Delay increases cost of West African Gas Pipeline Project

Jul 03, 2002 02:00 AM

The apparent foot-dragging on the part of the promoters of the $ 430 mm West African Gas Pipeline Project may have contributed to the increase in the project cost by 20 %. The sub-regional project entails the construction of a 617 km pipeline from Lagos to Takoradi (Ghana) that will carry about 350 mm cf of gas to consumers in Ghana, Togo and Benin Republic.
Initiated in 1995, and earlier scheduled to come on stream next year, the project had suffered setbacks necessitating its completion being pushed back on two occasions, first from 2002 and then 2004. To put the project back on track, energy ministers of Nigeria, Ghana and two other countries will meet by end of this month to sign what is know as the Principle Commercial Economic (PEC) agreement.

The PEC decision, according to sources close to the project, will pave the way for the next stage, which is the technical work. Disagreement arouse among the national oil companies of the four countries, as well as oil firms Chevron and Shell, over equity structure in the pipeline company and its commercial status.
Sources said that the initial $ 430 mm (N 51.2 bn) estimate for the pipeline construction was no longer feasible, given some of the changes that have had to be effected on the project scope. First, the plan was to lay the pipelines offshore from Nigeria's Escravos area to Ghana. This had been changed to have the pipes go onshore along the coastlines of the four countries with metering points installed.
Also, the initial reserve estimate of 250 mm cf of gas for the project has been reviewed upward to 350 mm to accommodate future customers. The Nigerian National Petroleum Corporation (NNPC), Shell and Chevron had earlier formed a company named N-Gas, which is the gas marketing co-operative outfit that would play a key role in commercial agreements.

The Director of New Business and Gas Development of Shell Petroleum Development, Mr Steve Ratcliffe, confirmed that the delays had overtime added to the cost of the project. "The one thing to note about this project is that the investing partners required the project to be executed on purely commercial basis. That remains our object and so far that has been met," Ratcliffe said.
According to a study earlier sponsored by Chevron, the project team leader, a total of $ 1.8 bn new capital investment will accrue to the sub-region through the West African Gas Pipeline project. The study also revealed that close to 20,000 new jobs would be created.

As part of the series of agreements to actualise the project, Ghana last month, signed a letter of intent for the supply of natural gas from Nigeria to its thermal power plant. The gas supply to the power plant in Aboasi is expected to reduce substantially the cost of thermal power generation in Ghana by substituting cheapest gas with the crude oil.
The sub-regional pipeline project was conceived pursuant to Nigeria's commitment to Article 48 of the ECOWAS Treaty which encourages member nations to co-operate, consult and co-ordinate their policies regarding energy and mineral resources. WAGP debuted in the midst of energy crisis facing Nigeria's neighbouring states of Ghana, Togo and Benin, following rising fuel prices and a drop in energy generation through hydro-power sources.

However, the project has turned out to be a veritable export market for Nigeria's huge gas resources, a huge part of which is presently flared away.
The other major outlets for the country's over 2 bn cf of gas produced daily, is through exports of LNG by the Nigeria LNG and natural gas liquids by ExxonMobil. Domestic gas sales are limited to power plants and a few other industries.

Source: This Day/All Africa Global Media
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