Nigeria: Osinbajo ‘relieved’ at EU gas stance; to benefit, national production needs a boost

By Ruth Olurounbi
Posted on Friday, 25 February 2022 10:16

Africa's richest man, Aliko Dangote speaks with Nigeria's Vice-President Yemi Osinbajo during a facility tour at the proposed Dangote oil refinery site near Akodo beach in Lagos
Aliko Dangote (L) speaks with Nigeria's Vice-President Yemi Osinbajo (R) during a facility tour at the proposed Dangote oil refinery site near Akodo beach in the outskirt of Nigeria's commercial capital Lagos June 25, 2016. REUTERS/Akintunde Akinleye

Russia’s invasion of Ukraine throws up a multi-layered opportunity that could see African countries take get a bigger slice of the market. But Nigeria’s - Africa’s biggest crude producer and the world’s eighth-largest holder of gas reserves - might miss out on this opportunity, analysts said, due to a lack of production capability.

Oil prices soared above $105 per barrel for the first time since 2014, jumping more than 9% as Russia attacked sites across Ukraine, triggering fears that energy exports could be disrupted at the time the world is already experiencing a scarcity.

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Already, concern over Russian gas supply to Europe has seen the European Commission make moves to seek additional gas deliveries from alternative suppliers including Nigeria over the last few weeks. Russia is Europe’s biggest supplier of gas, crude oil and coal, meeting about 38% of European Union demand in 2020, according to the most recent official data.

Margrethe Vestager, EU’s Executive Vice President met with Nigerian Vice-President Yemi Osinbajo on 14 February in Abuja, as the EU considers “all options” for increasing gas supply from the latter.

“The importance of the energy relationship between Nigeria and the EU featured, while consideration of all options for increased supply of LNG from Nigeria to the EU was agreed to, following a request from the EU,” Vice-President Osinbajo said in a statement. “A technical meeting on this will be convened shortly…We are relieved to hear of the EU’s support on gas as a transition fuel. It’s some bit of relief,” he added.

Europe is one of the main importers of Nigeria’s LNG importing 54% of LNG produced, says Ese Osamwonyi, a senior energy analyst at Lagos-based SBM Intelligence. “The EU is likely to increase its supply request from Nigeria by 10-15% as other key LNG suppliers are currently supplying at their maximum capacity to the EU. Norway, Europe’s largest supplier, is currently supplying at maximum capacity. However, this is subject to Nigeria’s supply capacity.”

“The crux of the issue here is Nigeria’s ability to increase and consistently meet its supply agreements with the EU. Nigeria’s LNG export facility has the capacity to supply 31 bcm per year. However, in 2020 and 2021, it was unable to meet its supply capacity due to technical issues as well as OPEC production cuts,” she adds.

Europe – Nigeria relationship

Nigeria is Africa’s biggest supplier of LNG to Europe, selling as much as 12.63 Bcm, according to data from S&P Global Platts Analytics. Its biggest buyers included Spain with 49 cargoes supplied, France (38 cargoes), Portugal (34 cargoes), and Turkey (15 cargoes), S&P Global Platts’ data showed.

Nigeria holds the 8th largest gas reserve in the world, the biggest in Africa and is followed by Algeria, Libya and Angola, as of 2020. Having the reserves is not enough, says Obi Umeh, head consultant, gas to power projects, Nigerian LPG expansion plan at the office of the Vice President. Production and subsequent export infrastructure are where the problem lies, he says.

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“Obstacles that make it hard for Nigeria to export gas are deeply rooted in the dearth of gas gathering and distribution infrastructure, fiscal and regulatory policy, funding, and more importantly, the prevailing security situation in the main gas supply source, the Niger Delta region,” Umeh says.

Low production capacities

In most African countries, production capacities are low due to years of inadequate investment and poor commitment. This, essentially, has stymied the expansion of their market shares, according to Victor Afolabi, an energy searcher said from the Nigerian southwestern state of Oyo.

For instance, despite having the 8th largest reserve globally, Nigeria is 12th (3,009,650,245 MMcf) in annual production estimates – about a third of the production of Canada (6,751,698,275 MMcf) which has far less reserve than Nigeria’s,” Afolabi says.

More important, the infrastructure that would largely facilitate the expansion into the European market has not been realised: the trans-Saharan gas pipeline. The idea for the pipeline was birthed in the 1970s but it took about two decades for Nigeria and Algeria to sign a Memorandum of Understanding for preparations of the project in 2002. “Since then, the project has only been on well-kept papers in files,” Afolabi adds.

The plan was to have gas delivered from the Niger Delta region of Nigeria to Hassi R’Mel in Algeria through the Niger Republic. From there, the pipeline would connect to the existing Trans-Mediterranean, Maghreb–Europe, Medgaz and Galsi pipelines and feed the growing demand in Europe.

‘Commercially viable for us to supply gas to Europe’

If the project had been realised, it would have placed Africa on a good pedestal to take the opportunity thrown open by the escalating tension between Russia and some western countries, Olufola Wusu, Partner and Legal Consultant at Megathos Law Practice, said in an interview with The Africa Report.

“It is commercially viable for us to supply gas to Europe. But in reality, it’s going take a bit of time for us to shore up our gas production because obviously, there are issues that we have. So, remember that we’re in an election year, so typically, a bit of instability can make investors jittery. So even with all the marginal rounds put together, maybe we produce at 30% of total oil and gas production so obviously, we cannot be looking in that direction,” Wusu said.

According to him, the “other option would have been us offering licensing rounds, like what’s taking place in the Gambia.

The seventh production line at NLNG, Nigeria’s flagship liquified natural gas (LNG) plant will boost Nigeria’s gas exports from 22 million metric tons to 30mmtpa — dwarfing most other African gas exporters, even outstripping Algerian gas exports across the Mediterranean pipeline to Italy and Spain.

It is unclear when the completion of LNG Train 7 will happen, as its construction at the Bonny Island LNG facility is scheduled for commissioning in 2024. Unless solutions are speedily implemented over the course of the next couple of years at the most, it is quite unlikely that Nigeria would be able to meet its export quota, not to mention expand supply capacity, Umeh says.

“The absence of enabling environment for private participation in gas development, lack of energy-intensive plants across Nigeria to utilise a vast proportion of natural gas and the imposition of price control mechanisms are serious threats to gas development. These issues are far from being resolved,” he says.

Finding speedy solutions too “might prove to be a hassle due to the fact that these solutions will take time to be affected,” according to Umeh.

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