A more detailed report is attached.
Attachment
Report of the U.S. Delegation3
Washington, August 13, 1979
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.
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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
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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.
