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CNPC to Invest US$5 bil. in Niger's Oil Sector; Pipeline and Refinery Promised

Published: 05 June 2008
A Chinese national oil company (NOC) has cemented its presence in Niger with a mammoth deal for the development of the country's oil sector.

Global Insight Perspective



The Nigerien government has prioritised its extractive industries as a means of accelerating growth from circa 5% to the 7% needed to reduce poverty levels from over 60% of the population to 42% by 2012, in line with the millennium development goals.


The Chinese National Petroleum Corporation (CNPC) investment illustrates the continued interest in Nigerien resources despite an ongoing Tuareg insurgency. It has the potential to boost Nigerien export capacity in addition to reducing the country’s dependence on petroleum product imports.


CNPC has not yet commented on the precise destination of the planned 2,000-km pipeline; possibilities include a new pipeline across the Sahara desert (i.e., east via Sudan), or one adjacent to Nigeria and Algeria's planned Trans-Saharan pipeline.

CNPC in Niger

CNPC has signed a US$5-billion deal in Niger to develop the country’s oil sector. CNPC will explore for oil in the Agadem block in eastern Niger, which is known to have commercial reserves of crude. Under the deal, CNPC will build a 20,000-barrels-per-day (b/d) refinery in the southern city of Zinder as well as a 2,000-km (1,243-mile) pipeline in order to export the crude, according to a statement on China’s Ministry of Commerce website quoted by Bloomberg,

CNPC has been prospecting for oil in Niger for the last couple of years and has worked with junior international oil company TG World Energy Corp., which holds a 20% interest in the Tenere concession. Two wells have been drilled under the current programme, but both Saha-1 and Fachi West-1 were later abandoned. There were plans to drill the Facai-1 well in May 2008, but the Tuareg rebel activity in the country means that this has been postponed and the well is now likely to be spudded in the second half of this year.

Reuters reports Niger's Mines and Energy Minister Mohamed Abdoulahi as saying: "Our government is firmly convinced that we've achieved a win-win contract for the benefit of the people of China and Niger".

CNPC has agreed to invest such a large sum in a country that is not currently an oil producer because it believes that Niger holds considerable potential. The southern half of the Termit-Ténéré Rift Basin is covered by the Agadem block, where there have already been six oil discoveries with reserves of approximately 400 million barrels of oil. The acreage was previously held by a joint venture of ExxonMobil and Malaysian NOC Petronas, which had some success in discovering crude oil reserves since it started exploring in July 2004, but the two firms did not believe that it was economically viable to exploit the reserves as a result of the need to build a pipeline to export the crude out of the country. The U.S. supermajor allowed its stake in the permit alongside Petronas to lapse amid hopes of securing new terms, but the Niger government held firm and wanted a refinery that would help to serve domestic consumption developed as part of any new licensing agreement. ExxonMobil was unable to agree an extension to its licence for the Agadem oil block and exited Niger in November 2006.

National Development and Niger’s Extractive Industries

GDP growth in Niger is projected to rise moderately from 5% year-on-year (y/y) in 2007 to 5.4% y/y in 2008 on the back of continued recovery in cereals and livestock production and a buoyant mining sector. That said, although growth since the 2004 drought has been strong and stable, it falls short of the 7% target identified by Nigerien authorities in the 2008-12 poverty reduction strategy paper as necessary to reduce poverty levels in line with the millennium development goals. For the requisite acceleration of Nigerien growth performance and to diversify the economic base away from its current vulnerability to weather patterns, Niger has prioritised the reform and expansion of its extractive industries—primarily uranium, which consistently represents over 30% of export revenue. At present uranium mining is limited to the Comair and Sominak mines, both partly owned by the French nuclear conglomerate AREVA. However, in 2007 the Nigerien government negotiated a 60% increase in the price of uranium paid by AREVA, committed to making up to 1,800 tonnes of direct sales of uranium on to the international market over the next two years and issued approaching 100 mining prospecting licences.

Petroleum production in Niger is non-existent at present, but several companies have already received oil exploration licences in the north of the country and three test borings were launched in 2003. Evidently, the CNPC investment will have a salutary effect on Nigerien GDP in the short term through investment. That said, capital goods imports can also be expected to increase in line with infrastructural development putting pressure on Niger's current-account deficit—fluctuating between 7% and 8% at present. Over the medium-to-long term, the development of significant upstream and downstream oil production capabilities, which overcome Niger’s landlocked-country status, would have important implications for export expansion and diversification, in addition to perhaps minimising the import bill.

Persistent Insecurities

Despite burgeoning interest from international players and expanding production, Niger’s extractive industries are threatened by intermittent conflicts between the Nigerien state and the ethnic Tuareg based in the north of the country. In February 2007, the Movement for Justice in Niger (MNJ) began an armed campaign in the Agadez region under the leadership of Agaly Alambo, ostensibly to secure greater access to resources and integration in the state bureaucracy, especially the military, for the Tuareg. In other words, a more comprehensive implementation of previous peace agreements between Tuareg rebels and the Nigerien government.

In the past 16 months of resurgent conflict, over 70 government soldiers have been killed and still more kidnapped. In July 2007, the MNJ kidnapped a Chinese expatriate worker, who was eventually released unharmed, and has since promised to target more foreign enterprises operating in the Agadez region. While Agadez is still the focal point for violence, the conflict has spread out into other regions; for example, a January 2008 MNJ attack on the south-eastern town of Tanout near the trade hub Zinder, and in the region of CNPC's planned refinery. Civilians are also increasingly caught in the crossfire of the mining of major transport routes, extrajudicial killings by security service officials, and a stranglehold on normal socio-economic activity.

Aside from the recently surfaced splintering of the MNJ there has been scant evidence of a reduction in the MNJ's will to continue its armed campaign. The government also remains obdurate. President Mamadou Tandja’s government accuses the MNJ of rank banditry and refuses to negotiate. According to Tandja, previous peace terms have indeed been fulfilled and there is no scope for negotiation outside of Niger’s political institutions. Therefore, the president has employed an exclusively military strategy to end the MNJ insurgency and a three-month state of emergency originally applied in August 2007 has been renewed twice.

Outlook and Implications

CNPC is committed to developing Niger's oil reserves and has an aggressive drilling schedule with 11 wells planned for the next four years and 18 explorations over the next eight years as well as a 4,000-sq.-km seismic shoot over the Agadem block.

The mystery is how CNPC will transport the oil out of the country: it is Global Insight's understanding that CNPC has not commented on a destination for its planned 2,000-km pipeline. In January 2007, CNPC purchased Canadian firm EnCana’s assets in Chad for US$202.5 million. The corporation has subsequently said that its drilling efforts have discovered crude in Chad and that it has plans to build a modestly sized 20,000-b/d refinery there. It seems unlikely that the ExxonMobil- and Chevron-led consortium that is producing oil in Chad would allow CNPC to export any of its crude that it discovers in Niger through the Chad-Cameroon pipeline although African Energy reports this is option is being strongly considered. CNPC may be planning to build a major new pipeline across the Sahara Desert to a port. This could mean a pipeline carrying crude to either Mauritania on the Atlantic Ocean or east across the Sahara via Sudan, where China already has a considerable presence in the oil industry. This could also lead CNPC to export any new oil discoveries out of Chad, but would almost certainly see a pipeline being constructed across Darfur, which seems hugely unlikely given the security problems there. Another possibility is constructing a pipeline to the Kaduna refinery in northern Nigeria, with, in return for this, CNPC doing a deal with the Nigerian government to secure a larger amount of Nigerian oil exports. While Upstream reports that the destination of the pipeline could be the Atlantic Ocean via Benin. One final option would be to explore the possibility of placing an adjacent pipeline alongside Nigeria and Algeria's planned Trans-Saharan pipeline, which could see Nigerian gas exported through Niger and Algeria to the Mediterranean in order to supply Europe.

The deal once again emphasises how important a role sub-Saharan Africa will play in supplying China with future oil supplies. China's NOCs are accruing vast swathes of acreage across the continent through several different countries. In seeking to secure the country's long-term economic future, China is approaching energy security as a key strategic objective.
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