Russia’s Gazprom and Nigeria’s state-run oil company NNPC on Wednesday agreed to invest at least $2.5 billion in a new joint venture to explore and develop Africa’s biggest oil and gas sector.
The new company Nigaz, a 50/50 joint venture between the two energy companies, aims to build refineries, pipelines and gas power stations throughout Nigeria.
“We have a chance to become major energy partners,” Russian President Dmitry Medvedev told reporters after meeting with Nigerian President Umaru Yar’Adua in the capital Abuja.
“If we carry out all our plans, Russian investment in Nigeria can reach billions of dollars.”
Nigeria has the world’s seventh-largest proven gas reserves. The Gazprom deal could strengthen Russia’s position as a supplier of natural gas to North America and Europe.
Some industry experts in Europe see Russia’s keen interest in the West African country as an attempt to get a stranglehold on Europe’s natural gas supplies.
Despite Nigeria’s vast gas reserves it has been unable to develop its gas industry anywhere near full potential because of a lack of funds and regulation.
DOMESTIC FIRST
Nigeria says foreign oil companies, like Gazprom, must first help build the OPEC member’s gas infrastructure before it can begin to make plans to export the natural resource.
“We will take part in building the first segment of gas pipeline from southwestern Nigeria northwards,” said Boris Ivanov, head of Gazprom International AO. “If Trans Saharan pipeline is realised, it will be its first segment.”
The Trans Saharan project, with capital costs estimated at $10 billion for the pipeline and $3 billion for gathering centres, would send up to 30 billion cubic metres a year of gas to Europe via a 4,128 km (2,580 mile) pipeline from Nigeria via Niger and Algeria.
The European Union, which relies on Russia for about 40 percent of its gas and a third of its oil, has viewed the project as a way of diversifying its energy supplies.
Ivanov said Nigaz also planned to bid for two of three biggest Nigerian gas exploration projects, which could amount to more than 2.3 trillion cubic metres.
FUNDING CONCERNS
Analysts raised concerns about how NNPC will be able to fund its share of the $2.5 billion joint venture, considering its poor track record with other foreign oil companies.
U.S. oil company Exxon Mobil, Royal Dutch Shell and French energy group Total have all had to provide billions of dollars in bridge financing to NNPC to plug funding gaps in their respective joint venture companies.
“We have seen in the last few years on specific field developments, the Nigerian side has had difficulty in making its own contributions,” said Manouchehr Takin, an analyst at the Centre for Global Energy Studies in London.
“The question I have is: ‘Is the NNPC financially strong enough to do a joint venture?’” he added.
President Yar’Adua sent parliament an energy reform bill last August that restructures NNPC into a profit-driven company, which supporters believe will resolve the funding problems. It was unclear whether the legislation had enough political support to pass parliament. (Additional reporting by Michael Kahn in London; Writing by Randy Fabi; Editing by David Gregorio)