Has Nigeria’s criticism of lack of European financing for gas pipe paid off? [Gas in Transition]
It’s been nearly a year since Muhammadu Buhari, who completes his second and final term as Nigeria’s president on May 29, made clear that he was not best pleased by the gap between European countries’ expressed interest in his country’s natural gas and European countries’ expressed willingness to cover the cost of new pipelines to export that gas.
In June 2022, Buhari wrote in response to questions posed by the Bloomberg news agency that the UK and the EU were not doing enough to make sure that Nigeria could deliver the gas they wanted to buy. This is counterproductive, and not just from an economic and logistical perspective, he said.
If London and Brussels are serious about reducing carbon dioxide emissions, he argued, they ought to make more funding available for gas pipeline construction, and they ought to remove barriers to investment in gas projects. Specifically, he said, they ought to throw their weight behind the Nigeria-Morocco Gas Pipeline (NMGP) project, which envisions the building of a 7,000-km network of offshore pipelines that could pump gas along Africa’s western coast to the Mediterranean Sea opposite Spain.
“We need long-term partnership, not inconsistency and contradiction on green energy policy from the UK and European Union,” he remarked. “Investment is hampered by their broad-brush moratorium on overseas gas projects, while at home the same projects are classified as green. It does not help their energy security, it does not help Nigeria’s economy and it does not help the environment. It is a hypocrisy that must end.”
Making a valid point
Buhari may have expressed himself a bit caustically, but he did have a point.
That is, he was correct when he noted that Europe’s upsurge of interest in Nigerian gas following the Russian invasion of Ukraine had not been accompanied by a corresponding upsurge of willingness to shoulder the cost of bringing more Nigerian gas to market. When he spoke in June 2022, neither the UK nor the EU had stepped forward to offer direct financial support for new export pipelines.
On a more fundamental level, the Nigerian president was also correct in his assumptions about his country’s needs. That is, he was not wrong to point out that Nigeria needed to establish new export routes in order to effect large-scale, permanent increases of gas deliveries to the world market. At present, the West African state’s main seller is the Nigeria LNG (NLNG) consortium, which can export 22.5mn metric tons/year of LNG. (The group’s capacity is set to rise to 30mn mt/yr upon the completion of the Train 7 expansion project, but it will not reach this milestone until 2025 at the earliest.)
Nor was he wrong to state that Nigeria would need outside financing to achieve its aims. The country’s finances are strained, and public debts rose from 39.56 trillion naira ($95.8bn) as of the end of 2021 to 46.25 trillion naira ($103bn) as of the end of 2022. Meanwhile, economic growth is set to slow down this year, according to World Bank projections, because of higher fuel and materials prices and the domestic oil industry’s sluggish performance. For these and other reasons, the Nigerian government is not exactly in a position to foot the bill for a massive project such as NMGP, which is expected to carry a price tag of $25bn.
Little in the way of results
Even if Buhari was correct on these points, though, it’s worth asking whether his approach was effective. That is, did the president’s public call-out of the UK and the EU help Nigeria secure the money it needs for NMGP?
The answer seems to be no, at least not yet. Mele Kyari, the group CEO of Nigerian National Petroleum Co. Ltd (NNPCL) did wax enthusiastic in October 2022, saying that his company was holding discussions with a number of financial institutions on funding for the pipeline and expected to be able to make a final investment decision (FID) on the project sometime in 2023. However, Kyari did not disclose any specific details about these discussions, and there has been no public indication that any financial institution is moving toward making a concrete commitment to NMGP.
Indeed, as of press time, the only two entities that have promised to make funds available are the OPEC Fund for International Development (OFID) and the Islamic Development Bank (IDB). The former has said it will provide $14.3mn for the second phase of feasibility studies on the project, while the latter has said it will provide another $45.1mn, including $29.7mn to cover Nigeria’s share of costs and $14.7mn to cover Morocco’s share. Meanwhile, the parties still have to drum up another $33.6mn in funding to cover the full $90mn bill for second-phase studies.
This gap hasn’t stopped Nigerian officials from throwing big numbers around and speaking confidently about their country’s presumed capabilities with respect to the much larger price tag for construction – not study, but construction – of the pipeline. In March of this year, for example, Kyari talked as if Abuja was close to wrapping up a deal, saying there was “a clear line of sight in securing funding for the Nigeria-Morocco Gas Pipeline project.”
Then in April, the NNPCL head seemed to be saying that Abuja might cover half the cost of NMGP on its own, as he stated that his company was gearing up to invest some $12.5bn in order to secure a 50% stake in the planned pipeline. Once again, though, he did not offer any details as to how this sum might be covered, and there have been no public signs that any financial institution is considering making a concrete pledge on this front.
Bad timing?
Going forward, there is not likely to be much change, at least not with respect to NMGP. The bottom line seems to be that Nigeria has not been as effective at convincing financial institutions to fund gas export infrastructure as it has been at convincing European governments (and international oil majors) to consider investing in its gas projects.
In other words, Buhari may have had a point when he complained about the gap between Europe’s interest in Nigerian gas and Europe’s willingness to pay for Nigerian gas export infrastructure, but that is not the only gap in the picture. Rather, there is also a gap between Nigeria’s attractiveness as a supplier of gas and Nigeria’s attractiveness as a destination for investment in pipelines.
And it may be the pipelines that are the problem. Overall, the global gas industry is moving away from permanent, fixed infrastructure and locked-in contracts and towards the greater flexibility that can be realised through spot market deals, increased reliance on LNG tanker shipments and the usage of marine delivery options such as floating storage and regasification units (FSRUs). As such, NMGP, due to its status as a massive physical system, may simply be a project that came into the spotlight a little too late.