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EU/Africa – Trans-Saharan Pipeline

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gas2At the beginning of February, Nigeria’s Minister of National Planning, Shamsuddeen Usman, revealed that the Abuja authorities had requested the European Investment Bank (EIB) to finance a feasibility study for the Calabar-Kano gas pipeline which is the domestic segment of the Trans-Saharan Gas Pipeline (TSGP). This 4,128 km pipeline would transport 30 billion cubic meters of natural gas per annum from the Niger Delta fields to Southern Europe through Niger and Algeria, with an estimated investment of US $ 15 billion. 

Shamsuddeen Usman’s statement was made after a meeting with a visiting delegation of the EIB whose officials expressed optimism that the two projects would merit further examination and possible funding. The project is eligible for funding from the EIB-managed EU Africa Infrastructure Trust Fund said EIB officials who invited the Nigeria national petroleum company (NNPC) to provide them with a memorandum on the equity structure. Originally, the pipeline was to be built and operated by a joint venture set up between the NNPC and Algeria’s oil parastatal Sonatrach, including the Republic of Niger.
EIB’s spokesman – Richard Willis – told SouthWorld that beyond grant funding for feasibility studies, the bank was also considering to examine potential long-term funding for the project. The EIB’s Vice-President in charge of the Facility for Euro-Mediterranean Investment and Partnership (FEMIP), Philippe de Fontainevive is enthusiastic about the project which he finds “very interesting”. The TSGP represents indeed the continuation of the existing Medgaz submarine pipeline between Hassi R’Mel (Algeria) and (Almeria) Spain and of the future Galsi pipeline between Algeria, Sardinia and Italy. The TGSP would fit perfectly in the European diversification and security of supply strategy which aims at reducing EU’s dependence from Russia’s giant Gazprom. The need for such strategy increased dramatically after the dispute between Russia and Ukraine about over the gas sale price, which resulted in the temporary interruption in 2009 of Gazprom’s supplies to the EU through Ukraine.
Gazprom was quick to realize the strategic importance of the TSGP and, to maintain influence over the European Union through the control of its gas supply lines, negotiated with Nigeria about its possible participation in the project.
For the European Investment Bank, the TSGP project offers also an opportunity to step up its cooperation with Algeria. Foreign Minister, Mourad Medelci has expressed its intention to step up cooperation with the EIB in order to benefit from the bank’s expertise for the studies on such project, which are difficult and technically complex, explains de Fontainevive. It is not so much European money but European expertise which Algerians need, since domestic gas resources allow for the country to finance the construction of the infrastructure itself, says the EIB Vice-President. Yet, there are two conditions for EIB’s participation to the TSGP project. The first is that the project must guarantee environment protection during the pipeline construction and operation phases. The second, the Bank is particularly keen that the people living along the pipeline are consulted and involved in the project which will inevitably bear consequences for them. “They must benefit from the economic impact of the project and not be only treated as witnesses which would be bothered by a project which would not bring them any benefit at all” says de Fontainevive.
gas3Renewed expressions of interest from the EU, from Algeria and from Nigeria follow a period of lethargy. In July 2007, Algerian oil company Sonatrach presents a feasibility study of the project made by the British engineering consultant Penspen to the then European Commissioner for Energy, Andris Piebalgs, now in charge of the Development Commission. One of the reasons for the declining interest was the soaring cost of the pipeline which was estimated at US $5 to 6 billion in 2002, at the time of the signature of the first memorandum of understanding between Sonatrach and NNPC in 2002 to $ 15 billion according to the most recent estimates.
Yet, a number of obstacles must be removed before the project can reach its implementation phase. One is the security issue. The TGSP is crossing areas where Islamic activists are active. At his starting point in Nigeria, the pipeline is opposed by the militants of the Movement for the Emancipation of the Niger Delta. But the Algerian Energy consultant and former Sonatrach executive Mustafa Mekideche is confident that the problem can be dealt with. Even during the darkest hours of the Islamic Armed Group, no oil or gas pipeline was hit by terror attacks, because the pipes were well guarded and deeply buried.
The other challenge is economical. Some energy professionals insiders are qugas4estioning the relevance of a pipeline project in a period characterized by an increase of purchases on the gas spot market to the detriment of long term supply contracts. The European Commission’s policy is in favour of long term agreements which guarantee a security of supply but the interest of the industry may differ. In the current market environment characterized by an excess demand, the private sector seems to prefer the less risky option to go for liquefied natural gas terminals which provide the advantage of flexibility, and adapt to the changing trends of the demand. Nigeria itself is not putting all its eggs in the same basket. Last January, the Nigeria Liquefied Natural Gas company (NLNG), a joint venture set by NNPC and Royal Dutch Shell was looking to raise US$ 1 billion in international markets to acquire six LNG carrier ships. This may dash a bit the enthusiasm of the European private sector. But Algeria’s ambition to develop a strategic energy partnership with the EU and European official institutions such as the EIB have a vested interest, also political, to put the wheels into motion.

François Misser

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