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Gazprom’s $2.5bn gas deal with Nigeria raises European concerns

Financial Times

By Matthew Green in Lagos
Published: June 26 2009 03:00 | Last updated: June 26 2009 03:00

Gazprom, the Russian gas group, has signed a deal to invest at least $2.5bn in a joint venture with Nigeria’s state-owned oil company to explore and develop the country’s vast gas reserves.

Dmitry Medvedev, Russia’s president, said during a visit to Abuja, Nigeria’s capital, he hoped the nations would become “major energy partners”.

“If we carry out all our plans, Russian investment in Nigeria can reach -billions of dollars,” Mr Medvedev said late on Wednesday.

The formation of Nigaz, the 50-50 joint venture between Gazprom and the Nigerian National Petroleum Corporation, follows a prolonged courtship by Russia that began under Vladimir Putin, the current prime minister, when he was president.

Gazprom’s action to secure a foothold in Nigeria, where western groups have led the development of the oil industry for half a century, has given rise to concerns in Europe that Moscow is seeking to gain control of Nigerian reserves to tighten its grip on the European Union’s gas supplies.

European governments see Nigeria’s gas reserves – the seventh-largest in the world – as a potential route to diluting their reliance on Russia, which supplies up to half the gas consumed by the EU.

Nigeria has struggled to develop its gas industry to anything like its full potential, in part because of its failure to come up with a viable regulatory framework and pricing mechanism needed to spur commercial investment.

The government of Um-aru Yar’Adua, Nigeria’s president, has come up with a “gas masterplan”, which intends to prioritise gas for domestic use, supply industries and tackle the country’s chronic power crisis.

Implementation of the plan has been slow and some experts question whether the regulatory approach it envisages is viable.

Gazprom has nevertheless signalled its intention to help Nigeria to develop domestic gas infrastructure. The Nigaz joint venture aims to explore for gas and build refineries, pipelines and gas-fired power stations throughout Nigeria.

It also includes a section of pipeline that could form part of a proposed trans-Sahara pipeline to export gas directly to Europe.

“We will take part in building the first segment of gas pipeline from southwestern Nigeria northwards,” said Boris Ivanov, head of Gazprom International. “If [the] trans-Sahara pipeline is realised, it will be its first segment.”

Capital costs are estimated at $10bn (€7.2bn, £6.1bn) for the trans-Sahara pipeline and $3bn for gas gathering centres. The proposed 4,128km pipeline, to run via Niger and Algeria, would send up to 30bn cubic metres of gas a year to Europe.

The EU has pledged political and economic backing for the trans-Sahara pipeline. But a consortium has yet to emerge to fund and build the project.

Total, the French energy group, this year said it would be willing to participate in the project .

Nigeria has existing joint ventures with Royal Dutch Shell, Chevron, ExxonMobil among other companies.

Copyright The Financial Times Limited 2009

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