Considering Nigeria’s current fiscal situation, there is a need to diversify the economy and improve its energy situation. While LNG is not the sole solution, it will do Nigeria a large disservice if the sector remains underdeveloped. Nigeria is known for its junkyard of abandoned policies. Hopefully, the incoming government would opt to do things differently.
A lot hangs on the upcoming Nigerian presidential election. Insecurity is on the rise. Millions of university students remain at home due to an ongoing industrial action by the Academic Staff Union of Universities (ASUU) of Nigeria. Inflation remains high. Government debt continues to rise and it primarily goes towards recurrent expenditure. Overall, confidence in the current regime is low. In terms of priorities and challenges, whoever is unfortunate to get the job of leading Nigeria next year, has a herculean task ahead of them. In terms of priorities, when it comes to fixing the Nigerian economy, while they are endless, there are two that can be easily overlooked by the incoming government ― how to domesticate the energy transition and, related to this, enable the attainment of the decade of gas development for Nigeria.
During the 26th Conference of Parties (COP 26), last year, President Muhammadu Buhari announced the development of a detailed energy transition plan that would see Nigeria become carbon neutral by 2060. The plan hinged on the development of the local natural gas sector, which Nigeria would be dependent on until 2040, without detracting from the goals of the Paris Agreement on climate change. This has sparked a considerable amount of debate. The first line of argument taking place is on whether Nigeria should be setting a commitment to carbon neutrality by 2060, when countries like India, who emit considerably more, have a 2070 target. Concerns were also raised about the cost implications of energy transition policies.
One example of such is New Zealand. The government there discovered that achieving carbon neutrality by 2050 would cost about 16 per cent of its GDP annually. Given the state of the Nigerian economy, questions have been raised about the country’s ability to meet this cost. Another concern about the pledge is that it contradicts the Nationally Determined Contribution (NDC) that Nigeria submitted in July 2021. In its NDC, Nigeria increased its conditional target to 47 per cent, which is a 45 per cent increase from its 2015 NDC. And committed to an unconditional contribution of reducing emissions by 20 per cent below business-as-usual by 2030. This disparity justifiably led to concerns about the intention of a neutrality pledge. In August 2021, Climate Scorecard (a global organisation that monitors and reports on the status of efforts to implement the UN Paris Agreement among leading greenhouse gas emitting countries) reported that the main obstacles that Nigeria would face in a race to neutrality would be government incompetence and the country’s current overdependence on fossil fuels ― with profits from the extractive activities associated with petroleum production in the country currently accounting for about 86 per cent of its total export revenue.
While the jury is out on whether Nigeria should aim for carbon neutrality and how it should transition, one part of the plan that should not be allowed to fall through the cracks, is the development of the natural gas sector. As at 2017, Nigeria’s natural gas reserves were estimated at about 187 trillion cubic feet (Tcf). It is currently the sixth largest gas-rich country and the ninth in gas export. It accounts for about 3 per cent of the world’s total natural gas reserves of 6,923 Tcf. Domestic consumption of natural gas remains low and it is undeniable that development of the sector could help Nigeria’s power generation problem.
The growth of Nigeria’s energy sector continues to be hampered by a lack of infrastructure and the current regime has taken some steps to address these. In 2017, the Federal Government of Nigeria published the National Gas Policy and the National Petroleum Policy, with the aim of ending gas flaring, creating an enabling environment for investors, seeking value addition for gas, and improving governance in the sector. In 2020, the Ajaokuta–Kaduna–Kano Natural Gas Pipeline was launched by the government and funded by China’s Belt and Road Initiative. The pipeline is expected to connect Nigeria’s gas supply to other trans-regional and intercontinental pipelines like the Trans-Saharan Gas Pipeline and open access to Europe. While this is a move in the right direction, there remains a need to expand the existing national grid and strengthen power generation to enjoy the additional benefits of natural gas.
Developing the natural gas sector will be of immense benefit to energy generation, as well as the Nigerian economy as a whole. It also presents a very viable opportunity to diversify the Nigerian economy from its present mono-product status. Russia’s invasion of Ukraine, ironically, presents an opportunity to accelerate this process. As Bloomberg reported a few days ago, the EU intends to transition away from Russian natural gas and replace its imports from Russia by two-thirds this year, with the cooperation of African countries. Nigeria, Senegal, and Angola are most likely poised to take advantage of this opportunity, given that they have large liquified natural gas capacities. Along with this the EU also plans to increase shipments of gas from other countries and boost LNG imports by 50 billion cubic metres.
While Africa’s natural gas sector continues to perform below maximum potential, it has grown considerably. From 2000 to 2020, natural gas generation has grown by 70 per cent. Considering Nigeria’s current fiscal situation, there is a need to diversify the economy and improve its energy situation. While LNG is not the sole solution, it will do Nigeria a large disservice if the sector remains underdeveloped. Nigeria is known for its junkyard of abandoned policies. Hopefully, the incoming government would opt to do things differently. But, with a potential pool of members of previous governments, the prospects of something different are not looking great.
Ehireme Uddin is an Economics graduate with a penchant for writing.
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