West Africa natgas pipeline moves closer to reality
NEW YORK, Dec 16 (Reuters) - Almost a decade after it was conceived by the World Bank, a plan to build a $400 million project to convert Nigeria's wasted natural gas into badly needed revenues and carry much needed energy into other parts of West Africa is finally moving ahead.
According to economists' estimates, about two billion cubic feet of natural gas per day, or approximately the consumption of a major Western economy, are "flared" or burned off in Nigeria, Africa's largest oil producer and most populous nation.
At the same time, some of Nigeria's neighbours, such as Ghana, are suffering crippling power shortages as a persistent drought has drained hydroelectric power in West Africa.
The reform government of General Abdusalami Abubakar, who came to power in June following the death of dictator Sani Abacha, combined with the rising cost of pollution to oil companies caused by burning off the gas, has paved the way for the project to get under way.
Abubakar's ascension to power is seen as the biggest catalyst for reviving the West Africa gas pipeline project, oil industry and West Africa experts say. Environmental policy changes within and outside Nigeria also have given the project a high priority.
Chevron Corp. , the third-largest U.S. oil company, is taking the lead on the 620-mile-long West Africa Gas Pipeline. A pipeline feasibility study is scheduled to be complete by the end of January 1999.
Once completed, the study's corporate sponsors and the World Bank hope to get down to the more complex negotiations on the pipeline's route and the financing details for its construction. The pipeline is scheduled to be operational by 2001.
Sources close to the project have attributed much of the delay in getting the project started to the political uncertainty in Nigeria under the notoriously corrupt Abacha. Abubakar, who has impressed the international community with his country's willingness to change, has promised to hand over power to a democratically elected president next May.
Financial incentives under the 1997 Kyoto Protocol are also seen as providing a positive impetus. Kyoto's Clean Development Mechanism (CDM) gives financial credits for the reduction of greenhouse gas emissions, which are believed to cause global climate change.
"It could have done," said Mourad Belguedj, the World Bank's project director for the West Africa Gas Pipeline, when asked whether the prospect of earning CDM credits may have helped move the project along.
"Just as we have seen that tax on flaring gas in Nigeria could also have been a factor," Belguedj added.
In January 1998, Nigeria increased the penalty for flaring natural gas to 10 naira, or 8.6 U.S. cents based on recent exchange rates, per thousand cubic feet of gas - a 20-fold increase.
While Chevron does not support the Kyoto Protocol, company officials stressed that the company is committed to reducing greenhouse gas emissions as long as it is makes economic sense.
"We support CDM. We would like to see CDM credits used," said George Kirkland, chairman and managing director of Chevron's Nigeria division.
Kirkland stressed the pipeline project's environmental benefits, both in terms of reducing gas waste in Nigeria and the use of more polluting wood-burning, which results in deforestation in Ghana, Benin and Togo.
Besides Chevron, the feasibility study for the West Africa Gas Pipeline is co-sponsored by the state-owned Nigerian National Petroleum Corp.; Ghanaian National Petroleum Co.; Societe Beninoise de Gaz; Societe Togolaise de Gaz; and Anglo-Dutch oil company Royal Dutch/Shell , the world's second-largest publicly traded oil company and Nigeria's largest crude oil exporter.
In October, Chevron signed a 20-year deal to supply a power company in Ghana with 40 million cubic feet of natural gas once the pipeline is completed. Economists view that agreement as an "anchor deal," making the pipeline feasible.
"We really see the West Africa Gas Pipeline as being economic," said Chevron's Kirkland, "We really don't see, at this point in time, the World Bank involved in financing."
It is still not clear whether the gas that will be transported to Ghana, Benin and Togo will be Chevron's or Shell's, since both companies currently flare gas in Nigeria.
"Up to this point, we have been competitors. I think each of us would like our gas to go to Ghana," Kirkland said, when asked about Shell's involvement. "I think it's premature to say which way it will go."
The pipeline is expected to carry a maximum of 180 million cubic feet of gas a day. But Chevron officials are hopeful that regional demand will justify an expansion.
"Our view is that once we get the gas in place, we would hope demand increases," Kirkland said.
"It has a developmental effect much bigger and much larger in the long term," agreed Belguedj, explaining that the Nigerian natural gas project will ensure a stable source of energy for industry in neighbouring Ghana, Benin and Togo. The gas pipeline could even be extended further east to Senegal, he added.
But some observers sound a note of caution on the project and the involvement of the World Bank, which has faced criticism before from environmental and human rights groups for its projects.
Noting that the World Bank had to delay its approval for the Chad-Cameroon pipeline several times because of problems with the bank's environmental impact assessment, Korinna Horta of the Environmental Defence Fund urged the World Bank to consider the local impact of such a large construction programme.
"Because of the very bad record that the World Bank has in monitoring its own projects, it is critical that the World Bank has a monitoring system accepted by the local people and in which they can participate," Horta said.
((Atiya Hussain, New York Energy Desk +1 212 859 1848;
fax 859 1629; e-mail nyc.energy.newsroom@reuters.com)).
(C) Reuters Limited 1998.