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Russian gas facility

Nigeria may be a key beneficiary of Euro-Russian diplomatic stand-off over Ukraine which may orchestrate a major global gas supply re-alignment; but penetrating the European energy market may not come on a platter of gold for the country, writes Olisemeka Obeche

Europe’s energy security-gas supplies have in recent times come under threat due to the fledging Euro-Russia diplomatic stand-off. The United States and the European Union have frozen assets of a number of high-profile individuals and companies with close links to Kremlin over Russia’s role in the internal insurrection in eastern Ukraine, including the annexation of Crimea.

And with the West threatening to apply sectoral sanctions on Russia over its continued meddlesomeness in Ukraine, Russia had threatened to fight back with gas supply, one of its weapons, against the 28-country bloc. As part of measures to withstand further sanctions from the West, Russia’s Economic Development Ministry has drafted three variants of forecasts of the country’s economic development in case sectoral sanctions are imposed on it. “We have developed three variants which differ by the degree of toughness. The first variant includes luxury articles, caviar, furs, the second one is tougher and the third one includes the entire complex – metals, fertilizers, oil, gas and so on, taking into account the factors of price and volume,” Russian Economic Development Minister, Alexey Ulyukayev said.

Besides, most Russian diplomats think harsher sanctions from the EU on the country would be a self-destruct.”It is never good when your most important trade partner threatens to impose sanctions on you. But I think that the imposition of sanctions the EU is pondering is unlikely. Russia’s energy resources and the EU’s dependence on them tips the balance in Russia’s favour,” declared Roman Andreyeshev, deputy head of the Faculty of Projects and Programmes Management on international issues at the Russian Presidential Academy of National Economy and Public Administration.

Russia is riding on the crest of its strategic energy resources whose power it could use for diplomatic advantage over Europe. According to Euro gas, Moscow supplied a quarter of the EU’s gas as well as the entirety of the gas supplies of the Baltic states and Finland in 2012 and its share of the European market have been increasing as flows have declined from other sources who prefer to send more cargoes to Asia, where gas prices are higher, instead of Europe.

And Kremlin has demonstrated that it has mastery of how to make use of its abundant energy resources as a bargaining chip for its ambitious diplomatic maneuvres in Europe by carrying out its threat of cutting off natural gas supply to Ukraine recently.

The dramatic energy shutdown by Russia’s energy firm, Gazprom became the last resort by Kremlin to deal with its estranged neighbour following the refusal of Kiev to pay the $1.95 billion debt arrears Gazprom demanded for its energy supply.“Ukraine has refused to pay those debts until Gazprom agreed to reduce its gas price to market levels. Gazprom supplies to Ukraine only the amount that has been paid for, and the amount that has been paid for is zero,” the energy giant announced.

Russia had raised its gas price for Ukraine by 80 percent last April, from $268 per 1,000 cubic meters to $485.5 cm, after protesters ousted a pro-Russian President, Viktor Yanukovich in February, paving the way for the rise of pro-Western government in Kiev. Although, Russian President, Vladmir Putin has pledged Kremlin’s readiness to ensure stable energy supplies to Europe, there are growing fears that the EU may face energy supply shortages in winter and possible future crisis unless it finds urgent solution to its gas dependency on Russia. “In June, this doesn’t seem pressing, but we have to prepare for winter,” cautioned Michael Bradshaw, a Professor of Global Energy at Warwick Business School.

And to avert a major energy supply crisis, emanating from Russian-Ukraine crisis, Europe is stitching together a number of measures to reduce its gas imports from Russia by 2020. Such measures being considered by EU to ease Russia’s grip over the region’s energy market include seeking new gas suppliers, raising power output from coal and renewables.

Penetrating the Euro market

Expectedly, Nigeria has joined the scramble for European gas market in the wake of the escalating diplomatic grandstanding over Ukraine. Indications that Nigeria was positioning itself as the next major gas supplier to Europe emerged during the 11th EU-OPEC Energy Dialogue Ministerial Meeting in Brussels, Belgium, last June when the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke announced that the Federal Government has agreed on terms to support long-term gas supply security with the EU as part of measures to expand the nation’s gas market across veritable frontiers. “It was an extremely productive meeting with Mr. (Günther)Oettinger(EU Energy Commissioner) and I look forward to continuing to work with him to build an even stronger relationship between Nigeria and the EU,” the minister said, adding that significant investment is underway to support expansion of Nigeria’s gas market in the coming years.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Andrew Yakubu recently told a visiting Belgium Business delegation in Abuja that the federal government was exploring the means to penetrate Europe, having seen the continent as a good market for Nigeria’s gas resources. “We are working on independently marketing our abundant gas resources to Europe,” he said.

According to official statistics, Nigeria has over 180 trillion cubic feet (tcf) of discovered reserves and up to 600 tcf of undiscovered gas reserves, making her the 8th largest gas producer in the world, and 6th largest gas supplier to Europe. The country’s current gas production is estimated at about 8.5 billion cubic feet per day (bcf/d), with only 3.5bcf/d, about 41 percent being exported and 2.3 bcf/d (28 percent) consumed domestically for power and industries while 1.2 bcf/d (15 percent) is used in the upstream for gas reinjection with the balance of 0.8bcf/d (10 per cent) being flared.

The calculations, according to experts, are that further Nigeria’s penetration into the European market in addition to other regional markets would facilitate more expansion and utilization of the country’s gas resources. Dr. Tim Okon, NNPC’s Coordinator, Corporate Planning and Strategy, believes Nigeria’s quest for further expansion of its gas market in Europe and Asia is borne out of the necessity for the country to remain competitive in the global oil and gas industry.“The important thing is to make sure that you are selling the products that you have and you do not ignore any market,” he said.

Constraints in Nigeria’s gas sector

There are fears that Nigeria’s current drive for further in-roads into global energy market, especially in the gas sub-sector may not yield the desired dividend due to certain domestic constraints. Industry watchers are of the view that the government cannot meet up with the investment required to make Nigeria a global gas supplier whereas enabling legal environment cannot spur foreign direct investment into the sector.

Mr. Gbenga Adesanya, an international energy economist, said Nigeria’s ambitious gas master plan upon which the current drive emanates would remain chaotic until certain inherent factors such as ownership issue, tax and harsh business environment are addressed. He believes that the country cannot actualize the lofty goals of becoming a global net exporter in gas if these factors were not addressed. “The issue of ownership of non-associated gas has to be addressed first before the country can derive maximum benefit from its non-associated gas endowment,” he said.

Adesina expressed fears that the Petroleum Industry Bill (PIB) currently before the National Assembly would not guarantee a significant transformation in the industry due to certain provisions considered uneconomic for foreign investment. “The PIB as it is will lead to lean investment templates. That means, it will discourage investment in the country as it will be cheaper for the IOCs to invest in other terrains than ours. The investment environment in Nigeria is hostile; both at the corporate level (government agencies etc.) and at the local (community) level,” he said.

Dr. Tim Okon, who also serves as the Director of Transformation at the NNPC, admitted that until the PIB was passed into law, it would be difficult for the country to maximize its potential in the oil and gas industry. “I cannot talk about future incentives if the principal law that would give birth to it has not been passed, but I want to say that the general intention is that Nigeria must compete in the market place and our fiscal systems are designed to be competitive,” Dr Okon quipped.


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