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March 15, 2008
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Home / News / Today's Headlines / Western Oil Executives Not Afraid of Gazprom in Nigeria


Western Oil Executives Not Afraid of Gazprom in Nigeria

Gazprom will find it hard to become a major player in Nigeria, making it unlikely that the Russian gas giant will rival Western oil companies' dominance there or be able to divert Nigerian gas from European markets.

But if Gazprom redirected cash to foreign investment, gas supplies to Europe could be at risk, analysts warned.

Gazprom, which is state-controlled, said this week that it wanted a presence in Nigeria, and a Nigerian government official said the company had offered an initial investment of up to $2.5 billion.

Nigeria is one of a diminishing number of major countries where Western oil companies can access large reserves.

Royal Dutch Shell is Nigeria's largest oil operator, while the larger rival, Exxon Mobil, is the second largest.

Some analysts warn that the arrival of Gazprom in Nigeria could mean Western oil companies would face stiffer competition for the country's gas reserves.

While some Nigerian officials have spoken enthusiastically about the Russian company, Western oil executives say they are not worried, partly because they say Nigerian contract terms are tight. Also, licenses to most of Nigeria's proven gas reserves have already been awarded.

Nigeria flares a lot of gas, which is produced when oil is extracted, and most of the flared gas that can be economically captured is slotted to be included in projects already under development.

Stewart Williams, a Nigeria expert at the consultant Wood Mackenzie, said that if Gazprom wanted gas reserves, it would have to buy them from other foreign firms or bid for less prospective exploration blocks still available, and then start drilling. Either route would take much time and money. "You don't get much for $2.5 billion these days," Williams said.

The only other possibility would be for Gazprom to persuade the government to cede some of its equity in gas projects - the state generally retains a controlling stake in big gas fields - but Williams sees this as politically unattractive for Nigeria.

"We question whether Gazprom will succeed in delivering anything material out of these discussions in the near term," James Neale, oil analyst at Citigroup, said in a research note.

Nigeria is one of the fastest growing producers of liquefied natural gas, which is gas cooled to a liquid for transportation in a tanker over distances that are too far to economically build pipelines.

The European Union hopes the expansion of global liquefied natural gas supplies will help reduce its reliance on Gazprom, which supplies Europe with one-fourth of its gas needs.

Andrew Neff at Global Insight said Gazprom could be seeking Nigerian liquefied natural gas assets to keep supplies away from Europe, where the Russian company is the dominant supplier, and to keep prices for its gas high.

Most analysts think Gazprom will be unable to secure control of enough Nigerian liquefied natural gas to achieve this, if that was the company's goal.

Otto Waterlander, head of the gas practice at the consultants Booz Allen Hamilton, says Gazprom's program in Nigeria, and similar advances in Angola and elsewhere, could jeopardize European gas supplies.

"If the money they plan to spend is incremental, it is good, but if it is money being diverted from investment in Russia, it poses many more questions," he said.

Source: International Herald Tribune 



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