German Chancellor Olaf Scholz’s scramble for a safer and cheaper energy source took him to Nigeria, a country that sits on 208.83 trillion cubic feet (Tcf) of proven gas reserves and ranks ninth globally in this regard.
The Chancellor was received by Bola Ahmed Tinubu, a president with equal appetite, but for foreign currency earnings, which are urgently needed to stabilise the foreign exchange (FX) market and Nigeria’s economy.
The German leader’s visit to Abuja, or specifically his interest in its gas resource, does not come as a surprise; it was not an isolated case. The visit to Nigeria is part of a coordinated interest in African energy resources by Germany and other European countries. The move by Germany was expected owing to the critical condition unearthed by the disruption in its traditional supply source – Russia. Before the invasion, Germany served as the primary route for Russian natural gas, which accounts for 27 per cent of its energy mix, into continental Europe. More than 40 per cent of the gas consumed in Europe came from Russia, with a significant portion passing through the Baltic pipe, particularly Nordstream. Since last year, Gas supplies through Nordstream and Germany have been severely affected. As a result, last year, the European leading economy fired coal plants in complete disregard for climate preservation nicety. Climate actives fumed and wailed but the desperation validated the fact that war is a disruptor who cares nothing about treaties and principles.
The United States, Canada, the Netherlands and Qatar had been explored by Germany in its necessary struggle to bridge the gap created by the intractable Russian government. Now, it has opened a discussion with Nigeria, the economic leader of a continent often perceived as an amenable partner in natural resource exploitation.
Nigeria, a key factor in Germany’s energy equation
Nigeria may have come into the equation 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 part of its production, around 60 per cent of its production, to the European Union (EU).
Through NLNG, which is 49 per cent owned by Nigerian National Petroleum Company Limited (NNPC), Nigeria is the fourth-largest natural gas supplier to the EU. That makes it a critical partner in the natural gas sector in Europe, which supports critical industries and clean cooking.
A partnership with Germany may increase gas outflow from Nigeria. That would boost the foreign exchange earning capacity of Nigeria, which has become a major objective of Tinubu’s investment drive. But Nigeria also needs an abundant local gas supply to power its nascent industries and promote clean cooking as encapsulated in the country’s Decade of Gas roadmap.
President Muhammadu Buhari announced that from January 1, 2021 to December 31, 2030, Nigeria would focus on using more gas to improve energy, create jobs, and reduce poverty, a policy framework that was defined as a Decade of Gas. Early this year, the status of Nigeria’s ‘Decade of Gas’ policy showed that two years into the timeline, it had achieved only five per cent of the gaols as opposed to the 85 per cent benchmark set by the government of Nigeria.
The Energy Outlook Advisors, as reported by Ventures Africa, also noted Nigeria’s natural gas production has dropped significantly. It was at its highest in 2020 at 49.4 billion cubic meters but fell to 40.3 billion cubic meters by 2022. Currently, NLNG is doing 50 per cent of its throughput capacity , according to disclosure by Regional Energy Partner at Energy Compact, Kayode Oluwadare.
Poor transportation and distribution remain a major hurdle with pipelines, processing facilities and storage capacity largely deficient, leading to gas supply interruptions and inefficiencies.
Unmet growing domestic need
Owing to the challenge, gas-powered plants have suffered poor capacity in recent years in Nigeria, with national grid collapse being a major feature of the power system. Sometime in September, the grid collapsed twice in six hours, throwing the entire country into darkness. From May 31 2015, when Buhari assumed power, and August last year, media reports, claimed Nigeria recorded 98 grid collapses. Experts said the government would need to prioritise local domestic consumption to stem the tide of power failure.
The Decade of Gas mantra was a response to the call. And in reaction, a press release by NLNG, said it would retain 100 per cent of its liquefied natural gas (LPG). Other suppliers similarly pledged commitment to growing the local gas market. In prioritising local consumption, the growing export, which hit N2.1 trillion last year, may need to be contained except there is a significant expansion of the current infrastructure.
Still, the Natural Gas Expansion Programme (NGEP) and a few recent actions taken by the Tinubu administration to establish more affordable compressed natural gas (CNG) as an alternative to petrol for automobiles clearly indicate that Nigeria is in dire need of gas for domestic consumption. Balancing the important local needs with export commitment, notably to Germany, requires rigorous planning and significant additional investments. But nothing substantial has been done about raising the production capacity even as the existing infrastructure dwindles.
After a closed-door meeting with his Nigerian counterpart, Scholz vaguely told journalists that “there is a willingness to invest, especially in critical minerals”. “If we are successful, if there is a better chance of exporting the produced gas… it is then the question for German companies to do their private business,” he added.
According to him, it would be a good idea for more Nigerian states with natural gas to target the export market.
Already, energy experts balked at Germany’s willingness to invest in upstream gas production infrastructure, which would increase production and enhance the much-needed technology transfer. For Dan Kunle, it would be unfortunate if all Germany is interested in is funneling the commodity to power its economy.
Tinubu has kept much of the outcome of the meeting to his chest. But more important is the fear that the current administration can sign off any deal that would rake in foreign currencies, even at the expense of the overall local economy and market operators.