Alongside its vast oil reserves, Nigeria has significant natural gas resources. According to the Nigerian National Petroleum Corporation (NNPC), the government- owned energy company, in 2021 the country’s natural gas reserves amounted to 206.5trn cu feet. While oil exploration and production have driven energy policymaking in recent decades, attention is beginning to shift to natural gas.
To help facilitate growth in the segment, in March 2021 the government launched the Decade of Gas initiative, a plan to help the country manoeuvre the global energy transition by developing the natural gas segment. The goal of the policy is to focus investment and government planning on the development of natural gas resources to benefit the economy. More specifically, it aims to increase the domestic utilisation of liquefied natural gas (LNG), commercialise gas flares, develop industrial gas markets and increase gas-to-power capacity.
In May 2022 the government said it planned to power 20m homes through its National Gas Expansion Programme. The initiative aims to promote the increased utilisation of natural gas for household and industrial purposes, with the goal of making this cleaner and more affordable energy source the preferred energy option.
These efforts are especially important given the effects of Russia’s invasion of Ukraine in February 2022 and its impact on global gas prices. Increasing demand, as well as efforts by markets to diversify their imports away from Russian crude and natural gas, has given Nigeria a critical window to attract private investment for the development of its own natural gas reserves. Balancing government plans to facilitate domestic consumption with rising external demands will require significant investment in energy infrastructure and improved security.
Production & Exports
Domestic consumption of natural gas is projected to rise from 15bn cu metres in 2019 to 20bn cu metres by 2030. Gas exports are also forecast to increase from 33bn cu metres in 2021 to 44bn cu metres by 2030. Similarly, natural gas production and distribution will benefit from infrastructure development.
Most of the country’s LNG was exported to the Iberian Peninsula, with Nigerian LNG making up nearly 50% of Portugal’s supplies in 2021. France, the UK and Poland are also key export markets. Improving access to European markets will play an important role in increasing exports. Nevertheless, Nigeria is positioning itself as a key player in the energy transition, capable of meeting the needs of both domestic and international markets.
Additional gas output will likely be made available in the short term through government measures to combat gas flaring. In the first half of 2023 Nigerian oil production sites flared an estimated 138.7m cu metres of gas. In addition to the significant adverse environmental impact, flaring in the same period reportedly cost the country as much as N373bn ($888.7m) in lost revenue. To address this, the government launched the Nigeria Gas Flare Commercialisation Programme in 2016 to monetise gas released as a by-product of oil production. Although implementation has been slow, in January 2023 the Nigerian Upstream Petroleum Regulatory Commission announced it short-listed 139 out of 300 companies to participate in the programme. According to the Nigerian Gas Flare Tracker, flared gas declined from 13.3bn cu metres in 2018 to 6.3bn cu metres in 2022.
Favourable Context
European countries are trying to reduce their dependence on Russia’s hydrocarbons, especially natural gas, following the invasion of Ukraine. This has allowed other countries to increase their market share in the continent. Nigeria shipped significant amount of natural gas to Europe, accounting for 14% of the EU’s LNG supply as of mid-2022. However, export volumes to EU countries declined from 36bn cu metres in 2018 to 23bn cu metres in 2021.
It will be important for the government to address several long-standing challenges in order to increase supply and thus exports of gas in the short term. “Europe’s aim to replace Russian oil and gas with alternative sources presents an opportunity. However, there is a shortage of supply,” Usoro Essien, research analyst at the financial services firm Rand Merchant Bank, told OBG. “Due to several factors including a lack of financing for exploration, many projects have not reached the implementation stage.” However, given the existing infrastructure –pipelines connecting to the European gas network – Nigeria is particularly well-positioned to increase exports to Europe and reshape it’s status as an exporter in the energy transition era.
Investment
Efforts are being made to fulfil domestic demand and increase exports by boosting production levels. Rising demand at home has led to price increases. In October 2022 Nigeria LNG (NLNG), an incorporated joint venture that includes the Nigerian government and oil companies such as Shell and Eni, declared force majeure following the flooding in the Niger Delta and stated that it would be unable to fulfil gas export contracts with several international customers. However, the company’s production capacity, generally at 20m tonnes per year, was already at 68% before the floods due to security issues and infrastructure damage.
NLNG is engaged in crucial investment projects to raise output. For instance, the Train 7 project, which is estimated to cost $10bn, is expected to increase the gas production capacity of the firm’s terminal in Bonny Island by 35%, from 22m to 30m tonnes per year. Currently under construction, this expansion project is slated for completion in 2026. As of late 2022 oil theft and vandalism had reduced the capacity of the LNG export terminal at Bonny Island to 60%. The authorities are attempting to improve security across the sector to enhance oil output in the coming years.
Along with the production and development of new gas reserves, efforts are being made to improve transport infrastructure. As of March 2023 most of the gas exports were transported by sea in the form of LNG. Projects to build new pipelines will improve domestic and international distribution. New projects are being initiated to expand the network to help fulfil domestic demand. One challenge that has historically hindered development is the fact that Nigeria’s network of pipelines do not have sufficient capacity to meet domestic demand. Because of this, much of the gas used in the local market is transported by trucks. To address this, the authorities have prioritised the Ajaokuta-Kaduna- Kano gas pipeline, which is set to be commissioned by the end of 2023. Budgeted at $2.8bn, the 614-km pipeline will transport natural gas from southern to central Nigeria.
Competing Gas Links
The Ajaokuta-Kaduna-Kano gas pipeline will be a relatively small section of a much larger distribution network. An initial agreement was signed in 2009, but project subsequently stalled. The pipeline was revived in 2020 to fulfil heightened European demand.
In June 2022 Nigeria, Niger and Algeria held a meeting to discuss a project to build the Trans-Saharan Gas Pipeline linking Nigeria to Algeria via Niger, to transport natural gas to North Africa and then to Europe. The required infrastructure, valued at an estimated $13bn, will have the capacity to transport 30bn cu metres of gas a year.
In September 2022 representatives of the NNPC, Morocco’s Office National des Hydrocarbures et des Mines, and officials representing ECOWAS signed a memorandum of understanding for the construction of the Nigeria-Morocco Gas Pipeline. It will cross 13 West African countries and extend for 6000 km along the region’s coast. In Morocco, the pipeline would link with the Europe-Maghreb Gas Pipeline – decommissioned by Algeria in 2021, but still used by Morocco to import LNG shipments from Spain – and facilitate the export of Nigerian gas to the EU. Securing financing might prove challenging as investment has shifted away from emerging economies in recent years. However, this may be mitigated by high energy prices, the need to improve natural gas access for several West African countries, and the EU’s strategy to diversify oil and gas sources.
The Nigeria-Morocco Gas Pipeline will cost an estimated $25bn and will be completed in 25 years. As of March 2023 the authorities were still looking to secure much of the investment. The Islamic Development Bank pledged $45m for the construction of the pipeline and an additional $14.3m was offered by the Organisation of Petroleum Exporting Countries Fund for International Development. The authorities are expected to announce the final decision in 2023.
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