LONDON (Dow Jones)--Russia's Gazprom OAO (GAZP.RS) is in discussions with the Nigerian government about signing an energy deal that would see the giant state-run natural gas company help explore and develop the West African nation's giant gas resources, a senior Nigerian oil official and Gazprom officials said Saturday.
Gazprom spokesman Sergey Kupriyanov confirmed that the company is in talks with Nigerian officials, saying, "We are interested in Nigeria, and the talks are under way."
"We've had productive talks with Gazprom so far. They would help us develop our gas and would come here with technology and a willingness to build infrastructure, like gas-processing facilities," the Nigerian official told Dow Jones Newswires.
A person at Gazprom said that the talks are at an early stage and that Gazprom is keen to develop gas resources in the West African nation.
He wasn't able to divulge the timeframe for the talks, but confirmed that they are under way.
The Nigerian official also described the talks as in the early stages but said a deal could be reached this year. Any deal would likely exceed $1 billion in value, the official said.
The Nigerian official added that a Gazprom delegation had visited Nigeria in December to discuss a variety of possibilities of Russian participation in Nigeria's gas sector.
The discussions fit in with Gazprom's stated desire to hunt for gas assets outside of Russia to further its growth.
The Nigerian official also said that there was some concern by Gazprom about the profitability of exploring for gas in the country given recent mandates by Yar'Adua for energy companies to set aside a portion of their gas output for domestic use. Local gas prices in Nigeria are subsidized by the government.
"That issue has come up but I think it's one that can be overcome," the official said.
Gazprom's entry into the Nigerian market would set off concerns in Europe and the U.S. over the company's dominant role in providing Europe's gas. That position could grow further with gas production and exports from Nigeria.
The company's entry into Nigeria would also underscore the growing competitive threat of state-run companies to Western energy firms, which have found themselves in the past couple of years increasingly losing out on deals to national companies that are often willing to take fewer profits to clinch deals.
Nigeria is Africa's biggest oil producer but also has the world's seventh-largest gas reserves, which until the past decade have been underutilized.
For decades, the country has flared, or burned off, most of its gas because of the lack of infrastructure and a tiny domestic market. But Nigeria has built a handful of multi-billion dollar gas export facilities in the past decade with the help of U.S. and European companies like Royal Dutch Shell Plc (RDSB.LN) and Chevron Corp. (CVX).
Nigeria is now a fast-growing gas exporter to the U.S. and Europe but still has a significant way to go to change its status as one of the world's biggest flaring countries. The government says a 2008 no-flare deadline for all companies operating in Nigeria remains in place and that financial penalties will be slapped on firms that don't meet the deadline.
Russia and Nigeria are the world's two largest gas-flaring nations. The senior Nigerian oil official said Russia was keen to assist Nigeria find commercial uses for its gas and to reduce flaring.