How will the coup in Niger affect Nigeria’s gas export ambitions? [Gas in Transition]
Nigeria already supplies natural gas to Europe in the form of LNG, and it is one of the continent’s main outside sources of supply. Its national oil company, Nigerian National Petroleum Co. Ltd (NNPCL), is the largest single shareholder in the Nigerian LNG (NLNG) consortium, which has been operating since 1999. Last year, NLNG delivered around 13.2mn tonnes of LNG – 60% of its liquefaction plant’s total output, equivalent to 19.6bn m3 of gas – to Europe. These volumes, in turn, made up 14% of total European gas imports.
That last figure has the potential to rise substantially over the next few years. Since the outbreak of war in Ukraine in February 2022, the EU and its executive arm, the European Commission (EC), have been showing strong interest in buying more Nigerian LNG to replace the volumes imported from Russia. Indeed, in July 2022, Matthew Baldwin, the deputy director-general of the EC’s energy department, said that Brussels would like to see Nigeria deliver up to twice as much LNG to Europe.
It remains to be seen whether this ambition can be realised. NLNG’s production is set to rise from 22mn tonnes/year to 30mn t/yr upon the completion of the Train 7 project, which calls for building a seventh production train and debottlenecking existing trains. However, the $6.5bn Train 7 scheme is running behind schedule.
In the meantime, NNPCL is not putting all of its eggs in NLNG’s basket. It is looking into several other LNG projects, including but not limited to UTM Offshore’s plan for using a floating LNG (FLNG) unit to liquefy associated gas from Yoho, an offshore oil field.
However, the state-owned company has also been pursuing two major gas transport projects. On the one hand, it is keen to build the Nigeria-Morocco Gas Pipeline (NMGP), a proposed extension of the existing West African Gas Pipeline (WAGP) network that would serve more than a dozen countries as well as the European market. On the other hand, it wants to construct the Trans-Sahara Gas Pipeline (TSGP), which would originate in northern Nigeria and then cross Niger on the way to the Hassi R’Mel gas field in Algeria, where it could be transferred to one of several pipeline systems that pump gas to Europe.
There are plenty of reasons to question the feasibility of both projects. NMGP would be difficult to build, as it would follow a 7,000-km-long underwater route along the coast of West Africa before terminating in Morocco. Because of the complications inherent in this endeavour, the project is expected to cost no less than $25bn. Moreover, the costs would not end there, NMGP’s operators would be obligated to deliver a portion of the pipe’s 30 bcm per year in throughput to impoverished African countries that have little to no domestic gas infrastructure.
By comparison, TGSP almost looks like a bargain, as it is expected to cost a mere $13bn. It would also be easier and quicker to build, as it would follow an entirely overland route stretching across 4,100 km. Nevertheless, these advantages are relative. TGSP is large and long enough in scale to pose serious logistical challenges to any investor. It might also be difficult for the transit states to pay for, despite the boast made by Nigeria’s former Minister of State for Petroleum Resources Timipre Sylva in June 2022. (Speaking after the signing of the tripartite Declaration of Niamey, which outlines plans for cooperation on the project, Sylva declared that Nigeria, Niger and Algeria would “get finance from Europe” and claimed that talks on financing were already underway.)
The impact of the coup in Niger
But these are not the only challenges facing TSGP. The project is also facing trouble because of recent events in Niger – namely, the overthrow of that country’s government in late July.
The coup poses serious problems for backers of the gas pipeline scheme. For one thing, the Nigerien government that signed the tripartite declaration on the project last year is no longer in power, and the military junta that now controls Niamey is keen on implementing a new policy agenda. It has made clear that it is not nearly as interested as the ousted President Mohamed Bazoum was in trade with Europe or close relations with France. It has not stated that it wants to cancel the TSGP project, but it has taken steps to halt uranium deliveries to France, the EU member state that depends mostly heavily on nuclear energy.
Under these circumstances, work on TGSP is not likely to begin any time soon. Instead, Nigeria will probably be concentrating on other issues in its dealings with Niger. It may have to take security factors into consideration, given that a regional organisation, the Economic Community of West African States (ECOWAS), is mulling a plan for military intervention to reverse the July coup. If this plan gains traction, Nigeria will play a major role in the campaign against the junta. This is partly because ECOWAS is planning to set up an intervention force comprised mostly of Nigerian and Senegalese troops and partly because most of Niger’s population lives in the southern part of the country, close enough to the border with Nigeria to mean that ECOWAS troops are likely to pass through the northern part of the latter country.
As such, an ECOWAS intervention would probably have a significant impact on the economy and infrastructure of northern Nigeria – not least because it might lead many Nigeriens to flee their conflict-ridden country and head south, to regions where they have established ethnic and trade ties. In turn, these disruptions would almost certainly have a negative effect on TGSP. They could complicate efforts to secure financing for the $13bn project, as investors may seek out other opportunities with less risk. Additionally, they would certainly take attention away from the pipeline, leading Nigeria’s government to focus on more immediate issues, such as how to support the country’s northern regions in the face of security threats and a migration wave.
Under these circumstances, the recent overthrow of the government in Niger is likely to force an overhaul of the schedule for starting work on TGSP. To be fair, the parties to the Declaration of Niamey have not exactly finalised a work schedule yet. However, they are not likely to fast-track the project if ECOWAS troops are on the move.
Meanwhile, there is at least one more problem facing the backers of TSGP, and it has to do with challenges in Nigeria’s domestic gas market.
The plans that Algeria, Niger and Nigeria have drawn up for the pipeline assume that TGSP will begin as an extension of an existing Nigerian pipeline – namely, the Ajaokuta-Kaduna-Kano (AKK) link, which was built to facilitate deliveries of gas from fields in southern Nigeria. But the AKK pipe is not yet finished; indeed, this project is running behind schedule. (It certainly did not come on stream in the first quarter of 2023 as anticipated.)
The delays stem partly from run-of-the-mill factors, including logistical and bureaucratic challenges of the type that often afflict infrastructure projects in lower-income emerging markets. However, they are also in large part the result of difficulties in securing financing for the $2.8bn pipeline.
NNPCL had previously arranged to borrow enough money to cover 85% of the project’s costs from three Chinese sources – namely, the Infrastructure and Commercial Bank of China (ICBC), the Infrastructure Bank of China (IBC) and the China Export Credit Agency (SINOSURE). However, Nigerian media reported in April of this year that the Chinese organisations had backed out because their local contractors, Oando and Oilserv, had inflated their costs by nearly 600%.
NNPCL has responded to the withdrawal of Chinese funding by declaring its readiness to fund the project on its own. This is likely to be a major undertaking, as only one of the AKK pipeline’s three sections has been fully completed. However, the state-owned company has downplayed the prospect of further difficulties. In April, it responded to reports of the Chinese organisations’ withdrawal by stating that the pipeline was actually 70% finished overall.
Mele Kyari, NNPCL’s group CEO, went further, saying that his company expected to prove its critics wrong. “What I will say is that we will shame them. This project will be delivered; we are not scared of their comments. We will deliver this project and the criticism is just typical of our country’s typical reaction when things are going well,” he said during a trip to Ahoko, a town in Kogi State, to monitor work on the pipeline.
Notably, though, Kyari did not say exactly when the AKK link might actually be completed or talk about how NNPCL intended to resolve questions about the cost of the pipeline. As such, it seems reasonable to assume that the project might encounter further delays and difficulties even if the coup in Niger had not happened. And given that the coup has actually occurred, AKK is almost certain to face more obstacles as a result of changing security conditions and trade flows in northern Nigeria. Moreover, disruptions will be even more severe if ECOWAS does intervene in Niger, as Nigeria will be less likely to fund and focus on the pipeline it is participating in a military expedition.
Under the circumstances, then, TGSP does not look like a very viable option for boosting Nigerian gas exports to Europe. Abuja will therefore have to consider other options – and it may very well opt to focus on LNG (and especially) FLNG projects rather than try to drum up enthusiasm for the very expensive and very complicated NMGP project.