US embassy cable - 02ABUJA2665

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 002665 
 
SIPDIS 
 
 
E.O. 12958: DECL: 09/12/2012 
TAGS: OREP, EPET, SENV, ECON, PGOV, NI 
SUBJECT: NIGERIA: U.S. OIL EXECUTIVES TELL SENATOR BINGAMAN 
FLARING REDUCTION DEPENDS ON GON FUNDING 
 
REF: ABUJA 3201 
 
 
Classified by Ambassador Howard F. Jeter; Reason 1.5 (d) 
 
 
1.  (C) Summary: On August 31, Senator Bingaman (D-New 
Mexico) met representatives of the three largest 
Nigerian-based U.S. oil companies (ChevronTexaco, Conoco, and 
ExxonMobile) to discuss natural gas flaring in Nigeria.  The 
oil executives stated that efforts to halt gas flaring have 
been hamstrung by the GON's lack of funding to the Nigerian 
National Petroleum Corporation (NNPC).  ExxonMobil, second 
largest producer in Nigeria after Shell, with 520,000 barrels 
per day (bpd), plans to end flaring by 2005; Chevron-Texaco, 
with production around 450,000 bpd, hopes to stop gas flaring 
by 2007, a year before the GON-mandated 2008 deadline. 
Conoco, a relatively small producer at 15,500 bpd, will 
deplete its current production field in 2004.  The deep-water 
blocks the companies are now developing will not flare gas. 
The executives added that development of the natural gas 
industry and of an internal market for natural gas has been 
stifled by the GON's inability to formulate natural gas 
policies that encourage private sector investment.  End 
summary. 
 
 
2. (C) The U.S. oil executives who met with Senator Bingaman 
were Steven L. Howard, ChevronTexaco Nigeria Limited General 
Manager Finances and IT Department; Larry Salz, ExxonMobil 
Producing Nigeria Unit Limited, Executive Director, 
Production; John T. Capps, Conoco Energy Nigeria Limited 
President and Managing Director. 
 
 
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Senator Concerned by Gas Flaring 
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3. (SBU) Senator Bingaman told the oil executives that his 
interest in gas flaring had been piqued after meeting with 
World Bank (WB) officials in Washington in early August. 
Briefing the Senator on a proposed $3 to $4 million dollar 
program to curtail gas flaring and venting, the WB officials 
identified Russia and Nigeria as the two most prolific gas 
flarers, with as much as 75 per cent of Nigeria's natural gas 
being wasted. Pointing to the economic and environmental 
losses caused by gas flaring, the Senator asked the oil 
executives what steps they were taking to rectify this loss. 
 
 
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Slow Progress on Gas Flaring 
---------------------------- 
 
 
4.  (C) Salz said ExxonMobil, which mostly re-injects natural 
gas into the wells in order to lift more crude, flares 25% to 
30%, "probably the lowest in Nigeria."  Salz stated that by 
Nigerian law, all flaring should halt in 2008; ExxonMobil has 
set 2005 to eliminate gas flaring at all of its facilities. 
Salz said the major problem in halting gas flaring was the 
NNPC, which holds 60% of the JV to ExxonMobil's 40%.  The 
NNPC's budget has been cut by the GON and will likely not be 
able to provide its share of the $2.5 billion project to halt 
gas flaring, he concluded. 
 
 
5.  (C) Comment: Through the NNPC, the GON owns the 
controlling interests in all joint ventures or production 
sharing contract production blocks with oil companies.  The 
NNPC, which relies on the GON for its annual budget, has been 
unable to provide its share of the capital investments 
required to fund gas flaring reduction facilities.  End 
Comment. 
 
 
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Political Machinations Complicate Problem 
----------------------------------------- 
 
 
6.  (C) Senator Bingaman remarked that, meeting earlier in 
the day, Nigerian President Obasanjo told the CODEL that gas 
flaring would end by 2004.  Salz responded that the current 
pace of GON investment would not sustain the President's 
prediction.  Salz added, "Nigeria has been slow to stop gas 
flaring because it is easier to flare than to re-inject or 
sell it." ChevronTexaco's Howard then said that though there 
is a huge potential market for natural gas in Nigeria, it is 
not profitable to produce and sell because, in part, the GON 
keeps electric and natural gas prices low. 
 
 
7. (C) Capps reported that Conoco would halt oil flaring as 
soon as its only oil field runs dry, probably in 2004. 
Concoco's future projects will not flare gas.  Howard said 
that ChevronTexaco has started projects to halt gas flaring 
by the GON's mandated 2008 date, and hopes to complete them 
by 2007.  Bingaman asked the executives why the NNPC was not 
acting to halt gas flaring sooner.  ExxonMobile's Salz 
believes the problem is money, for which there are many 
demands in the GON.  He explained that last year the GON gave 
NNPC $3.1 billion of which ExxonMobile's budget was $1.3 
billion.  This year that budget was cut by $350 million to 
$950 million.  Simply spoken, the GON penalizes oil companies 
for flaring, but does not provide NNPC the funding necessary 
to end it.  Nigeria is still not very environmentally 
conscious and a reduction of flaring, the executives 
speculated, may not be as politically attractive as other 
potential uses of the limited government funds. 
 
 
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Uncertainty in Natural Gas Regime Makes Investors Wary 
--------------------------------------------- --------- 
 
 
8.  (C) The Senator asked about plans to build natural gas 
power plants that would use the gas now being flared. 
ChevronTexaco's Howard said the lack of an integrated policy 
on natural gas hurts development of the gas and power 
industries.  For example, the GON tries to stimulate the gas 
industry by taxing profits at 30 per cent (as compared to 70 
per cent for oil).  But another measure, entry of capital 
goods duty free, was revoked recently as a way to gather 
revenue.  A USAID Officer also noted that the GON has not 
decided how to administratively divide up the natural gas 
portfolio.  A lack of clear administrative guidelines and the 
unclear pricing and regulatory policy in power generation and 
natural gas have dampened interest by potential investors. 
 
 
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75 per cent flared is probably too high 
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9. (C) Bingaman asked whether the WB estimate that Nigeria 
flares 75 per cent of its natural gas was accurate.  The oil 
executives replied in unison that they thought the figure too 
high.  Oil companies must provide monthly flaring reports to 
the GON and the NNPC should be able to provide an accurate 
number.  The Senator stated that he was concerned about the 
flaring issue and would try to build support in the Senate 
for the WB's initiative to reduce gas flaring. 
 
 
10.  (C) Comment: Inadequate GON funding of the NNPC bodes 
poorly for a reduction in Nigeria's gas flaring at the rate 
the companies plan.  This does not mean that the GON is 
disinterested in gas flaring.  A high GON energy sector 
priority is to become a major player in the natural gas 
market.  To do so, Nigeria must start capturing the gas it 
now burns.  The hurdle is that the GON's current budgetary 
squeeze makes it difficult to invest significant funds to end 
gas flaring in the short-term.  Because of the GON's 
financial constraints, this is an issue we must continue to 
push if we are to get more rapid GON movement to end the 
environmentally damaging gas flaring. 
JETER