German Chancellor, Olaf Scholz was at the State House on Sunday, October 29 on a courtesy visit to President Bola Ahmed Tinubu.
The discussions between both leaders had been centred around investments and collaboration; one of which was natural gas.
Scholz indicated an interest in Nigeria’s natural gas resources.
According to him, it would be a good idea for more Nigerian states with natural gas to target the export market because it is better to use the capacities where they are.
The recent visit of the German Chancellor to Nigeria was eagerly anticipated due to the critical situation caused by disruptions in gas supply, primarily because of the Russian invasion of Ukraine.
Before the invasion, Germany served as the primary route for Russian natural gas into continental Europe.
More than 40% of the gas consumed in continental Europe came from Russia, with a significant portion passing through the Baltic pipe, particularly Nordstream.
Since the conflict began in 2022, gas supplies through Nordstream and Germany have been severely affected.
Consequently, there is an urgent need for Germany and other European economies to find viable alternatives to the Russian gas pipelines.
This urgency prompted Chancellor Scholz’s visit, which is part of a series of visits to countries like Canada and Egypt, all aimed at exploring alternatives to Russian gas.
Nigeria emerges as a key option for replacing Russian gas, particularly because it has been a reliable source of liquefied natural gas (LNG) for European markets.
The Nigeria Liquefied Natural Gas (NLNG) Limited exports a significant portion, around 60% of its production, to the EU.
In fact, through NLNG, Nigeria stands as the fourth-largest natural gas supplier to the EU, making it a pivotal player in this quest for alternative gas sources. In discussions centred on replacing Russian gas, Nigeria plays a crucial role.
Note that Nigeria’s strategy for its energy transition revolves around the use of natural gas in various sectors, including automobiles, industries, and clean cooking.
Balancing these domestic plans with international gas export commitments, notably to Germany and the EU, requires meticulous planning and significant investment.
Germany’s interest in Nigeria’s gas resources has created the need to create a balance between energy security on the one hand and economic growth on the other.
The National Gas Expansion Program (NGEP) and the recent action steps taken by the Tinubu administration to establish more affordable compressed natural gas (CNG) as an alternative to petrol are clear indicators that Nigeria is in dire need of gas for its domestic market.
Meanwhile, the country is also in need of foreign exchange and indeed revenues as it is neck deep in debt and is desperate to industrialize to create jobs for its young population and harness its gas locally before the country transitions to clean energy in the coming years.
However, it is important to note that Nigeria faces significant challenges in its domestic gas supply.
There is a substantial demand for gas within the country, but this demand has been difficult to meet due to issues like pipeline vandalism and crude oil theft, which particularly affects the associated gas supply.
This situation has led to a shortage of domestic gas supply in Nigeria.
Regional Energy Partner at Energy Compact, Kayode Oluwadare tells Nairametrics that some of the factors that have affected low gas use on the domestic front in Nigeria include; the lack of investments in upstream projects to boost the non-associated gas profile of the country as well as the delay in the passage of the Petroleum Industry Act (PIA) which was eventually passed in 2021 and the wave of the energy transition in Europe that has discouraged a lot of European-based financial institutions in financing energy-based projects especially in developing countries like Nigeria.
Oluwadare said:
- “A combination of these factors has actually led to a drop in the volume of feed gas available for gas processing in Nigeria and this has actually hampered domestic gas availability. So, Nigeria actually needs more gas on the domestic front and of course, NLNG has also taken a hit.
- “Currently, NLNG is doing less than 50% of its throughput capacity. It is clear we need more gas on the domestic front to develop the economy, to power the industrial sector like the petrochemicals production, and power generation sector, we also need it for clean cooking in Nigeria via liquefied petroleum gas (LPG).
- “However, we also need to become more involved in gas exports. In my opinion, we can achieve both goals – gas exports and domestic demand. There are countries that are doing both – some include Qatar, the United Arab Emirates, the United States of America, and Australia. For Nigeria to be able to do both exports and meet domestic demand, it all boils down to the availability of feed gas processing which raises questions about upstream investments.”
Oluwadare also noted that recently, the Abu Dhabi National Oil Company and Qatar Energy have been developing new non-associated gas fields to be able to provide huge volumes of feed gas for their projected LNG expansion projects.
According to him, this is exactly what Nigeria needs – a lot of investments in upstream projects.
- “We need to develop new non-associated gas fields to have enough gas for exports, processing, liquefaction, and domestic utilization. This has not been done on a large scale in Nigeria and this is what the NLNG is currently suffering from by not meeting its capacity. The key thing here is investments in the upstream,” he says.
Legal and Compliance Officer at Chimons Gas Limited, Chukwuebuka Ibeh tells Nairametrics that Nigeria possesses untapped gas reserves, making it imperative to attract foreign investors to bolster its gas industry, with foreign portfolio investment playing a crucial role in infrastructure development. He highlighted the fact that to fulfil its part of the 2015 Paris Agreement, Nigeria must prioritize gas infrastructure investment.
He noted that the 2022 NUPRC Commercialization Programme, which selected 42 companies to reduce gas flaring and enhance utilization in oil fields, faces a funding challenge, particularly for connection assets such as pipelines.
So, gas investments from Germany could substantially boost domestic gas demand and help Nigeria work towards its net-zero emissions goals.
He said:
- “Although Nigeria possesses substantial natural gas reserves, realizing its production potential by 2030 demands substantial funding. Germany’s willingness to invest could not only support Nigeria’s domestic gas demand but also contribute to achieving its net-zero objectives. A potential arrangement might involve extending export commitments to Germany after project completion, ensuring Nigeria can meet its industrial, automotive, and clean cooking gas needs.
- “Nigeria needs to take up the German deal. More gas exports are one of the ways to increase our foreign exchange base. We cannot meet our demand without funding the gas sector. The federal government does not have the needed funds for our huge untapped gas.”
Meanwhile, oil and gas analyst, Dan D Kunle tells Nairametrics that Germany, as the strongest and most robust economy in Europe, heavily relies on gas to power its economy.
So, if they express interest in Nigeria’s gas, it could significantly boost both countries.
However, the key questions revolve around the level of investment: will it involve gas exploration and production in Nigeria, or solely focus on purchasing gas from the Nigeria Liquefied Natural Gas (NLNG) facilities?
He also pointed out that there is knowledge of Germany’s interest in the Nigerian Morocco Gas Pipeline project, which is a positive development. He said:
“Yet, it is crucial to emphasize the importance of upstream investments in gas production and processing. Understanding the entirety of the project its structure, investment channels, shareholders involved, and the timeline for investment commencement is essential. There are also rumours about German interest in hydrogen investment in Nigeria, a move toward sustainable renewable energy.
“This aligns with global goals. Nigeria stands to benefit significantly from partnerships with major players like Germany. The current dynamic energy market situation in Europe necessitates thorough evaluations for countries like Germany to ensure a secure energy supply, especially given the challenging experiences of the past 18 months.
“The big question remains: will the Germans invest in the gas pipeline or consider additional LNG plants in Nigeria, such as Brass or OK LNG? The opportunities are indeed present, and the hope is that all obstacles hindering investment flows, especially by the Petroleum Industry Act (PIA), will be overcome.“Nigeria and Germany must work together to carve out this common interest, ensuring energy security and fostering economic growth.”