Nigeria tries to revive zombie project

Nigeria’s oil industry has faced a host of challenges – endless litigation, social unrest, majors who regularly think about leaving the country, and all against the backdrop of a genuine societal demand to make oil revenues more equitable. , more accessible and more transparent.

While the recently passed petroleum bill could be used to resuscitate the NNPC, the future full-fledged national oil company, or restart the country’s unused refineries, there is every reason to believe that Nigeria could misallocate the strong momentum it currently has. Bringing back to life the seemingly forgotten Trans-Saharan pipeline, hailed as a building block of Nigeria’s “gas decade”, might as well be the ideal embodiment of such risks.

The Trans-Saharan gas pipeline is essentially made up of two separate projects, one that would link the country’s gas-rich south to the populated areas of the north and the other that would see Nigerian gas being exported to generate much-needed foreign exchange. Given the socio-economic importance of the intra-Nigerien pipeline, especially since President Buhari is from the north, construction work on the Ajaokuta-Kaduna-Kano pipeline (often abbreviated as AKK) began the year last, so the idea was really to find a potential continuation. this one. Public statements by Nigerian Petroleum Minister Timipre Sylva imply concerns about the viability of the entire pipeline, having said that if the federal government “can get it to Kano, it can (just as well)) continue to Algeria ”, insinuating that the government considers that even the section of the intra-Nigerien pipeline is full of risks.

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The reasons why Nigeria pushes for such projects are quite simple, the most populous country in Africa is well endowed with oil and gas reserves, but the intra-national allocation of these hydrocarbons is often precarious because the half of the population lack a stable power supply. Basically, Nigeria would be much better off if it could extract and market its gas reserves which until now were mostly either burnt or simply left under-exploited.

Needless to say, the loss of revenue from burning natural gas is enormous, estimated by PwC to total an average of $ 0.8 billion to $ 1 billion per year. The Nigerian government estimates its own gas reserves at 203 TCf (5.85 TCm), which means that around 3% of the world’s gas reserves are located in Nigeria and most of them have so far been flared. At the same time, Nigeria’s national consumption stands at around 700 BCf per year (just under 20 BCm), or 40% of the country’s total production.

There are many reasons why the Trans-Saharan pipeline is sub-commercial, but it is always worth repeating the main arguments. First of all, there is almost no way for Nigeria to guarantee the security of the pipeline throughout the territory of Niger and southern Algeria, a region as impossible to control as it can be. get. Nigeria cannot even properly control its own territory, with the Boko Haram insurgency remaining a pervasive threat after more than 12 years. Second, the pipeline was started when gas prices were still predominantly indexed to oil prices and has not been adapted to the realities of gas trading today. Third, even in the 2000s, the price of the pipeline was assumed to be north of $ 20 billion; with the NNPC as in demand as a national oil company can be, funding for such an adventurous venture would be scarce.

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The NNPC’s tense financial stature brings us to the fourth weakness of the Trans-Saharan pipeline, namely its dependence on Chinese funding. The Nigerian authorities fully understand that they need external funding sources – which is why the Nigerian section of the pipeline was to be funded by the Bank of China and Sinosure, both of which have committed $ 2.6 billion to the project. This prompted the NNPC to start work on the AKK pipeline, touting it as a new form of debt financing model that could make it economically viable, but Chinese aid never arrived. Recent media reports seem to imply that Chinese financial institutions don’t want too much exposure with such a risky business and the NNPC has started to seek other potential project partners to keep the pace.

Even neglecting the issue of Chinese financing, the Trans-Saharan gas pipeline does not have the solid geopolitical foundations that a gas project of such a scale would require. Inevitably, security is the overriding issue here, whatever the underlying rationale one can maintain, building a pipeline through sparsely populated territory that has become one of jihadism’s hottest spots. international does not bode well for its future. At the same time, the Algerian-Nigerian relationship can hardly be described as cloudless. In the late 2000s, the Algerian authorities even went so far as to ask the NNPC to prove its gas reserves, requiring a third party assessment which, of course, was not very well received by the Algerian administration of Yar’Adua. In addition, Nigeria maintains a strange dichotomy, simultaneously launching the same project towards two potential partner countries, Morocco and Algeria. Incidentally, the two nations have a very strained relationship, made worse by a long-standing dispute over the future of Western Sahara.

Moreover, it should be emphasized that whatever the legal context in Nigeria, the effective implementation of regulations is a whole different matter in the absence of an impartial enforcement body. Technically speaking, gas flaring has been banned for almost three decades in Nigeria, but it is still a fairly regular occurrence. Sadly, Nigeria’s problem is not a lack of ideas – ones it has many, often too many. Its main problem is the incongruity between everything written in official documents, policy documents and government manifestos and the horribly corrupt reality of day-to-day operations. And it is precisely this incongruity that would inevitably send monstrous projects like the Trans-Saharan pipeline down the drain.

By Gerald Jansen for Oil Octobers

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