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Analysis: EU eyes Gazprom's Nigeria play

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by Stefan Nicola
Berlin, April 11, 2008
Russia's Gazprom is making sure it keeps its dominance of the European gas market, observers say, by trying to influence a potential alternative supplier to Europe -- Nigeria.

Europe's dependence on Russian gas has worried officials in Brussels ever since Russia in 2006 temporarily shut off Ukrainian gas supplies until the country agreed to pay higher prices. What followed were a string of strategies to diversify Europe's energy imports, including a pipeline bypassing Russia and greater use of liquefied natural gas.

Western officials say they hope West Africa, though it has less reserves than the Middle East, may turn into a viable alternative supplier to Europe; already, the area is one of the fastest growing producers of LNG.

In West Africa, Nigeria is the uncut diamond: Boasting on- and offshore oil reserves of 35 billion barrels (twice as much as Mexico's) and 176 trillion cubic feet of natural gas (as much as the United States'), it's no surprise Nigeria's energy sector has been courted by U.S. and European officials.

There are problems, however. Violence in the oil-rich Niger Delta and widespread government corruption have cut production, according to some estimates, by as much as a third. Becoming a viable source of supply to Europe will require the reduction of violence to an acceptable level. Still, with most of the world's easy energy gone, Nigeria could be an attractive prospect -- a fact not lost on the Europeans.

Yet since last year, another player has entered the race: Gazprom is in talks with the Nigerian government about investing in the West African country's gas industry.

"We made a decision to go global in terms of acquiring assets and developing strategy outside Russia. Africa is one of our priorities," a Gazprom spokesman said.

It's also one of Europe's top priorities: A 2,700-mile pipeline linking the Niger Delta to existing gas transmission hubs to the EU in Algeria has already been proposed, a development that hasn't been exactly met with excitement in the Kremlin. While no specific Russia-Nigerian project has been mentioned yet, observers in Europe are worried that Gazprom's planned investments are of geopolitical, rather than economic interest: Gaining influence in Nigeria means keeping the ball in Russia's court when it comes to Europe's exports, observers say.

"A deal between Gazprom and Nigeria will increase Europe's dependence on Russian gas," Rob de Wijk, of the The Hague Center for Strategic Studies, a Dutch policy research institute, told the new energy magazine European Energy Review. "Russia has a deliberate policy aimed at controlling the whole gas market that is meant for Europe."

Yet while some observers fear Russia aims to block an alternative import route, others argue that by exploring gas fields in Nigeria, more gas will eventually get on the market, benefiting consumers in Europe in the long run. And Gazprom's decision, of course, makes absolute sense in business terms.

Others say European companies and governments simply need to do more to strike new contracts in Africa, where not only Russia, but also China has been very active -- and successful -- recently, scoring most of the important business deals connected to sub-Saharan oil resources.

Rather than speaking with one voice when it comes to investing in the continent's energy sector, European governments still act as a bunch of lone warriors in Africa. A disunited and thus "weak" Europe will not beat Gazprom to the table, however. And that may have far-reaching consequences.

"Europe wants to diversify its energy supplies away from the Middle East. When the Russians gain clout in Nigeria and elsewhere in the region as well, Europe risks exchanging OPEC for Gazprom," Cyril Widdershoven, energy expert at the Institute for the Analysis of Global Security, told the European Energy Review. "Which in my view is bad news. I fear an Arab camel less than I fear the Russian bear."

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