Among the major African energy exporters, Nigeria stands as one of the primary countries which could gain from the unfolding re-shuffling of the global energy order. The ongoing energy crisis, which keeps on revolving around the European natural gas emergency, the discontinuities of market fundamentals and the crumbling EU-Russia gas trade will bolster new forms of gas interdependencies between the African continent and potential partners in advanced economies of Southern Europe.
This could eventually reshape Abuja’s status as an exporter in the energy transition era. Nonetheless, Nigeria must face severe challenges to unlock its energy potential. As the clock keeps ticking, the country has to balance its ambitions in energy geopolitics, with sober reality checks over upstream and export challenges.
Vast endowments, short-sighted strategy
With almost 80 million people living with the equivalent of less than 2 dollars a day, Nigeria’s woeful economy relies on cheap oil, the baseline of state revenues and a stabilising element for domestic industries and poorly planned welfare policy. Oil remains low-cost thanks to the extraordinary subsidies granted by the government, covered through the profits of the state-owned Nigerian National Petroleum Corporation (NNPC). The drawback is that, despite the eye-watering international prices in 2022 and the exorbitant cash flow from the industry, Abuja has recently allocated more funds to fuel subsidies than to education, health care and welfare as a whole, curbing inflation caused by the increasing oil consumption. Moreover, since 2012, domestic oil production is in steady decline, hampered by vandalism and theft, along with the inability of the industry to renovate its production assets and the scepticism of international investors due to the unstable political environment.
Having large reserves of natural gas, estimated to around 200 trillion cubic feet (5.6 trillion cubic meters), the largest in Africa, Nigeria aims to triple such amount in the near future. Being almost completely discovered through oil exploration processes, the expansion of state gas reserves would rank Nigeria among the major gas holders worldwide, shoring up the budget, which relies on oil and gas revenues for almost 70%. Additionally, in the government’s intention, natural gas would contribute to enhancing the electrification rate, one of the world’s lowest, with only 55% of the population connected to the national grid.
International institutions, such as the World Bank and the African Development Bank, are implementing projects to provide energy access to under and unserved communities using renewable energy sources. Yet, initial investment costs are relevant and state subsidies – whose future is far from certain – are necessary to pursue the electrification of the country and exploit the abundant solar energy potential of Nigeria.
Gas for Nigerians or Nigerian gas for the world?
Against this background, Abuja is doubling down on gas as Nigeria’s key resource for the future. In 2021, President Muhammady Buhari launched the Decade of Gas, an ambitious plan to power the economy with gas by the year 2030 to ‘transform Nigeria into an industrialised nation, with gas playing a major role, enabling Abuja to tackle energy poverty while powering its industries.
The same targets were included in the National Gas Policy of 2017 and confirmed in the 2021 Petroleum Industry Act (PIA). The next years will be a critical juncture for the development of the Nigerian gas industry, fostering governance and institutional changes, whilst separating liabilities and responsibilities in asset management; at the same time, promoting investments across the whole value chain and establishing bureaucratic improvements to ease the fiscal climate for domestic and foreign investors. The PIA estimates a Gross Value Added (GVA) of over $18 billion per year to the domestic economy, once the new gas reserves are fully utilised.
Figure 1: Nigeria’s oil and gas infrastructures
With some emphasising the importance of gas for domestic economic growth, the government is clearly aiming to increase its market share in the EU gas market, through gas exports and also to attract foreign investments.
The Nigeria gas dilemma comes at a time of great disturbances on global energy markets. As a fact, the country sides with Russia and Saudi Arabia within the OPEC+. Because of its impaired oil sector, it stands to gain from the coordination of an international coalition of producing states, aimed at keeping steady, high oil prices. Such position aligns Abuja to a platform that is radically opposed to the interest of the US and its allies, with real chances of an impending, unprecedented political escalation.
Brussels is certainly concerned by an oil cartel, consolidating higher prices and bolstering a corrosive inflation for European economies, tough in the effort of putting ‘an end to the imports of fossil energy from Russia’ before 2030. By strengthening bilateral gas partnerships, Nigeria has been relieved by the EU assurances that gas maintains its position as a transition fuel and the EU Commission is looking at ‘all options for increased supply of LNG from Nigeria’.
Where do we stand and where do we look forward?
Since the beginning of the Ukraine-Russia conflict, Nigeria has unleashed its gas diplomacy to the North and the West, revamping the Trans-Saharan gas pipeline (TSGP) and the Nigeria-Morocco gas pipeline (NMGP) projects, which have been floating around for almost two decades. These pipelines would connect Nigerian gas assets to the North African states of Algeria and Morocco, where they would be conveyed to Italy and Spain respectively (Fig. 2). Yet, TSGP and NMGP supporters have huge challenges ahead and the pipeline installation is much more in peril than actual conditions on global gas market might suggest.
Fig. 2: The Trans-Saharan Gas Pipeline Project
Extremism and terrorism have not ceased to fan the flames of endemic instability in Western Africa and Sahel. Such circumstances, combined with an increased military presence of new international actors, such as Russia, China and Turkey, cause additional distress to the stakeholders, who need dozens of billions to finance these projects. Should Abuja be serious in finalising them, it will need to put much more resources in gaining traction over the current regional diplomatic and security scenario, also bolstering the dialogue with powerful actors like Algeri. In the absence of such basic elements, both the TSGP and NMGP will not come to light.
Even without any pipeline connections, Nigeria already appears as a key gas partner to Europe. In 2021, the country covered around 14% of EU imports of LNG, right after the US, Qatar, and Russia. In 2021, exports totalled 23.3 billion cubic meters (bcm), the 6th largest in the world. Starting from 1999, Nigeria exports LNG from the Bonny Island facility. The NLNG plant is operated by NNPC and three international partners (TotalEnergies, Shell and ENI); works are currently underway, aiming to expand export capacity to a total of around 41,5 bcm a year. In the first half of 2022, Nigeria kept the same volumes of gas exports to Europe as in the same period of 2021. This means that the country failed to prosper over the sky-high prices indexed to TTF and other European benchmarks, with the NLNG terminal constantly operating below the designed capacity. Theft, vandalism, and upstream disruptions are the main causes of the structural Nigerian underperformance.
Most of the country’s LNG gas has been delivered to the Iberian Peninsula, with Nigeria positioning itself as the main supplier of Portugal and the second largest to Spain. Furthermore, France, UK and Poland are consistent importers and, outside the EU, Kuwait and Japan are other buyers of Nigerian LNG, followed by the two economic powerhouses of China and India. The NLNG facility is also securing large quantities of gas to international players such as Shell, to be delivered to its international portfolio clients.
However, prospects of Nigeria ramping up LNG exports in the near future are rather grim. Other than the instability of gas production and exports recorded in the last couple of years, in October 2022 devastating floods in the Southern states – the worst in more than a decade – are threatening the industry output. Having killed hundreds of people and displaced millions, floods also hit upstream operations and limited the ability of suppliers to feed gas to the NLNG facility. Consequently, despite the fact that, so far, the LNG terminal does not seem to be directly affected by the events, the operator issued a preventive force majeure notice, which protects NLNG from eventual disruptions and implies the impracticality to fulfil contracts with international partners. Portugal’s oil and gas company, GALP, has immediately received a force majeure notice without any specific information about the potential impacts of disruptions. Yet, given the nature of the Iberian Peninsula as an energy island within Europe, the burden of any disturbances of Nigerian supplies would be felt there, before reverberating to the rest of Europe and weighing on the global balance. A congestion of LNG tankers, unable to unload their cargoes, is forming off the coast of Spain. Consequently, this would delay any immediate fallout on the EU gas demand. Nevertheless, given the unpredictability of damages caused to Nigerian assets, it is impossible to anticipate which consequences these will have for the already troubled gas markets.
The persistence of upstream disruptions in the Nigerian gas industry, putting at stakes around 4% of global LNG supplies, as well as Abuja’s ability to resolve its energy and gas conundrum, in the next few months or years, would deeply affect Nigeria’s energy prospects and its mere credibility as a reliable LNG supplier to Europe, in the uncertain times ahead.