- The World Bank today has approved a total of US$ 125 million in guarantees, supporting the construction of a 678 kilometres gas pipeline to transport natural gas from Nigeria to three other West African nations; Benin, Ghana and Togo. The pipeline will improve the chronically poor energy situation in these countries.
The World Bank's contribution however is small, compared to the total cost of the project, which are estimated at US$ 590 million. The real importance of the Bank's approval is the signal it gives to private investors. Historically, this signal will mean that it will be relatively easy to find the outstanding funds to finance the large project.
The World Bank itself compares the situation with its approval of funds for the Chad-Cameroon Oil Pipeline, which had been the condition of several multi-national companies for their participation in the project.
The West African Gas Pipeline Company (WAPCo), led by the US giant Chevron Texaco, had requested the World Bank's involvement in the new gas pipeline, indicating that it would not implement the project without appropriate mitigation of what they perceive as "political risks linked to natural gas sales to state-owned power companies in Ghana, Benin and Togo."
The gas, produced in Nigeria and sent to the three neighbouring countries, is to be used initially for power generation, and later for other industrial and commercial uses. Power generation has turned increasingly unstable in the three countries, in particular Ghana, as most of their hydroelectric potential has been spent.
The World Bank's Task Team Leader for the project, Michel Layec, today praised the West African gas pipeline. The project was to "provide cheap, efficient, and environmentally friendly fuel to the consuming countries, which will lower the cost of power in these countries and improve the competitiveness of goods and services," according to Mr Layec.
The pipeline is also a flagship project in the push to accelerate economic integration in West Africa. Backers expect that the pipeline will contribute to the harmonisation of regional, institutional, legal and regulatory frameworks in the participating countries. It complements the proposed West African Power Pool (WAPP) project, which promotes increased electricity trade among the 15-member states of the Economic Community of West African States (ECOWAS).
According to the World Bank, it will also help replace higher polluting fuels such as crude oil, heavy fuel oil and gas oil, with cleaner burning natural gas. I particular Ghanaian electricity producers have had to turn to oil lately to be able to provide sufficient power to the fast developing country.
The project is also aimed at bringing Nigeria closer to attaining the government objective of eliminating the environmentally damaging gas flaring by the year 2008. Nigeria currently flares 75 percent of the gas it produces. WAGP however is a relatively small part of the overall gas development in the Delta region of Nigeria, representing only 5 percent to 10 percent of overall gas production.
For the past 10 years, Ghana has been struggling to meet demand for reliable and affordable electricity, which has been growing at about 8 percent each year. The Volta River Authority (VRA), which produces nearly all of Ghana's electric power and supplies electricity to a number of neighbouring West African countries, will account for about 90 percent of the initial gas transported from Nigeria.
The electricity companies in Benin and Togo will only account for 5 percent of the gas transported from Nigeria each. This is because the power market in these two countries is by far smaller than in Ghana, and the power production deficit in Benin and Togo is also smaller.
However, an increase in demand for natural gas is expected in all three countries. In Ghana alone, demand for electricity is expected to grow by 5 percent annually. Moreover, consumers in all three countries are expected to switch from liquid fuels to natural gas over time.
The 678 kilometre pipeline, to be laid mostly offshore, is expected to be 18 to 20 inches in diameter. Its main offshore trunk will be placed on the seabed in 26 to 70 meters water depths at an approximate distance of 15 to 20 kilometres from the shore of all four countries.
The West African Gas Pipeline Company (WAPCo) is a newly formed private entity, owned by Chevron Nigeria Limited (36.7%), NNPC (25%), Shell Petroleum Development Company of Nigeria Limited (18%), Volta River Authority of Ghana (16.3%), Societe Beninoise de Gaz S.A. (2%) and Societe Togolaise de Gaz S.A. (2%). WAPCo is to build, own, operate, and transport natural gas from a terminal near Lagos, Nigeria, to the terminus at the western Ghanaian town of Takoradi.
Nigeria's gas reserves, estimated at about 125 trillion cubic feet, are twice as large as its oil reserves, with a potential for production of 120 years, compared to 30 years for oil. Oil production currently accounts for 95 percent of Nigeria's foreign exchange earnings and over 80 percent of GDP.
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