IHS Global Insight Perspective | |
Significance | Total is the first major to express its interest in participating in the giant 30-bcm/y, US$19-billion project, which aims to pipe gas from Nigeria's restive Niger Delta region through the Sahara desert to the northern Algerian Mediterranean coast, in order to supply European markets. |
Implications | The Trans-Sahara Gas Pipeline (TSGP) venture, as it is known, is gaining traction in the aftermath of another mid-winter gas supply crisis in Europe caused by a Russian–Ukrainian spat, offering one of few possible alternatives for Europe to dilute its dependence on Russian gas. Still, the giant undertaking—as well as Nigerian, Algerian, and regional security concerns—makes its realisation highly uncertain. |
Outlook | The entrance of a European major into the fray is bound to give the venture significantly more gravitas both politically and financially, although the proposed involvement of Russia's Gazprom somewhat defies the objective from a European point of view. |
Pipe Dream?
French major Total yesterday said that it was ready to take part in the Trans-Sahara Gas Pipeline (TSGP) project, joining Gazprom as the only oil and gas companies—besides Nigeria's and Algeria's NOCs (the Nigerian National Petroleum Corporation, NNPC, and Sonatrach, respectively)—to come out in potential support of the venture. TSGP has been discussed for many years, but the huge undertaking (the price tag estimate has been as high as US$21 billon, although the latest quoted figures put it at around US$19 billion) as well as the many security challenges along the route, has made tangible progress on its development elusive (see Nigeria: 11 July 2003: Nigeria-Algeria Pipe Dream to Become Reality?).
Guy Maurice, managing director of Total E&P in Nigeria, told U.K. daily the Financial Times (FT) on the sidelines of a gas conference in Nigeria's federal capital, Abuja, that "Total is ready to be involved in this project", referring to the TSGP as a long-term strategic investment for the West African oil powerhouse. He did not, however, give any further details, giving little reason to suppose that the overall talks about the project have yet taken any significant steps forward. His optimism for the project's viability was nevertheless echoed by Gazprom's Nigerian subsidiary's managing director, Vladimir Ilyanin, who informed the FT of his company's continued interest. Ilyanin, however, saw the plans for the project coming to fruition as soon as a US$2.5-billion Gazprom project, building a domestic gas pipeline network to support power generation and industrialisation, had been completed.
Nigerian Wishes and Concerns
The TSGP venture has been enthusiastically promoted by the NNPC from the start, although Nigeria has grown increasingly impatient with IOCs for prioritising exports of its oil and gas, leaving little upstream development of production capacity that could supply the domestic market, and—more importantly—domestic development and industrialisation. Indeed, this was seen as one of the reasons for Nigeria's domestic pipeline network deal with Gazprom, bringing in the Russian player partly as a reminder to the majors traditionally working in the country that they should not take their positions for granted. On the other hand, Nigeria has failed to come up with any clear plan on gas utilisation and consumption, instead resorting to publishing more or less ad hoc inspired supply and demand plans for IOCs to fulfil (see Nigeria: 29 September 2008: Nigeria Demands Oil Companies Submit Detailed Plan to Supply Gas for Domestic Use). This has fed industry accusation that Nigeria's long-term strategic wishes and concerns are badly aligned, although there have been moves to earmark parts of the country's gas reserves for the TSGP project.
Staunch Algerian Support
Nigeria has in recent years been joined in its support for the giant pipeline project by Algeria and its NOC Sonatrach. Building on its strong role as already a core supplier of gas to Europe, transiting large amounts of Nigerian gas would allow it to strengthen its role further, adding to its piped gas, as well as LNG exports, experience. 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. Tie-ins of part of the TSGP's capacity to some of Algeria's nearby LNG plants could also be an alternative, allowing the country, and the TSGP consortium, some more flexibility for at least part of their sales.
Algeria has seen more and more of its upstream gas development focus move towards its south-central Saharan acreage, where more and more discoveries have been found. Higher development costs and tighter terms offered to investors led to its latest late-2008 licensing round becoming a major disappointment, auguring a slowdown in the area's development in some years' time, although the underlying reserves seem to be there to support development should terms again be relaxed. The development of the Saharan acreage in basins such as In Salah, Reggane, and Timimoun has, however, led Sonatrach already to plan the construction of a major pipeline connecting the area to its northern gas infrastructure, meaning that a significant part of the TSGP's route will already have been mapped, surveyed, and engineered if the project ultimately goes ahead. There will also potentially be some efficiency gains for Sonatrach should the pipelines be integrated fully along their common route.
Securing the Sahara, Securing the Delta
Perhaps the largest stumbling block outside the potential partners' control remains security. Nigeria's restive Niger Delta has seen significant projects being shut in and postponed, while IOCs have become increasingly concerned about sending employees into the region. The gas sourced for the TSGP would come from the south-western part of the Delta region, from the Brass hub, and although it might not have to traverse much of the turbulent territory, risks would still be highly significant given the large investment. In addition, the pipeline's importance could see it being targeted by Delta rebels elsewhere in Nigeria too, as it would quickly become a symbol for the region of how its natural resources are exploited and the revenues end up elsewhere. Securing the pipeline's length across the whole of Nigeria would be a massive undertaking, requiring large yearly investments in Nigeria's security forces, which would ultimately have to be taken from the transit fees.
The remaining lengthy stretch of the pipeline through Niger, Algeria's vast southern Sahara region, and some of its more restive mountain regions south of the Mediterranean coast, would also pose an immense challenge, with Niger's Tuareg rebels or al-Qaida in the Maghreb posing formidable obstacles in the vast, sparsely populated expanse. A final threat, before the gas reaches its safe export points along the coast, comes in the shape of Algeria's problems in reasserting full control over its more densely populated mountain regions in the north, where militant Islamism has been rampant.
Nonetheless, Algeria has been very successful in maintaining pipeline security on its own territory, and the Sahara desert generally poses excruciating logistical challenges for Islamist militants such as al-Qaida, who are generally used to more urban or semi-urban types of warfare. Then again, the TSGP would inevitably draw interest and attempts to disrupt it, as much in the Sahara desert as elsewhere.
The weak spot is Niger, which with its sparse population, vast terrain, and undeveloped security infrastructure, would find it hard to muster the intelligence and deployment capabilities required to deter and monitor potential threats. These concerns have yet to be addressed in a way that would solve the problems while respecting Niger's sovereignty, in order to build lasting and stable long-term solutions.
Outlook and Implications
Total's interest in participating in the TSGP is a major leap forward for the venture which, until now, has been far too easy to dismiss as unrealistic. With one of the majors—a world expert in marketing—potentially on board, the project attains much greater credibility than when Gazprom entered the fray. Indeed, Gazprom's interest was largely dismissed as being fuelled by Russian geopolitical interests, and diminished the argument that the TSGP would bring about EU supply diversification away from Russia (see Algeria - Nigeria - Russia - Europe: 24 September 2008: Europe and Russia Compete over Trans-Sahara Pipeline as Nigeria Considers its Gas Options).
Now, perhaps, discussions about the details can begin in earnest, with clearer visions and targets being formulated. That would make it easier for all parties to assess the project on its bottom-line commerciality, as well as to assess what security measures would need to be taken. On that basis a proper consortium could be founded to pursue the project, because the list of potential investors is likely to be still far too small, given the risks involved and the partners' need for spreading them as thinly as possible.