Gazprom Looks to Capture Nigerian Gas

Just this evening the FT has broken a story of considerable importance: According to an unnamed, high ranking official in Nigeria’s energy sector, Gazprom has made an aggressive offer to make major investments in the African nation’s energy infrastructure in exchange for shares in key gas fields – a move which already has critics crying foul. Described by Matthew Green as “one of the boldest forays in the global fight for African energy assets,” this move by the Russians shows in no uncertain terms the Kremlin’s determination to preemptively co-opt alternative natural gas sources – a familiar pattern we have seen in practice everywhere from Turkmenistan to Iran to Algeria to Bolivia. At least now people are beginning to pay attention to the real motives behind these actions. What is particularly interesting is how this unnamed official gives us an inside view into Gazprom’s negotiating tactics: “What Gazprom is proposing is mind-boggling,” he told the FT. “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. … Gazprom is saying, ‘We’re better than Shell or any other company that has exploited you for the past 50 years’” Hearing Gazprom give lectures on the evil exploitation of big oil in Nigeria must have seemed richly ironic to the petroleum ministers, who won’t be buying into this paternalistic “exploitation narrative”, at least privately. Anyone who has worked in Nigeria knows that the various groups and clans in control of the petroleum sector are far more sophisticated and savvy energy experts than one may expect, and most certainly know how to cut a favorable deal. However there is also good reason to think that Russia could succeed with these plans in Nigeria, especially given the attractive political incentives Mr. Putin can attach to any Gazprom offer – making competition with any normal non-state owned company laughable. President Umaru Yar’Adua (pictured) has previously made bold declarations about his plans to develop the natural gas sector in Nigeria (most of which is currently wasted by flaring – which oddly Russia recently surpassed Nigeria in this regard), and having Putin come along offering billions might just be irresistible. However there are also several reasons for us not to jump the gun yet. We have seen other cases of Gazprom’s strategic “premature contractualization” – whereby the greatest impact of a proposed deal is not the acquisition itself but rather the conduct it forces upon other parties. Some may recall how terrified the Italians were when Gazprom signed an MoU with Algeria’s Sonatrach, yet after Scaroni subsequently made Eni Russia’s largest gas customer and after the Kremlin somehow convinced him to purchase stolen Yukos assets that no other company would touch with a ten-foot pole, the MoU with Algeria totally dissolved into nothing. Will these promises to take over Nigeria’s gas actually materialize, or is Gazprom looking for more leverage over the Europeans in other areas? Given that I have worked in Nigeria on and off for more than 25 years, I will be following this story closely, and will offer some more comprehensive thoughts in the near future. More details after the jump.

FT: Promising suitor in move to catch Nigeria’s eye

Gazprom’s move to capture a share of Nigeria’s vast gas reserves is one of the boldest forays in the global fight for African energy assets.Representatives from Nigeria’s government and the Russian state-owned group say they are discussing a proposal under which the company would offer a package of energy investments. In return, Gazprom would gain a production foothold in some of the biggest gas deposits in the world and a presence in an export market increasingly important to the US and Europe.The scheme, if successful, would add Russia to the ranks of Chinese, Indian and South Korean national oil companies attempting to use huge state-backed investments in Africa to gain the edge over established western companies.An official of the Nigerian National Petroleum Corporation said multinational oil companies had invested $5bn (€3.4bn, £2.5bn) in liquefied natural gas (LNG) over the past five years, yielding revenue of $9bn. Those investments are likely to increase sharply if various planned projects come online.Gazprom hopes Nigeria will add to its global stature but the Russian company will need patience and deep pockets if it wants to succeed in what is one of the toughest places on earth in the energy business.Multinational companies, in partnership with the state-owned NNPC, already control most of the country’s existing gas fields, meaning Gazprom might have to start the painstaking business of exploration to generate new prospects.“Nigeria is a good place for Gazprom to go simply because there are substantial gas reserves there,” says Stewart Williams, a senior analyst at Wood Mackenzie, the energy consultants. “But they are going to have to go out and develop their own fields. It’s a long-term commitment.”From the Nigerian government’s point of view, it is easy to see why Gazprom would be a promising suitor.Nigerian officials talk enthusiastically about the idea of working with the Russians, who they say share their perception that western companies have profited from Nigeria’s oil for decades without giving enough in return.“The Russians are coming to Nigeria in a very big way,” says a senior Nigerian oil industry official. “Gazprom is saying, ‘We’re better than Shell or any other company that has exploited you for the past 50 years’.”Gazprom has sought to ­tailor its proposals to the policy objectives of Umaru Yar’Adua, Nigeria’s president, who has made overhauling the oil and gas ­sector a priority since he won power in April.Gazprom has promised to bring its considerable experience to help with one of Mr Yar’Adua’s biggest priorities – ending the chronic electricity shortages that are sapping growth in the country of 140m people, where poverty is rife.Gazprom has offered to build a project to capture the huge quantities of gas burned off during oil production in a process known as flaring. Russia and Nigeria – the two biggest gas flarers in the world – are both trying to end the wasteful practice.Environmental groups estimate that Nigeria burns off almost half of its roughly 5bn cubic feet of daily production because of a lack of gas-gathering networks. Mr Yar’Adua’s government has made increasingly strident threats of fines and shut-downs against oil companies to try to make them speed up progress to end flaring this year, a deadline that the companies are unlikely to meet.However, analysts say the cost and practical difficulties of building such a project would be huge, partly because of persistent violence in the Niger Delta region, source of most of Nigeria’s oil and gas. Mr Yar’Adua’s government launched a peace initiative to try to end the unrest but an initial ceasefire has been broken by a series of attacks in recent months.Violence has also contributed to delays in plans by multinationals to invest billions of dollars in building two more LNG plants to add to Nigeria’s single existing plant, which handles the country’s exports.Analysts also question how profitable it would be for Gazprom to invest in helping Nigeria harness its gas for power production, given that domestic demand would reduce the amount available for export.Given the sheer quantity of gas at stake in Nigeria, Gazprom might decide that the long-term rewards are worth the risks in a country that is increasingly keen to find new partners to replace those from the west.

FT: Gazprom plans Africa gas grab

Gazprom, 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.A senior Nigerian oil industry official, who declined to be named, said the company was offering to invest in energy infrastructure in return for the chance to develop some of the biggest gas deposits in the world.The Russian move is part of a courtship that saw Vladimir Putin writing to Nigeria’s leader, Umaru Yar’Adua, last year to seek energy co-operation.Gazprom’s efforts are likely to cause concern among European governments anxious about their dependence on Russia for a quarter of gas imports. The country’s readiness to cut off supplies has alarmed EU governments.“What Gazprom is proposing is mind-boggling,” the 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.”Gazprom representative Ilya Kochevrin confirmed the talks with Nigerian officials. “We made a decision to go global in terms of acquiring assets and developing strategy outside Russia. Africa is one of our priorities,” he said.Any move by Gazprom to establish itself in Nigeria, long dominated by companies such as Royal Dutch Shell, Chevron and ExxonMobil, would reinforce a global trend of state-backed energy companies challenging western rivals.Although Nigeria is an important provider of liquefied natural gas to the US and Europe, western energy companies have historically focused on producing and selling oil from Nigeria, which is Africa’s biggest producer of crude. However, demand has prompted plans for more facilities to cool natural gas into the liquid state, which makes it possible to ship to Europe and elsewhere.The Nigerian official said Gazprom executives had visited Abuja in mid-December with a range of proposals to revamp the underperforming gas sector.A Gazprom document, seen by the FT, says it can offer “strong technical expertise and financial resources”.The Nigerian official said Gazprom was also competing with international banks to take over funding the government’s share of ventures with western oil companies, hoping to win gas exploration blocks and approvals to build LNG plants in return.