48. Memorandum From Acting Secretary of State Christopher and Secretary of Energy Schlesinger to President Carter 1

SUBJECT

  • U.S. LNG Mission to Nigeria

In your letter of May 24 to General Obasanjo,2 you offered to send a delegation to Nigeria to discuss LNG export possibilities and the results of the Tokyo Summit. Officials of State and DOE visited Nigeria on August 1 and 2 (the dates suggested by the Nigerians) for the promised consultations. The consultations were helpful in giving the Nigerians a better understanding of the key commercial and regulatory considerations in determining whether or not they can export LNG to the U.S. Without raising expectations too high, the U.S. delegation indicated that we were interested in working closely with Nigeria as it formulates its proposals for submission to U.S. regulatory authorities.

A more detailed report is attached.

Attachment

Report of the U.S. Delegation 3

Results of LNG Discussions in Nigeria

In response to General Obasanjo’s letter of May 24, 1979 President Carter offered to send a delegation to Nigeria to discuss critical factors in U.S. regulatory decisions on LNG imports, and to provide background on the Tokyo Summit. These discussions were held in Lagos on August 1 and 2. The U.S. delegation consisted of Deputy Assistant Secretary of Energy Peter Borre, Deputy Assistant Secretary of State Robert Hormats and Robert deSugny, a DOE lawyer. The Nigerian delegation was headed by the Managing Director of the Nigerian National Petroleum Corporation (NNPC), F. Marinho.

[Page 145]

Consultations on LNG Imports

The U.S. team described the complex U.S. gas import review procedures, and the U.S. gas market outlook. The major points were:

—The U.S. attaches great importance to its relationship with Nigeria, and bilateral energy trade; these consultations represent a special effort on our part to address Nigerian concerns.

—There is a high degree of autonomy in U.S. regulatory procedures, hence the executive branch cannot commit itself, or prejudge the results of quasi-judicial proceedings.

—Imported LNG will need to find customers in the industrial sector. Because residual fuel oil is the major alternative for the industrial sector, LNG will need to be price competitive with residual oil; U.S. gas companies will thus need a landed LNG price competitive with “resid.” (Currently Nigeria is proposing a price too high to be attractive to U.S. industry).

In response, the Nigerians asked about specifics such as price escalator formula components, force majeure clauses and allowability of prepayments.

The discussions were substantive, low key and friendly; the Nigerians seem to have concluded that the USG is genuinely interested in pursuing the possibility of LNG imports, but that much work remained to be done, with commercial and regulatory criteria being the determinative factors.

Marinho at the conclusion asked that future consultations be formalized through a joint energy working group (which could join the four working groups already established by President Carter and General Obasanjo). We have already conveyed our agreement to this proposal.

Tokyo Summit Results

Hormats stressed the commitment of the Tokyo Summit participants to limit future oil imports.4 This was in part a response to urgings from OPEC countries that industrialized countries contribute to stability in the oil market through greater conservation. We underlined our hope that OPEC, in turn, would also contribute to a more stable oil market by responsible price and production policies.

The U.S. team pointed out that the Summit countries had committed themselves to help LDCs increase energy production, and noted that the U.S. has a program to help them assess their future energy needs and sources of production. The U.S. side said that, while Nigeria [Page 146] differs from most LDCs which are energy importers we understand its desire to develop energy other than oil. We have done energy assessments in Egypt and Peru and are exploring the possibilities with Venezuela on a reimbursable basis. We would be pleased, should Nigeria be interested to discuss possibilities in greater detail.

Nigerian Oil Production

In a private conversation Marinho told Borre that the Federal Military Government might soon review Nigeria’s oil exports in light of:

—The July 31 nationalization of BP, which gave NNPC “almost 300,000 b/pd” of BP equity oil, “most of which has been going to the United States.”5

—Pending applications from U.S. refiner/importers, also for “almost 300,000 b/pd.”

—New “flexibility” for NNPC, due to the August 1 production cutback of 240,000 b/pd.

By flexibility, Marinho was hinting at restoring some of the cutback, notwithstanding the technical rationale (which our Embassy is inclined to believe notwithstanding some skepticism expressed by the oil companies) used by Nigeria to justify the cutback.

Borre responded that:

—Geographic and oil quality factors have made the U.S. a natural outlet for Nigerian exports.

—Given market tightness, cutbacks in oil flows to the U.S. are a matter of concern in Washington; the need to rebuild distillate inventories makes the United States especially sensitive to Nigerian actions, because of the suitability of Nigerian oil for light products.

—With the possibility of a quota mechanism to back up U.S. oil import ceilings, both countries have a strong interest in steady, reliable energy trade.

Marinho seemed receptive to these points and indicated he would draw upon them in preparing materials for the FMG.

  1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Box 113, Nigeria 1–12/79. Secret.
  2. The reference should be to Carter’s June 13 letter to Obasanjo. See Document 46. Carter’s letter was in reply to Obasanjo’s May 24 letter. See Document 45.
  3. Secret.
  4. For the portion of the minutes of the June 28–29 G–7 Tokyo Economic Summit on energy, see Foreign Relations, 1969–1976, Energy Crisis, 1974–1980, Document 221.
  5. In telegram 10280 from Lagos, August 1, the Embassy reported on the nationalization and transmitted a Nigerian aide mémoire announcing it. (National Archives, RG 59, Central Foreign Policy File, D790347–0976)