourage Nigeria to boost its LNG capacity instead of backing an expensive pipeline that could prove vulnerable to attacks by militants in the Niger delta, Tuareg rebels in Niger and Islamic extremists in Algeria.

The fear in Europe is that the Russians may decide for strategic reasons that controlling another pipeline to the EU will make almost any price worth -paying.

Violence escalates in delta

Nigeria’s oil-producing delta has suffered serious fighting after a military assault on a militant camp, writes Matthew Green in Lagos .

The Movement for the Emancipation of the Niger Delta (Mend) said it had launched Operation Hurricane Barbarossa as the first stage in an oil war of retaliatory attacks on oil and gas installations.

Nigerian officials estimated that about 115,000 barrels a day of oil production had been lost during the past four days. Total daily production in Africa’s biggest oil exporter is about 2.1m b/d.

Security sources told Reuters that 100 people might have been killed. Mend says it is holding 27 oil workers in the delta, including two Britons, kidnapped after their oil supply vessel was hijacked.

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