Identifier
Created
Classification
Origin
05LAGOS434
2005-03-18 06:17:00
CONFIDENTIAL
Consulate Lagos
Cable title:  

LNG UPDATE ON NIGERIA: CHEVRON, EXXON, ANNOUNCE

Tags:  EPET EINV CASC PGOV ASEC MOPS NI 
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180617Z Mar 05
C O N F I D E N T I A L SECTION 01 OF 04 LAGOS 000434 

SIPDIS

STATE FOR AF/W
STATE FOR CA/OCS/FROBINSON
STATE FOR EB/ESC/IEC/ENR/BLEVINE
STATE FOR DS/IP/AF
STAT FOR INR/AA
STATE PASS DOE FOR DAS JBRODMAN AND CGAY
STATE PASS TREASURY FOR ASEVERENS AND SRENENDER
STATE PASS DOC FOR PHUPER
STATE PASS TRANSPORTATION FOR MARAD
STATE PASS OPIC FOR CDUFFY
STATE PASS TDA FOR BTERNET
STATE PASS EXIM FOR JRICHTER
STATE PASS USTR FOR ASST USTR SLISER
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ

E.O. 12958: DECL: 03/17/2015
TAGS: EPET EINV CASC PGOV ASEC MOPS NI
SUBJECT: LNG UPDATE ON NIGERIA: CHEVRON, EXXON, ANNOUNCE
PROPOSALS FOR LNG PLANTS

REF: 2004 LAGOS 2470

Classified By: Classified By: Consul General Brian L. Browne for
Reasons 1.4 (D & E)

Summary
--------

C O N F I D E N T I A L SECTION 01 OF 04 LAGOS 000434

SIPDIS

STATE FOR AF/W
STATE FOR CA/OCS/FROBINSON
STATE FOR EB/ESC/IEC/ENR/BLEVINE
STATE FOR DS/IP/AF
STAT FOR INR/AA
STATE PASS DOE FOR DAS JBRODMAN AND CGAY
STATE PASS TREASURY FOR ASEVERENS AND SRENENDER
STATE PASS DOC FOR PHUPER
STATE PASS TRANSPORTATION FOR MARAD
STATE PASS OPIC FOR CDUFFY
STATE PASS TDA FOR BTERNET
STATE PASS EXIM FOR JRICHTER
STATE PASS USTR FOR ASST USTR SLISER
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ

E.O. 12958: DECL: 03/17/2015
TAGS: EPET EINV CASC PGOV ASEC MOPS NI
SUBJECT: LNG UPDATE ON NIGERIA: CHEVRON, EXXON, ANNOUNCE
PROPOSALS FOR LNG PLANTS

REF: 2004 LAGOS 2470

Classified By: Classified By: Consul General Brian L. Browne for
Reasons 1.4 (D & E)

Summary
--------------


1. (SBU) This cable provides an overview of two new
proposals for liquefied natural gas (LNG) projects in
Nigeria, as well as a status report on the expansion of an
existing plant. In January Chevron Texaco (Chevron)
announced a feasibility study on a potential 10 million
metric ton liquefied natural gas (LNG) project worth $6
billion on the border of Ogun and Ondo States. Some Ijaw
leaders have disputed the siting of the plant, stating they
will resist attempts to remove gas from Delta State for
processing elsewhere. ExxonMobil (EM) announced an agreement
for pre-front-end engineering design work for a 4.8 million
ton LNG plant on Bonny Island, Rivers State. Scheduled to be
operational by 2010, the plant would include an integrated
power production project, a high priority for the GON, which
is severely lagging behind in its electoral promises to
increase the nation's electrical output. However, President
Obasanjo?s recent demands for each oil major to construct an
operational IPP by the 2007 elections may complicate the
project for EM. Nigerian LNG currently has three LNG trains
in operation; train four and five will begin operations this
year. All of these LNG projects are in line with GON
aspirations to become a major world force in gas production
and export.

Chevron Announces Feasibility
Study for $6 Billion LNG Plant
--------------



2. (U) In a January press release, Chevron announced it,
along with the Nigeria National Petroleum Company (NNPC) and
the BG Group, will conduct a feasibility study on a potential
liquefied natural gas (LNG) project in Nigeria. The proposed
processing facility would be located in the Olokola Free
Trade Zone, on the coastline border of Ogun and Ondo States.
According to Chevron, the feasibility study will examine
available gas supply, marine/LNG loading concepts, available
LNG technology options, LNG market options, project
economics, and the social and environmental impact of the
potential project. Total investment for the project is
anticipated to be around $6 billion. The final investment
decision will be based on the results of the feasibility
study, and is planned for 2006.

Chevron Plant Would Begin
Operations by 2009, Reduce Flaring
--------------


3. (U) NNPC Group Managing Director Funsho Kupolokun
explained the project would be executed in phases, with the
initial phase involving the production of 10 million metric
tons of gas annually. Kupolokun also underscored the GON?s
commitment to the project, which will contribute to the
meeting the GON?s goal of zero gas flaring by 2008. Chevron
Gas Commercialization Manager Jim Wisner told us the first
phase would involve two trains (5 mmta each). The first train
would be on-line by 2009, with a second train on-line about 6
months later. Subsequent project phases to bring the plant
to a capacity of 30 million metric tons annually will come on
stream ?as market and gas supplies align.?

Siting of Proposed Plant Ignites Controversy
--------------


4. (SBU) February press reports indicate Ijaw Leader Chief
Edwin Clark has called for Delta State residents to resist
the siting of the plant on the border between Ogun and Ondo
states. Instead, Clark and other Ijaw leaders are calling
for the plant to be in Delta, warning any attempt to utilize
gas resources from the Niger Delta for a plant located
elsewhere would be resisted. Press reports indicate Clark
called the decision to locate the plant on the Ogun/Ondo
border,
?an abuse of power, and the Federal Government?s decision
is based purely on ethnic consideration.? He accused Ogun,
Ondo, Abia, and Imo States of attempting to sneak into the
ranks of oil-producing states in Nigeria, when they lay
outside of the geographical boundaries of the Delta region.
(Note: States in the Delta region are entitled to 13 percent
of the lucrative oil revenues collected by the Federal
Government. Allocation of oil revenues between the GON and
state governments, and division of such revenues between the
states, is a perennial source of discord between the states.
End note.)


5. (SBU) A spokesman for Ondo State noted the decision
regarding the plant site was based on investment
considerations, highlighting its location on the western
flank of the Niger Delta, with ready access to gas resources,
but within a 45-minute drive of Nigeria?s commercial hub,
Lagos. (Comment: Given that one-third of Chevron?s
production has remained shut-out in the Escravos area of
Delta State due to communal unrest, since March 2003, Chevron
would likely prefer to invest its capital elsewhere in the
country. End Comment.)

Mobil, NNPC Sign MOU on Proposed LNG Project
--------------


6. (U) In a January 18 press release, ExxonMobil (EM)
announced a Memorandum of Understanding (MOU) between Mobil
Producing Nigeria (MPN),and NNPC, to carry out pre-front-end
engineering design (pre-FEED) work for a major Liquefied
Natural Gas (LNG) and an integrated power production (IPP)
project on Bonny Island, Rivers State. Given the dearth of
electrical power in Nigeria, promoting IPP projects is a
GON's priority. EM indicated first phase of the proposed
project would include one LNG train with an annual capacity
of 4.8 million tons. EM External Relations General Manager
Udom Inoyo noted additional trains may be considered for
later. Gas from MPN/NNPC joint venture projects would supply
feedstock for the project; final markets for the NLG would
include the U.S. EM states the pre-FEED work will also
determine the feasibility of integrated power production to
supply electric power to Nigeria's national grid. Inoyo
indicated if the project is approved, EM management hopes to
have it operational by 2010.

President Demands IPPs for 2007 Election
--------------

7. (C) However, Inoyo told us that in a late February
meeting with the majors, President Obasanjo "laid down the
law" regarding IPPs. Obasanjo is demanding that every major
construct an operational IPP by 2007. Inoyo noted the
difficulty Obasanjo has had in meeting commitments to make
power accessible to the average Nigerian; his campaign
promises in this area "lie in tatters." Press reported
Obasanjo saying, ?I have told the people of Nigeria that by
2007 we will have 10,000 MW of electricity.? Shell and AGIP
appear to be on the way to constructing their plants, albeit
behind schedule. The President has now directed the
establishment of a committee to report to him monthly on the
status of the IPP projects for all majors ? Shell,
ExxonMobil, Chevron, and AGIP. EM had planned to build its
IPP as part of the larger LNG plant, and bring the entire
project on-line by 2010. A 2010 start date is far beyond the
2007 elections, and likely will not meet the President?s
approval. Inoyo indicated EM is now going back to the
President to determine if their plans will be acceptable to
him. Alternately, EM is facing the expensive prospect of
re-working their plans to bring an IPP on-line by 2007,
independent of their proposed LNG plant.
NLNG Expansion on Track;
Trains 4 and 5 On-Line this Year
--------------


8. (U) Bonny Island, Rivers State, is also the site of the
Nigerian Liquified Natural Gas (NLNG) plant, a joint venture
between NNPC, Shell, Total, and ENI. NLNG claims to be the
largest industrial project in Africa. NLNG currently has
three NLG trains operational, with trains four and five
almost completed. NLNG informs us train four should begin
operations this June with train five commencing in November.
In July 2004, NLNG management approved the final investment
decision to construct train six, which is planned to begin
operations by the fourth quarter of 2007. Train 6 will add
about 4 million tonnes per annum to NLNG?s capacity, for a
final annual capacity of 22 million tonnes of LNG and 5
million tonnes of natural gas liquids (LPG and condensate).
35% of NLNG's total output will go to the United States and
Mexico through long-term sales and purchase agreements.
Additional agreements have been contracted with buyers in
Italy, France, Turkey, Spain and Portugal.

Dakouro: NLNG Won?t Expand Beyond Train Six;
Kupolukun Disagrees?
-------------- --------------


9. (C) Presidential Advisor for Petroleum and Energy
Resources, Dr. Dakouro, noted the GON would not support the
expansion of NLNG beyond the six trains currently planned.
There is little space to further expand the plant. More
critically, however, the GON believes it was too lenient in
the fiscal terms granted NLNG, and the GON will not expand
the plant further under such an arrangement. As the first
LNG plant in Nigeria, the project was considered high risk.
The GON argues that with one major plant successfully
operating in Nigeria, the subsequent investors merit fewer
fiscal concessions. However, Group Managing Director
Kupolokun has discussed possible additional NLNG trains in
the press in the last month.

Feed for Brass LNG In Process
--------------


10. (U) In addition to the newly proposed NLG plants, Brass
LNG, a joint venture between ConocoPhillips, Chevron Texaco,
ENI, and NNPC, has commissioned Bechtel to carry out a
FEED(reftel). The capacity of Brass LNG is expected to be
12.5 million tons annually, with the primary markets again
being the U.S. and Europe. Brass LNG has not yet reached
final investment decision; if approved next year, operations
are planned to begin around 2009.

Who Will Cross the Finish Line First?
--------------


11. (SBU) With the announcement of two new proposals for
LNG plants, Nigeria is making the move to become one of the
world?s leading exporters of LNG. Despite disagreements
between the GON and operators regarding pending legislation
on gas fiscal terms, these new projects will form an integral
part of the GON?s quest to become a major player in gas
production and export. Industry figures disagree whether all
of the above LNG plants will move forward, or whether this
number of plants would create over-capacity in the world
market. If the latter is true, only those projects that
reach a positive final investment decision soonest are likely
to move forward. Other industry figures point to the
tremendous growth in demand for gas, arguing all of the
proposed projects will eventually move forward, but noting
some project timelines may need to be readjusted according to
international demand for LNG.
BROWNE