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TO RUEHC/SECSTATE WASHDC IMMEDIATE 9422
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RUEHUJA/AMEMBASSY ABUJA PRIORITY 9195
INFO RUFOADA/JAC MOLESWORTH AFB UK
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
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RUEAIIA/CIA WASHINGTON DC
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C O N F I D E N T I A L SECTION 01 OF 03 LAGOS 000640 
 
SIPDIS 
 
SIPDIS 
 
DOE FOR GPERSON, CGAY 
TREASURY FOR ASAEED, SRENENDER, DFIELDS 
COMMERCE FOR KBURRESS 
STATE PASS USTR FOR ASST USTR FLISER 
STATE PASS TRANSPORTATION FOR MARAD 
STATE PASS OPIC FOR ZHAN AND MSTUCKART 
STATE PASS TDA FOR EEBONG, PDAVIS 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
 
E.O. 12958: DECL: 10/20/2016 
TAGS: EPET ENERG PGOV NI
SUBJECT: WHO WILL GET NIGERIA'S NATURAL GAS? (CORRECTED 
COPY) 
 
REF: A) LAGOS 00208 B) 06 LAGOS 01358 C) LAGOS 01365 
 
Classified By: Ambassador Donald McConnell, Consul General a.i.; Reason 
s 1.4 (B,D) 
 
¶1. (C) Summary:  Godwin Billy Agha, Deputy Director, Gas 
Division, Department of Petroleum Resources told Pol-Econ 
Chief that the Government of Nigeria (GON) has shifted its 
priorities from gas to export to gas for domestic use. 
Currently, there is not enough gas to feed into export 
projects awaiting completion.  Agha catalogued problems with 
the West African Gas Pipeline (WAGP) and the OK and Brass LNG 
projects.  End Summary. 
 
How Much Gas; Who Will Get It? 
------------------------------ 
 
¶2. (C) Godwin Billy Agha, Deputy Director of the Gas 
Division, Department of Petroleum Resources (DPR) told 
Pol-Econ Chief that the government's shift in priorities from 
export to domestic use for the nation's natural gas will be 
reflected in new gas regulations which are ready to be 
promulgated.  Agha suggested that the owner of an LNG plant 
would not be allowed to supply the LNG plant with gas.  Such 
a regulation would allow each plant to buy from many 
different sources and prevent the owner of the gas from 
subsidizing the plant, Agha said. 
 
¶3.  (C) Reserves, as calculated by the international oil 
companies (IOCs), are not all proven and much more investment 
will be needed to prove them, Agha said.  The Brass LNG 
project may not be able to prove its reserves for 20 years 
because, he opined, the reserves "are just not there."  Nor 
are all gas reserves recoverable, he warned.  Some gas is 
"stranded", that is there is no infrastructure in place to 
allow the gas to be gathered and connected to markets. 
 
¶4.  (C) As a result, Agha believes that there may not be 
sufficient gas to support all the LNG projects currently 
planned.  (Note: NLNG executives suggested the same thing; 
see Ref. A. End Note)  Nigeria's first priority must be 
domestic; "keeping Nigeria alive" necessitates serving the 
domestic market first.  Gas is needed to run the aluminum 
smelter in Ikot Abasi, Akwa Ibom State; and iron ore 
processing facilities in Warri, Delta State, and Adjobata, 
Kwara State.  Gas could also be used as feedstock for 
fertilizer production (Note: The country currently imports 
most fertilizer. End Note) and as fuel for the refineries. 
 
¶5.  (C) Despite the uncertainty about gas availability, there 
are many investors whose plans require large quantities of 
natural gas for export.  Agha ran down the prospects for and 
problems with each project: 
 
West Africa Gas Pipeline Plagued with Problems 
--------------------------------------------- - 
 
¶6. (C) The West Africa Gas Pipeline Company (WAGPCO), made up 
of Chevron, Shell and the Nigerian National Petroleum Company 
(NNPC), is the consortium supplying Nigerian natural gas to 
the West Africa Gas Pipeline (WAGP).  Chevron and Shell have 
been plagued with problems in gathering the gas and moving it 
through NNPC pipelines to the WAGP. 
 
¶7. (C) Alagbado Connecting Line: Feed for the WAGP is 
intended to come from onshore fields, primarily Chevron's 
Escravos field and secondarily Shell's Sapele-Oben field via 
the Escravos to Lagos Pipeline (ELP).  A connecting line from 
Alagbado is planned to carry gas from the ELP to the WAGP. 
Willbros, an oil services company, won the contract to lay 
that connecting pipeline. However, the company ran into 
difficulties (see Refs B,C) and ultimately sold the business 
to Ascot, a Nigerian firm.  Ascot did not realize how 
 
LAGOS 00000640  002 OF 003 
 
 
difficult engineering for the job would be, Agha said.  The 
terrain through which the pipeline runs is very difficult and 
requires a far higher level of engineering than Ascot can 
provide.  Ascot wants to renegotiate the contract, but "no 
one is talking to them", Agha said.  The connecting pipeline 
would also carry large quantities of gas from fields offshore 
Escravos, Agha said. 
 
¶8. (C) Chevron Pipeline, Gas Storage Problems:  Upstream from 
Alagbado, the Shanomi Creek pipeline that feeds into the ELP 
trunk line has been vandalized.  Chevron,s Escravos fields 
produce associated gas (AG), that is, gas that is found with 
oil.  However, the Escravos tank farm provides storage and 
off-loading facilities only for oil.  As a result, all AG 
found in the area is currently being flared. 
 
¶9. (C) Shell Condensate Disposal Problem:  Shell,s 
Sapele-Ogben field is gas-rich.  However, the gas contains a 
high level of natural gas liquids (NGL), benthene and C5 
condensate.  The Egbin thermal power plant in Lagos can use 
gas as fuel but only if it is condensate-free.  In order to 
get the gas to Egbin, space in the Escravos-Lagos pipeline 
must be created.  Shell pumps the gas with condensate to 
Warri, where the Warri Refinery has a condensate holding 
tank.  However, the tank is damaged, and consequently must be 
evacuated often or backflow will occur and create problems at 
Egbin.  To avoid these problems, Shell has been pumping some 
condensate directly to the jetty.  The company is seeking 
bidders on a contract for condensate disposal. 
 
¶10. (C) Another problem facing the WAGP is that a leak has 
been discovered in the pipeline between Lagos Beach and 
Ghana.  The leak is difficult to find because the line is 
buried underground offshore.  Agha predicts it will take a 
long time to find and repair the leak. 
 
¶11. (C) A third major problem with the WAGP is that large 
rocks between the pipeline and the shore of Ghana make 
installing a connecting pipeline difficult.  A solution must 
be found to remove or reduce the size of the rocks that lie 
along the shore.  In addition, the pipeline will have to be 
angled so as to create a sufficient gradient to allow gas to 
flow.  These are large engineering hurdles to overcome, Agha 
said. 
 
OKLNG: Obasanjo's Home State Project 
------------------------------------ 
 
¶12. (C) Chevron and Shell are partners in the Olokola 
Liquefied Natural Gas facility (OKLNG) which will produce gas 
for export.  Former President Obasanjo took a keen interest 
in this project, seeing it as a way to transform Ogun State, 
where he has his farm, into an oil and gas producing state. 
To accomplish this, he forced a change in the location of the 
project from Delta State to the border between Ogun and Lagos 
states.  However, by the time the OK project was on the 
drawing boards, Agha said, the Government of Nigeria had 
begun to have second thoughts about using for another plant 
the same model on which the Nigeria Liquefied Natural Gas 
(NLNG) project had been built (See Ref A) for another plant. 
NLNG was a huge success but on terms very favorable to the 
investors and less so to the GON, in the government's view. 
NLNG buys gas, which includes both condensate (the equivalent 
of light crude oil) and Liquefied Petroleum Gas (LPG) in 
volume then sells the resulting LNG in energy value. 
According to Agha, the government believes it gets no profit 
from this arrangement and feels shortchanged. 
 
¶13. (C) As a result, Agha said, the government decided not to 
use the NLNG model for the OK plant.  OK was created as a 
tolling project.  Each supplier company owns the gas it sends 
to the plant.  Chevron has announced that before sending the 
gas to the plant, the company will separate the gas into LPG 
 
LAGOS 00000640  003 OF 003 
 
 
and condensate, measure each, then recombine them and send 
the recombined gas to the plant where it will be processed 
into LNG and condensate.  Chevron will pay for processing the 
gas and will collect its own condensate at the end of the 
process. 
 
¶14. (C) Front-end engineering for the OK project has been 
completed.  There are some supply issues and some metering 
issues that have had to be resolved.  In addition, the 
pipeline from the plant to the ships will be very long, 
creating numerous engineering problems similar to those faced 
by the Brass LNG project, Agha said. 
 
Brass LNG:  Expensive Engineering Problems 
------------------------------------------ 
 
¶15. (C) At a cost of USD 8.8 billion, the Brass LNG plant is 
the most expensive of all the plants planned for Nigeria.  A 
consortium made up of Total, Shell and Conoco Phillips will 
supply gas to the facility. The major problem with the plant, 
aside from its expense, is that the pipeline that takes the 
LNG from the plant to the ships is eight kilometers long. 
This is because there is a very gradual dropoff, making it 
impossible for deep draft vessels to come in close to the 
shore to load.  In addition, the high level of sedimentation 
near the shore makes it difficult to dredge to a depth 
required by ocean-going vessels.  The gas, which is liquefied 
by cooling, must remain at -161 degrees Fahrenheit as it 
passes through the 8 kilometer pipeline so that it will flow 
as a liquid; if the temperature in the pipeline goes up, the 
LNG will turn back into gas, and escape upon loading, Agha 
said. 
 
 
NLNG: Sweet Deal Guaranteed Add-On Trains 
----------------------------------------- 
 
¶16. (C) The agreements initiating the Nigeria Liquefied 
Natural Gas Project provided that any expansion of the 
project be on the same favorable terms as were granted for 
construction of Trains 1-3.  The project makes money both on 
the exported gas and on condensate.  Train 7 is now on line, 
Agha said and the company plans to add additional trains. 
 
¶17. (C) Comment:  Nigeria's Minister of State for Petroleum 
Resources told the press on the margins of the recent OPEC 
meeting that the government is exploring new mechanisms for 
funding joint venture oil and gas operations.  His comment 
may mean the GON is showing a new willingness to pay its 
rightful share of the cost of exploration for new fields and 
to prove reserves to provide gas for both domestic and export 
use. 
MCCONNELL