Gazprom, NNPC Form Joint Venture as Part of Russian President's Landmark Nigeria Visit

Landmark Visit

Russian President Dmitry Medvedev yesterday landed in Abuja, the capital of Nigeria, on a historic trip intended to boost economic ties between the two countries. Medvedev's visit to Nigeria—the second leg of a four-nation tour—is the first by a Russian leader in the post-Soviet era and is being widely characterised as an attempt by Russia to reassert economic and political influence in Africa after Russia's ties with former client states in Africa effectively were severed after the Soviet Union's collapse. The Kremlin (the Russian presidential administration) issued a statement yesterday indicating that agenda for Medvedev's talks with Nigerian counterpart Umaru Yar'Adua during the visit is quite wide-ranging, noting that, "With a view to Nigeria's membership in OPEC and the Gas Exporting Countries Forum (GECF), the presidents will discuss the issue of ensuring global energy security, as well as international co-operation in overcoming the world financial and economic crisis.

Nevertheless, while trade, co-operation in space, and mutual protection of investments are in the discussion, energy sector issues were always going to be the predominant theme of any meeting between the Russian and Nigerian leaders. Russia, as one of the top oil producers in the world and the world's largest gas producer, and Nigeria, as a member of OPEC and soon to implement a gas master plan which will monetise its vast gas resources, have much to discuss in the energy sector and ample room for increasing co-operation, given that Nigeria's trade with Russia last year was estimated at a paltry US$300 million. Still, the Kremlin said that this figure puts Nigeria as Russia's second-largest trading partner in sub-Saharan Africa, after only South Africa, indicating just how few economic ties exist between Russia and Nigeria—and just how far Russia has pulled back from Africa following the Soviet collapse.

In this context, the signing of a strategic gas deal between Russia's Gazprom and Nigerian National Petroleum Corp (NNPC) has the capacity to greatly expand inter-governmental ties and considerably increase the total trade figure between the two countries. According to Boris Ivanov, head of Gazprom International, "the joint venture was created on the parity basis that is 50/50 with Nigerians". In a company statement Gazprom stated it and the Nigerian National Petroleum Corporation signed "an Agreement on setting up a joint venture (JV) on a parity basis. The JV is intended for executing large-scale projects in hydrocarbon exploration, production and transportation; construction and engineering of an associated gas gathering and processing system and building of power generation facilities in Nigeria". The joint venture (JV) agreement, which could be worth up to US$2.5 billion in investment in Nigeria's domestic gas sector, has been in the works since the Russian gas giant started making overtures to Nigeria and NNPC back in January 2008 (see "Related Articles" below). Still, the speed at which the deal went from idea to reality, together with the size and scope of the JV—and the potential Gazprom participation in the Trans-Sahara Gas Pipeline—are impressive, signalling the determination by Gazprom (and, by extension, the Russian government) to expand its sphere of influence into sub-Saharan Africa and compete with major Chinese and Western oil companies in Nigeria.

New Player in Nigeria's Energy Sector

The JV deal between Gazprom and NNPC means an end to the dominant position Western majors have enjoyed since oil exploration began in Nigeria. It comes as little surprise that the deal would happen as last September, Gazprom signed a memorandum of understanding (MoU) with NNPC to co-operate on oil and gas projects in Nigeria. This new partnership was further strengthened when Gazprom was announced in April as a participant in the 15-member short list which qualified for Nigeria's Gas Master Plan Infrastructure Development project.

Nigeria has gas reserves of about 187tcf and while it has a successful six-train LNG export facility at Bonny Island. It has largely failed to develop its vast gas resources, largely due to having no infrastructure in place to use the gas, which has meant Nigeria has flared a huge amount of associated gas. The soon to be implemented gas master plan will see massive investment in the required infrastructure needed to help end flaring including gas-gathering, processing, and liquefied petroleum gas (LPG) handling facilities, and gas transmission lines. Crucial to the infrastructure blueprint are the three planned gas-gathering and processing facilities (CPFs), which will serve as regional gas hubs.

It is believed that Nigeria flares around 68.66 bcf/m, a little less than 2.5 mmcf/d of gas and while difficult to quantify, this suggests that the country is burning away a potential US$15 million/d. There have been numerous deadlines set for gas flare-out in Nigeria over the past decade, none of which have been achieved. Each deadline gets replaced by a new deadline and even the introduction of fines for oil companies which continue to flare has not proved enough of a deterrent. The entry of Gazprom into Nigeria's energy sector could see flaring reduced greatly reduced. Russian Ambassador to Nigeria, Alexander Polyakovin in an interview with the News Agency of Nigeria (NAN) said "Gazprom is the world's biggest gas company and it is eager to come to the country to build up a long lasting mutual beneficial partnership. The company will come to participate and enhance development of the gas industry in Nigeria, build new pipelines, develop infrastructure and end gas flaring". As part of the gas master plan, the Federal Government has set out a policy to utilise some of the flared gas for a new series of gas-fired power plants, which could generate 6,000MW and breathe new life into the country's moribund power sector.

Also during his state visit, Medvedev signed a protocol over the possibility of bilateral co-operation for the development of Nigeria's nuclear infrastructure and the joint exploration and exploitation of uranium deposits according to Russia's nuclear energy agency Rosatom. While a nuclear power plant (NPP) would be unlikely to become operational in Nigeria for another 20 years given the security, financing, and regulatory obstacles, a partnership with Russia could expedite the process to build the first NPP in Sub-Saharan Africa outside South Africa. Nigeria has sought support from the International Atomic Energy Agency (IAEA) with a view to developing nuclear capacity over the coming decades as it has huge demand for electricity and will need a diversified electricity generation mix if it is to fulfil its position as a leading power in Africa.

Outlook and Implications

Medvedev's visit to Nigeria, and the accompanying raft of agreements signed between the Russia and Nigerian governments and their respective state-run energy companies, has the potential to fundamentally reshape bilateral relations. Aside from simply visiting a country that no Russian leader has set foot in for more than 15 years, Medvedev's trip could galvanise Russian-Nigerian relations and spur increased economic trade between the two countries, especially if the promises of the Gazprom-NNPC JV are realised. Stronger energy sector co-operation with Nigeria could give Russia the greater economic and political influence in sub-Saharan Africa that the Kremlin apparently craves, but the depth of Russia's commitment to this goal will be tested with how long it takes for Medvedev to make a return trip to the region: another decades-long gap will do Russia's geopolitical interests no good.

Bringing in Gazprom acts as a reminder to the western majors traditionally working in the country that they should not take their positions for granted; although with national oil companies from China, India and South Korea already active in Nigeria, the western majors know competition for resources is much greater. Nigeria's Gas Master Plan Infrastructure Development project should revolutionise the country's gas sector and the Federal Government will implement a policy of prioritising gas for the domestic market before it sanctions further lucrative LNG export facilities. There are already established plans for the expansion of NLNG into a seventh train and the Brass and Olokola LNG export projects. Yet Gazprom's entrance into the Nigeria will surely increase the likelihood of the Trans-Sahara Gas Pipeline (TSGP) going ahead. The TSGP venture has been enthusiastically promoted by the Nigerian Federal Government and the NNPC from the start as it would bring gas feedstock through the north of the country which should boost economic growth and industrialisation in the region before the pipeline travelled through Niger and Algeria's vast southern Sahara region. The TSGP is planned to reach either the Beni Saf port in Western Algeria or the El Kala port on its eastern Mediterranean shoreline (or, less likely, both), giving Algeria the alternative to tie the pipeline into its by–then-completed pipelines to either Spain or Italy. The TSGP has often been regarded as a pipedream but with the commitment of Gazprom it now seems more likely, even though it remains a long-term project. Since Gazprom announced its interest in developing the TSGP the project has received the support of French supermajor Total, which has this past week made two significant deals with Russia.

Related Articles

Russia: 25 June 2009: Total Strikes Deal With Russia's Novatek on Joint Development of Yamal-Nenets Gas Field 

Nigeria: 26 February 2009: Total, Gazprom Announce Interest in Trans-Saharan Pipeline Stake

Nigeria: 9 February 2009: Gazprom Keen to Invest US$2.5 bil. in Infrastructure for Nigeria's Gas Sector

Nigeria: 4 September 2008: Gazprom, NNPC Agree to Co-operate in Nigeria