On 29 March, Nigeria’s President Buhari announced “The Decade of Gas”, an initiative designed to ensure Africa’s biggest oil producer can take advantage of the global energy transition. The launch comes just as the government is pushing through some major reforms for the sector – notably, its long-awaited Petroleum Industry Bill – that could see the biggest transformation of Nigeria’s energy industry in decades.
Oil contributes around half of the government’s revenue and most of its foreign exchange receipts making Nigeria one of the countries most susceptible to the global transition to cleaner fuels.
But as Buhari’s latest initiative makes clear, many now believe that Nigeria’s largely untapped, natural gas resources could provide the means for the country to fund its way through the global energy transition.
One of the country’s major efforts here is the Ajaokuta–Kaduna–Kano Natural Gas Pipeline set for completion in 2023. Spearheaded by the government and funded by China’s Belt and Road Initiative, the government hopes it will connect the country’s gas supply to other planned trans-regional and intercontinental pipelines , such as the Trans-Saharan Gas Pipeline, in order to open up access to Europe.
Lack of infrastructure has historically hampered the Nigerian energy sector, and represents a crucial reason why its gas reserves have been untapped for so long. This pipeline project could fundamentally alter the calculus, and also help the country meet its growing electricity needs in a cleaner, more sustainable manner.
Expanding the national power grid, and the interconnection of local, regional and national power generation will also be key. Without a full-scale national power grid, the exponential impact of renewables and natural gas-fuel power generation will not be possible. Additional power generation projects will also need to be put in place, so as not to burden the current grid.
Such investments will be crucial in moving the sector towards gas. It is important for Nigeria’s economy, however, that it does not try to move too fast. Immediate financing will be available from third party providers, especially China, and often with high risks. The more prudent option in the long-term would be for Nigeria to retain ownership of its energy transition infrastructure.
Reforming the energy sector
To do so, Nigeria will need to generate funds from existing energy resources, and balance investment in renewables with extracting short-term value from its oil sector. This is why the government’s Petroleum Industry Bill will be so significant. Its reforms are wide-ranging but at their heart is the optimisation of the revenues accruing to the Government, and the promotion of the kind of governance reforms necessary to prepare the industry for a move into renewables.
Reforming the management and oversight of the energy sector has been a major focus of the Buhari government, which in recent years has moved to commercialise Nigeria’s national oil company and put in place plans for new regulatory agencies designed to tame a sector with a history of malpractice. There remains much to be done, including the need to address internal instability which has disrupted the industry, but they are positive steps forward.
For Nigerian policymakers, additional revenues from natural gas could in turn provide valuable support for renewables and generate millions of skilled, green jobs for Nigeria’s young and fast-growing population. In the private sector, growing investments in wind and solar energy are a positive early sign. Nigerian companies like AllBase and Daystar Power are already expanding across West Africa. The success of firms like these may ultimately have just as significant an impact as Nigeria’s pivot to natural gas.
Diversification is crucial for economy
As the global energy transition deepens, however, so too will Nigeria’s need for diversification. The country’s fast-growing tech sector, which already accounts for 10% of GDP, demonstrates a capacity for innovation that Nigeria must nurture further.
The government recently announced the largest infrastructure drive on record to improve ports, roads and rail networks, with an eye on job creation and boosting the country’s export capabilities. Targeted investments in agricultural technology are also on the agenda, aimed at modernising and making more competitive the country’s largest employer, the agricultural sector.
A lot needs to go right for Nigeria’s economy to weather the global energy transition, and ultimately thrive in its decade of gas. Yet Nigeria’s leaders are taking a sensible approach: enacting much-needed reforms to maximise revenues from its extractives, while investing in the future. Time will tell if they’re to succeed.
Cyril Widdershoven is a veteran global energy market expert who holds advisory positions at various international think-tanks and energy firms.