Funding, insecurity stall $2.8b AKK project, gas export

• Stakeholders consider options for gas export amid Russia/Ukraine war
• Divestment, dwindling upstream investment cloud gas export potential 

Barely six months to expected completion of the $2.8 billion Ajaokuta-Kaduna-Kano (AKK) pipeline project, indications emerged yesterday that the delivery of the project may remain elusive despite heightened momentum for Nigeria to export gas to Europe.

The Guardian gathered that thousands of workers have deserted site, especially, in the section spanning Abuja to Kano as terrorists continue their onslaught on life and property in the area.

Funding challenges, it was also gathered, may further frustrate the completion of the project, especially with the withdrawal of interest by China to finance the 614km pipeline network.

Stakeholders, who spoke with The Guardian in separate interviews, yesterday, were uncertain of the future of the project, insisting that its failure to keep to schedule may further worsen the search for new lenders by the Nigerian National Petroleum Company (NNPC), even as energy transition has already tightened financial opportunities for fossil fuel projects.

They, however, saw economic sense and a need for the Federal Government to take serious, the interest being expressed by some European countries to make Nigeria an alternative gas supplier given the disruption the Russia-Ukraine war has caused to the global energy market.

Recall that the AKK has been in the plan for decades with tender issued by NNPC in July 2013 and approval granted by the Federal Executive Council in December 2017, the construction only commenced in July 2020 to last for 24 months.

Going by promises, the project, which intended to establish a connection between pipeline networks in the eastern, western and northern regions as the Trans Nigeria Gas Pipeline, should have been ready by end of last month.

While China Export and Credit Insurance Corporation (Sinosure) had agreed to fund 85 per cent of the project amounting to $2,591,849,049.19, the Nigerian Gas Company (NGC) of NNPC was to provide equity financing of $434 million (15 per cent).

Last year, the Chinese lender backpedaled, forcing NNPC to start seeking $1 billion alternative funding to continue work on the project.

Although the company shortly after then secured a $5 billion corporate finance commitment from the African Export-Import Bank to fund major investments in Nigeria’s upstream sector, sources close to the project revealed that funding for the AKK remained a set back, as workers have practically deserted site, especially, in the section being handled by Chinese firms.

Statistics from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) showed that as at January this year, Nigeria’s gas reserves moved to 208.62 trillion cubic feet (TCF). Last year, Nigeria reported 23 billion cubic metres (bcm) of gas exports to the EU, as the Federal Government looked to unlock potentials in the sector through a decade of gas policy and the Petroleum Industry Act (PIA).

Although about 100 Nigerian companies were offered 49 Petroleum Prospecting Licences (PPL) by the Federal Government, take-off plans were stalled with the pulling out of International Oil Companies (IOC) coupled with concerns over vandalism, insecurity, funding and harsh business environment in the upstream segment at a time when Nigeria was expected to produce gas and export to Europe.

With Nigeria LNG in focus to supply gas that may not require pipelines, European Commission’s energy department’s deputy director general, Matthew Baldwin, had earlier disclosed that EU, which currently gets about 14 per cent of its total gas from Nigeria may double that figure to replace Russia.

Amidst domestic gas crisis, last week, Baldwin was at the Ministry of Petroleum Resources in a meeting with the Minister of State for Petroleum Resources, Timipre Sylva, to intensify the push for gas supply from Nigeria.

Although security concerns were part of the issues, especially theft and vandalism, the EU may be an elixir for Ajaokuta-Kaduna-Kano (AKK) Gas Project and the Trans Sahara Gas Pipelines (TSGP) project adjudged one of the world’s longest offshore pipelines, which extends from Nigeria through Morocco to Europe.

Energy expert and former Chairman, Petroleum Technology Association of Nigeria (PETAN), Emeka Ene, said the changing dynamics along with Russia/Ukraine faceoff and impact of energy transition create an edge for Nigeria.

“The opportunity to create alternative markets for our resources and the strategic advantages associated with delivery of energy to these new markets will strengthen long term sustainability of our economy,” he said.

According to him, the development would also create access to other parts of Africa. Ene insisted that while infrastructure projects are driven by demand and not desire, there remained a latent demand from Europe and the rest of Africa, stressing that there is need to demonstrate the demand to attract capital.

PricewaterhouseCoopers’s Associate Director, Energy, Utilities, and Resources, Habeeb Jaiyeola, was worried about the capacity to explore gas in the country to meet the growing demand.

He stated that Nigeria stands at the advantage of leveraging the opportunities from the Russia-Ukraine war, adding that the impact of the war will have a long term implication, creating significant business opportunities for Nigeria.

Jaiyeola said serious efforts would be needed to increase gas production in the country, as a lot of investment would be needed to meet the emerging market.

“At the moment, gas infrastructure may not be at the level expected for gas terminals, assets and infrastructure to produce the gas for the country to uptake either through liquefied or gas pipelines.

“Building gas pipeline may be a tall order due to infrastructure. Liquefied gas looks more of an option since NLNG is known for that. At the moment, more efforts into that line of business would help us to harness our gas potentials,” Jaiyeola stated.

He noted that the opportunity remained golden for Nigeria to raise revenue away from fossil fuel as the world is diversifying from hydrocarbon, adding that government needs to prioritise further investment into exploration to have gas to export.

Renowned oil and gas expert, Henry Adigun, told The Guardian that the AKK project may remain challenging from funding perspective, adding that the first of 2023 target set by the NNPC some months ago may remain elusive.

Adigun stated that the infrastructure component remain key if Nigeria will succeed in exporting gas to Europe, as the current upscaling of the capacity of NLNG could increase the country’s gas output.

“What Nigeria can do now is to sign a deal with the countries. If we can get advance payment for the gas, we can use that investment on infrastructure. If it is possible, we can also get Europe to build the pipeline and we can pay over a period. But there’s no short term gas, the effort has to be on midterm to long term.

Speaking on the AKK line, especially the project delivery, Adigun said: “it cannot happen, there’s no money to continue the AKK line. Like everything in the country, it was not built with commercial considerations.”