Africa’s largest oil producer is undergoing a major transformation in its energy sector following the implementation of several reforms and the launch of an ambitious energy transition plan.
Africa’s largest oil producer is undergoing a major transformation in its energy sector following the implementation of several reforms and the launch of an ambitious energy transition plan.
The country aims to diversify its energy mix, boost its domestic gas market, curb crude theft, and attract more investment in its upstream, midstream, downstream, and power sectors. However, it also faces significant challenges, such a negative country risk perception, security risks, infrastructure gaps, and access to capital.
Oil sector: A recovery story amidst challenges
Nigeria’s oil production has been on a steady recovery trajectory since 2020 following consistent and repeated efforts by NNPC Ltd to fight crude oil theft. The country’s oil and condensate production currently stands at some 1.5-1.6m barrels per day (bpd) and the ambition is to ramp this up pass the 2m bpd threshold in the years to come.
Achieving this goal involves revitalizing dormant oilfields and enhancing onshore production after years of under-investments by IOCs and indigenous operators. To get there, the country needs to attract fresh investment in its upstream sector, which has been hampered by policy uncertainty, security risks, and fiscal disputes.
A pivotal moment came in 2021 with the passage of the Petroleum Industry Act (PIA). This landmark reform overhauled the legal and regulatory framework governing the oil and gas industry. It has since then been followed by several initiatives to make business easier across the value-chain, including a recent agreement by NNPC Ltd, the NCDMB and IOCs to reduce their contracting cycle to not more than 180 days.
President Bola Tinubu is also playing his part in encouraging investments. His engagement with international oil companies operating in Nigeria shows a commitment to revitalizing the oil sector and is expected to support the taking of several long-delayed final investment decisions (FIDs) over 2024 and 2025. These efforts signal Nigeria’s determination to rebound and thrive in a dynamic global energy landscape.
Gas market: balancing export and domestic eneds
Nigeria also holds the largest proven natural gas reserves in Africa, with a significant potential to industrialise and address its energy deficit. Estimated at 203 trillion cubic feet (tcf), these vast reserves hold promise for the country’s future providing investments can be channeled into production, processing, and distribution.
For now, stagnating gas output poses a critical challenge both for the country’s LNG exports and for its domestic gas monetization agenda. To bridge the gas supply gap by 2030, Nigeria is strategically prioritizing key projects that will support feedstock supply to Nigeria LNG – Africa’s biggest LNG exporter – and ensure domestic supply for power and industries.
Beyond upstream production, the country’s gas network remains inadequate and underfunded, and in dire need of investments to grow transportation capacity and connect all of the country’s states to the gas grid. Efforts are underway to develop the South-North axis via the Ajaokuta-Kaduna-Kano (AKK) pipeline, slated for commissioning in August 2024. Processing capacity is also set to grow, starting with the commissioning of Seplat Energy’s 300 MMscf/d ANOH gas plant later this year. At the downstream gas segment, Nigeria’s strategic vision, propelled by the Decade of Gas initiative and the new Presidential CNG Initiative (PCNGi), centers on domestic gas penetration. This crucial shift aims to unlock untapped potential and transform previously uncompetitive market segments.
The recent removal of subsidies has supported that vision and galvanized interest in gas. Segments such as compressed natural gas (CNG), liquefied petroleum gas (LPG), liquefied natural gas (LNG), and piped natural gas (PNG) are now emerging as attractive options for both industries and the transport sector. These once-overlooked avenues are poised for growth and innovation.
At the heart of this transformation are local companies who share the government’s vision for scaling up gas penetration and have the local understanding of the country’s dynamics to grow gas penetration. Their collaborative efforts are shaping Nigeria’s energy future, propelling the nation toward sustainability and dynamism.
Refinery landscape: Striving for fuel security and regional leadership
Nigeria, with the largest pipeline of refinery projects in Africa, faces formidable hurdles in securing feedstock and financing. The country has relied for year on imports to meet its fuel needs. While a flurry of modular refineries dots the landscape, the true game-changers for Nigeria’s fuel security lie in the commissioning of the Dangote Refinery and the rehabilitation of the Nigerian National Petroleum Company (NNPC) refineries.
Despite the surge in refinery initiatives, only five modular refineries have successfully reached the commissioning stage and now stand as vital contributors to the country’s energy security. However, their potential remains constrained by the lack of access to crude oil feedstock. Many struggle to operate optimally due to this critical limitation that particularly affects refinery developers who do not double as field operators.
To address its fuel security challenges, the path forward currently hinges on the full commissioning of the 650,000 bpd Dangote Refinery – the largest single-train refinery in the world – and the successful rehabilitation of the three state-owned refineries in Port Harcourt, Kaduna, and Warri.
Earlier this year, the NNPC invited expressions of interest from qualified operations and maintenance companies to run its Port Harcourt Refining Company, as part of efforts to revive the country’s ailing refining sector and reduce dependence on fuel imports.
Power Sector: opening up to more privatization and decentralization
Nigeria’s power sector has been struggling to provide adequate and reliable electricity to its population of over 200m people, with an operational grid capacity of below 5GW only.
The sector suffers from a myriad of problems, such as erratic gas supply, limited transmission and distribution capacity, high technical and commercial losses, and huge debts and arrears. The sector was partially privatised in 2013, but the privatisation process has so far been unsuccessful in boosting sector performances.
The government has launched a new wave of privatisation with the signing of the Electricity Act in 2023, which aims to liberalise and reform the power sector, and attract more private investment and participation.
As the new administration doubles efforts to fix the power situation, the private sector is embracing a bullish stance on decentralization as policy initiatives actively promote further decentralization and privatization of the power market. Captive and embedded ventures, relying on both gas and solar, are emerging as key opportunities for the sector.
Moving ahead
As Nigeria’s energy sector undergoes a significant transformation, driven by the implementation of several reforms, the country looks to diversify its energy mix, boost its domestic gas market, curb crude theft, and attract more investment in its upstream, downstream, and power sectors. The success of its transformation will depend on the ability of the government and the stakeholders to work together and seize the opportunities that the energy sector offers for the economic growth and development of the country.
The country aims to diversify its energy mix, boost its domestic gas market, curb crude theft, and attract more investment in its upstream, midstream, downstream, and power sectors. However, it also faces significant challenges, such a negative country risk perception, security risks, infrastructure gaps, and access to capital.
Oil sector: A recovery story amidst challenges
Nigeria’s oil production has been on a steady recovery trajectory since 2020 following consistent and repeated efforts by NNPC Ltd to fight crude oil theft. The country’s oil and condensate production currently stands at some 1.5-1.6m barrels per day (bpd) and the ambition is to ramp this up pass the 2m bpd threshold in the years to come.
Achieving this goal involves revitalizing dormant oilfields and enhancing onshore production after years of under-investments by IOCs and indigenous operators. To get there, the country needs to attract fresh investment in its upstream sector, which has been hampered by policy uncertainty, security risks, and fiscal disputes.
A pivotal moment came in 2021 with the passage of the Petroleum Industry Act (PIA). This landmark reform overhauled the legal and regulatory framework governing the oil and gas industry. It has since then been followed by several initiatives to make business easier across the value-chain, including a recent agreement by NNPC Ltd, the NCDMB and IOCs to reduce their contracting cycle to not more than 180 days.
President Bola Tinubu is also playing his part in encouraging investments. His engagement with international oil companies operating in Nigeria shows a commitment to revitalizing the oil sector and is expected to support the taking of several long-delayed final investment decisions (FIDs) over 2024 and 2025. These efforts signal Nigeria’s determination to rebound and thrive in a dynamic global energy landscape.
Gas market: balancing export and domestic eneds
Nigeria also holds the largest proven natural gas reserves in Africa, with a significant potential to industrialise and address its energy deficit. Estimated at 203 trillion cubic feet (tcf), these vast reserves hold promise for the country’s future providing investments can be channeled into production, processing, and distribution.
For now, stagnating gas output poses a critical challenge both for the country’s LNG exports and for its domestic gas monetization agenda. To bridge the gas supply gap by 2030, Nigeria is strategically prioritizing key projects that will support feedstock supply to Nigeria LNG – Africa’s biggest LNG exporter – and ensure domestic supply for power and industries.
Beyond upstream production, the country’s gas network remains inadequate and underfunded, and in dire need of investments to grow transportation capacity and connect all of the country’s states to the gas grid. Efforts are underway to develop the South-North axis via the Ajaokuta-Kaduna-Kano (AKK) pipeline, slated for commissioning in August 2024. Processing capacity is also set to grow, starting with the commissioning of Seplat Energy’s 300 MMscf/d ANOH gas plant later this year. At the downstream gas segment, Nigeria’s strategic vision, propelled by the Decade of Gas initiative and the new Presidential CNG Initiative (PCNGi), centers on domestic gas penetration. This crucial shift aims to unlock untapped potential and transform previously uncompetitive market segments.
The recent removal of subsidies has supported that vision and galvanized interest in gas. Segments such as compressed natural gas (CNG), liquefied petroleum gas (LPG), liquefied natural gas (LNG), and piped natural gas (PNG) are now emerging as attractive options for both industries and the transport sector. These once-overlooked avenues are poised for growth and innovation.
At the heart of this transformation are local companies who share the government’s vision for scaling up gas penetration and have the local understanding of the country’s dynamics to grow gas penetration. Their collaborative efforts are shaping Nigeria’s energy future, propelling the nation toward sustainability and dynamism.
Refinery landscape: Striving for fuel security and regional leadership
Nigeria, with the largest pipeline of refinery projects in Africa, faces formidable hurdles in securing feedstock and financing. The country has relied for year on imports to meet its fuel needs. While a flurry of modular refineries dots the landscape, the true game-changers for Nigeria’s fuel security lie in the commissioning of the Dangote Refinery and the rehabilitation of the Nigerian National Petroleum Company (NNPC) refineries.
Despite the surge in refinery initiatives, only five modular refineries have successfully reached the commissioning stage and now stand as vital contributors to the country’s energy security. However, their potential remains constrained by the lack of access to crude oil feedstock. Many struggle to operate optimally due to this critical limitation that particularly affects refinery developers who do not double as field operators.
To address its fuel security challenges, the path forward currently hinges on the full commissioning of the 650,000 bpd Dangote Refinery – the largest single-train refinery in the world – and the successful rehabilitation of the three state-owned refineries in Port Harcourt, Kaduna, and Warri.
Earlier this year, the NNPC invited expressions of interest from qualified operations and maintenance companies to run its Port Harcourt Refining Company, as part of efforts to revive the country’s ailing refining sector and reduce dependence on fuel imports.
Power Sector: opening up to more privatization and decentralization
Nigeria’s power sector has been struggling to provide adequate and reliable electricity to its population of over 200m people, with an operational grid capacity of below 5GW only.
The sector suffers from a myriad of problems, such as erratic gas supply, limited transmission and distribution capacity, high technical and commercial losses, and huge debts and arrears. The sector was partially privatised in 2013, but the privatisation process has so far been unsuccessful in boosting sector performances.
The government has launched a new wave of privatisation with the signing of the Electricity Act in 2023, which aims to liberalise and reform the power sector, and attract more private investment and participation.
As the new administration doubles efforts to fix the power situation, the private sector is embracing a bullish stance on decentralization as policy initiatives actively promote further decentralization and privatization of the power market. Captive and embedded ventures, relying on both gas and solar, are emerging as key opportunities for the sector.
Moving ahead
As Nigeria’s energy sector undergoes a significant transformation, driven by the implementation of several reforms, the country looks to diversify its energy mix, boost its domestic gas market, curb crude theft, and attract more investment in its upstream, downstream, and power sectors. The success of its transformation will depend on the ability of the government and the stakeholders to work together and seize the opportunities that the energy sector offers for the economic growth and development of the country.
