China Takes The Lead In This Emerging Energy Frontier

Several weeks ago, we have looked into a very recent Russian initiative to increase their presence in the southern part of the Gulf of Guinea, encompassing a new product pipeline across the DRC, upstream interests in Equatorial Guinea, Cameroon and the DRC. Although China is the prime buyer for the Congolese Djeno crude as well as for the Equatoguinean Zafiro, the future plans of Chinese companies are looking to the north of the Gulf of Guinea. China's latest project is the Niger-Benin crude pipeline, a 1982km conduit that would create a new shipping outlet for crude produced by Chinese companies in Niger and Chad, simultaneously linking Niger to the existing Chad-Cameroon pipeline.

China's national oil company China National Petroleum Corporation (CNPC) dominates Niger's oil industry, being the only company that produces oil (currently the output hovers around the 20kbpd mark). CNPC entered Niger in 2003, taking up vast swathes of unappraised territories (the Bilma and Tenere blocks, their first in the country, amounted to more than 132 000 square kilometers). The first deliveries in the Agadem Basin have compelled CNPC to extend their reach in Niger and to link the oilfields to a refinery in Zinder, with a designated nominal capacity of 1mtpa. CNPC's relative success in shaping the contours of Niger's energy future has fueled the government's creativity, too - without regard to the increasing dependence on oil revenues (already 17 percent of the African state's exports and some 5 percent of GDP) it now stipulates that its long-term plan is to boost output tenfold to 200kbpd.

The Niger-Benin pipeline has been in the makings since 2012, as CNPC's first discoveries have compelled the regional authorities to think big and find export outlets for any incremental volumes. The initial idea was to link oil production from the Agadem Basin to the similarly Chinese-operated oil assets in Chad, just as it is done when CNPC exports Chad's flagship Doba crude. Then the idea that Niger's crude might be taken to Nigeria's Kaduna Refinery in Katsina state was also flaunted yet quickly dropped due to Kaduna's minimal utilization rates and Boko Haram still representing a grave threat for any investment project along Nigeria's northern border. Between 2012 and 2018, Chinese officials have tried to negotiate a deal with Chad yet given the strained ties between the two (think of the 2013/2014 Déby-initiated environmental dispute) CNPC has instead opted to iron out a deal with the government of Benin. Related: As Gas Prices Crash, Will This Shale Giant Survive?

Source: Africa Energy Intelligence.

It took CNPC less than a year to finalize the Niger-Benin Export Pipeline (NBEP) project, with the Transportation Convention signed September 15, 2019. NBEP might seem an odd choice considering it is more than double in length to the mothballed Niger-Chad pipeline expansion and hence much more expensive to carry out - the latter was estimated to cost some $1.2 billion, whilst NBEP's cost amounts to $2.5 billion. Boko Haram and an increasingly weaker state in Cameroon notwithstanding (both are perfectly legitimate reasons to shirk it), the prime reason to go for the costlier option lied in CNPC actually being able to do what it wants. Were it to opt to tie its Niger fields to the Chad-Cameroon pipeline which runs all the way to the port of Kribi, it would only have third-party access in that pipeline as it is operated by ExxonMobil, which co-owns it with Chevron and Petronas.

Inasmuch as its investments bring new life into the semi-arid Sahel region, China's emergence as the leading oil investor into Niger is not always perceived approvingly, raising fears that the emergent industry might be prioritized over other segments of life. Much of this stems from the government's rather inept forgoing of its environment protection-related commitments - in 2019 the Niger government arbitrarily moved the boundaries of the Termit and Tin Toumma nature reserves in the eastern part of the country so as to "unblock" territories which were included in the CNPC production-sharing agreement yet were heretofore protected by the status of Africa's largest nature reserve. Related: OPEC Considers Deeper Oil Cuts Amid Virus Market Meltdown

Be that as it may, the Niger-Benin Export Pipeline is expected to be commissioned by early 2022 at a total cost of $2.7 billion, linking Koulélé (the nominal hub of Agadem drilling operations) with Port Seme in Benin. The pipeline shall be accessible for third parties, too - Savannah Petroleum has already indicated its intent to utilize it once it is built. For the sake of Niger's diversified production portfolio, it is definitely good news that the UK-based Savannah Petroleum has made great headway in discovering new fields, finishing 2018 with a total tally of 130 MMbbl worth of oil reserves added. However, in terms of international majors the Chinese CNPC remains the only one, thus far only African companies have expressed their interest in taking up a bigger position in Africa.

Now that the pipeline construction is under way, the ball is in the court of Niger's government as they now must ensure that there will be enough crude to fill it. They have tried to garner some international attention by saying that were oil investors to spend 7 billion on exploration in Niger, a total of 109 discoveries would be unearthed in a short-to-mid-term horizon, to the mutual benefit of the local populace and NOCs. Niger is without a doubt insufficiently appraised and its lacustrine sandstone layers interbedded with mudstone might be of interest to international investors, especially now that low-sulphur heavy crudes are doing well in the international markets (the crude's API density varies in the 28-31° interval).

If Niger plays its cards right now, NBEP might become the start of something really worthwhile - all the more so as most international oil companies (including Glencore) now seem to be intent of leaving neighboring Chad, not because the oil is lacking rather because the authoritarian style of government hinders further investment. With Nigeria ratcheting up deepwater taxes, there is certainly room for Niger to be the business-friendly country of West Africa. Especially now, when the Niger-Benin might have auxiliary consequences for the region's upstream prospects in general - the authorities of both countries are actively promoting their forthcoming licensing rounds, moreover the transit fees would also provide a boost for federal revenues.

By Viktor Katona for Oilprice.com

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