Decision time for Trans-Saharan gas pipeline

03 April 2008
Two key agreements are under negotiation that will decide the fate of a project to develop a 4,000-kilometre- long pipeline to bring Nigerian gas to Algeria via Niger, according to sources close to the project.

Abuja, Algiers and Niamey are in talks to finalise an intergovernmental memorandum of understanding (MoU) on the Trans-Saharan Gas Pipeline (TSGP) scheme. State-owned Nigerian National Petroleum Corporation (NNPC) and the Algerian state energy company Sonatrach are also negotiating a joint venture agreement on the project.

The key parties to the project are Algiers and Abuja. “The two governments have to decide whether to progress with the project,” says an executive at the UK’s IPA Energy Consulting, one of a consortium of companies that completed feasibility studies on the project in 2006.

“I think the political will is there to go forward. The intergovernmental MoU is mainly to demonstrate the support of the two governments for the project, and to formally appoint Sonatrach and NNPC to the project,” says the IPA executive.

“If they do, they will go into a four-year phase to define the scope of the project, including front-end engineering and design plans, before reaching financial close. They will look to appoint financial advisers soon after the signing of the joint venture agreement and will also need to appoint environmental, legal, strategic and commercial advisors.”

The project is likely to be funded with project finance, using a mixture of equity from the partners on the project and debt raised from international and local markets.

If the scheme goes ahead, one of the major challenges will be the recruitment of staff to the Sonatrach/NNPC joint venture company. Sonatrach has had major problems staffing two new agencies created under a 2005 hydrocarbons law.

The proposal for a pipeline was given a boost in February when Nigeria committed gas reserves to the project. The availability of gas from Nigeria, which is expanding its liquefied natural gas export capacity, has been one of the main doubts expressed over the project.

The project also has considerable backing from the EU. “The TSGP could be one of several projects that fuels huge European energy demand in the future,” says another source close to the project.

“Gas is the preferred option these days because of its favourable carbon footprint and the EU is concerned about relying too much on Russia for its energy,” says the source. ”If you look at projected European energy demand growth in the next 20 years, they will need the TSGP as well as six or seven other major import projects.”

If the project goes ahead, Sonatrach and NNPC will form a joint marketing company to sell gas from the pipeline to Europe.

The proposed pipeline will have capacity of 2 billion-3 billion cubic feet a day and is expected to cost at least $15bn.

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