The tunnel he means opens up from the graveyard where Jake's dog is.
There's an unmarked pit that isn't a grave
It also opens from two other locations in the city.
There's a hatch beside the stairs, but you have to teleport or jump someone to it. There's an entrance to the basement of the abandoned smithy, but Holy Crap the traps at low level. Also lockpicks needed if you go in from the top.
The graveyard outside the city is *not* low level, as you already noted.
