At Large

Russia’s Power Play

Gazprom wants control of Nigeria's oil. It may get it.

By 1.16.08

Russia wants to expand its role in global energy operations, and it has selected the gas deposits of Nigeria as a main target. Politics and the petroleum business in Nigeria begins and ends with payoffs, and the Russians are now in it up to their state-owned Gazprom's neck. Effectively it is one government cartel dealing with another -- with plenty of private deals in between.

"Dash," as the practice of offering a special economic inducement is known in West Africa, can be as simple as a cash gratuity or as complex as an economic aid program set in a politically important region. The Russians have shown that they know the game and now are in full scale negotiations with officials of the Nigerian National Petroleum Corporation (NNPC).

The entire project is supposed to have begun a year ago with a letter sent from Vladimir Putin to Nigeria's President Umaru Yar'Adua. In fact it began some time before with Russian political operatives, some diplomatic and some Gazprom-connected, feeling out the Nigerian government scene for appropriate routes to the presidency through which to initiate talks on Russian penetration of the Nigerian oil and gas industry.

For Moscow to get its foot in the door, certain things were to be considered early on: First, there is a chronic shortage of electricity that limits Nigerian economic development. Second, Nigeria has only one LNG export facility and Gazprom would have to build another or participate in the grand scheme to pipe gas across the Sahara. In the latter case the Russians could emphasize their extensive pipeline experience, but that capability is widely held internationally and not a highly competitive "dash."

THE STRONGEST CARD in the Russian hand is their willingness to take on the problem of solving the electrical power shortage. This is a large and complicated undertaking. Initial discussions have been held regarding utilization of the nearly two and a half billion cubic feet of gas gained daily as a by-product of oil production and now flared off. The retrieved gas would be used to fuel electrical power plants.

The Russians do have a particular knowledge of flare-off problems because of their own considerable experience with the excess gas generated during their own oil production. Solving the Nigerian gas problems by recycling excess gas into electricity production would be a major industrial "dash" quite worthy of special treatment of the Russians by the Nigerians. Gazprom's objective, in turn, is to be rewarded with access to one of the world's largest gas deposits, thus increasing Moscow's existing dominance as Europe's gas supplier.

The traditional oil companies' (Exxon Mobil, Royal Dutch Shell, and Chevron) near-monopoly in Nigeria is clearly threatened by Gazprom's competitive ambitions and willingness to spend a fortune. The multi-national companies have invested a reported $5 billion in liquefied natural gas projects in the last five years. Further LNG plant development, however, is needed to increase Nigeria's revenue stream and Gazprom is said to be looking into that aspect of development also.

Gazprom has played the anti-colonial card to the maximum. The Russians like to draw comparisons with their own efforts after 2000 of ridding themselves of what they call "the attempted resource grabs" of western companies after the fall of the Soviet Union.

It's obvious, nonetheless, that Russia, with Gazprom as its agent, would like to move substantially into African resource development. Their Nigerian venture is a major first step. But it is also part of the worldwide trend of state-owned and managed oil companies competing directly with the traditional western firms.

Of course, along with the major industrial benefits proffered by Gazprom is the dispensing of well-placed personal "dash" to key Nigerian political and commercial players. As any Nigerian politician will explain, these are not bribes -- merely the socio-economic price of doing business in their country.

Those Nigerians who have studied in the United States point to the similarities in Washington lobbying and municipal building projects nationwide. It's useless to argue against this convenient but inapplicable logic.

The Gazprom venture into Nigeria was initiated under the leadership of its former chairman, Dimitry Medvedev. As Russia's next president Medvedev will make sure the project proceeds apace. It's one of the priority projects Vladimir Putin will be leaving on his protege's "to do" list -- unless Putin wants to handle this matter himself as prime minister. The West needs to take notice and compete -- but on its terms!

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.