Does Nigeria have the capacity to strike a natural gas deal with Germany?

by MMC
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Nigeria has abundant natural gas reserves; this is one of Top ten producers of the world. In Africa, Nigeria has the the largest natural gas reserve on the continent, with 5.91 trillion cubic meters. It is a cleaner alternative to coal and oil, with a lower carbon footprint. Electricity generation relies largely on natural gas, making it a crucial part of the national power grid. It is a more sustainable source of energy that can help mitigate the effects of climate change.

During his visit to Nigeria last week, German Chancellor Olaf Scholz said Germany wanted import natural gas of Nigeria to secure and diversify its energy sources. “This will also have an impact on the global gas price; if more states offered gas to the global market, prices would come down,” Scholz said after a meeting with President Bola Tinubu in Abuja on Sunday, October 29.

Russia’s invasion of Ukraine has sent shockwaves through the global energy market, leading to major disruptions in gas supplies across Europe. The disruptions are due to Russia’s control over key pipelines and infrastructure that transport natural gas from Russia to Europe. The crisis has exposed the vulnerabilities of Europe’s gas supply infrastructure and prompted countries like Germany to consider other viable options.

It is no surprise that Nigeria is among the countries that have emerged on their radar due to its liquefied natural gas (LNG) exports. Nigeria Liquefied Natural Gas (NLNG) Limited exports approximately 60% of its natural gas in Europe.

Germany currently imports crude oil from Nigeria, not natural gas. Its growing demand for natural gas represents a multifaceted response to the country’s commitment to a greener and more sustainable future. As Germany seeks to achieve its energy transition goals, reduce emissions and support its industries, natural gas has undoubtedly become an essential energy source.

Doubts remain, however, about Nigeria’s ability to meet Germany’s natural gas needs. The conclusions of the African Energy Chamber, August 2023 The State of Africa Energy report reveals that near-term production from gas producers in Africa such as Nigeria, Algeria and Egypt is expected to stabilize. Meanwhile, Nigeria’s production is expected to experience minor fluctuations between 4.5 Bcf/d and 5.5 Bcf/d.

In March 2021, President Muhammadu Buhari announced that from January 1, 2021 to December 31, 2030, Nigeria would focus on increased use of gas to improve energy, create jobs and reduce poverty. This period is called the gas decade in Nigeria. Earlier this year, the progress of Nigeria’s “Gas Decade” policy showed that two years into the schedule, it had reached only 5% of the objectives set. It failed to reach the 85% threshold set by the federal government.

THE Energy Outlook Advisors also noted that Nigeria’s natural gas production had fallen significantly. It peaked in 2020 at 49.4 billion cubic meters but fell to 40.3 billion cubic meters in 2022.

Poor natural gas transmission and distribution infrastructure remains a major obstacle in Nigeria. Pipelines, processing facilities and storage capacities are often deficient, leading to interruptions and inefficiencies in gas supply. This has also limited Nigeria’s ability to export natural gas, lowering the potential revenue that could be generated from its vast reserves.

The disparity between the actual level of natural gas production and potential capacity is striking when considering Nigeria’s limited capacity to supply natural gas to countries like Germany, which has a high demand for energy sources clean.

This situation highlights the urgent need for proactive and strategic efforts to bridge the gap between Nigeria’s current capabilities and the vast potential contained in its gas resources. The need for a forward-looking, data-driven policy framework has never been more pressing. It must also invest in modernizing its infrastructure and expanding its supply chains.

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