Nigeria gas attracts as Europe sidesteps Russia

Nigeria has an opportunity to profit from Europe’s plan to pull the plug on the importation of Russian gas in the wake of Moscow’s war with Ukraine.

The International Energy Association (IEA), the Paris-based think tank that draws up energy polices for Western countries, has published a 10-point plan that would help Europe cut its dependence on Russian gas and this could open new markets for Nigeria and other gas producers.

In 2021, the European Union (EU) imported 45 percent of gas from Russia and this represents almost 40 percent of its total gas consumption. Its backing of Ukraine in the war against Russia is opening fissures other producers can exploit.

The IEA, in its 10-point plan, proposes a series of immediate actions that could be taken to reduce reliance on Russian gas, including non-renewal of gas supply contracts with Russian firms, replacing Russian supplies with other alternative sources, and introducing minimum gas storage obligations to improve market resilience.

10-point plan

The IEA says gas import contracts with Gazprom covering more than 15 billion cubic metres (bcm) per year are set to expire by the end of 2022, equating to around 12 percent of the company’s gas supplies to the EU in 2021. Overall, contracts with Gazprom covering close to 40 bcm per year are due to expire by 2030.

“This provides the EU with a clear near-term window of opportunity to significantly diversify its gas supplies and contracts towards other sources, leveraging the options for imports provided by its large Liquefied Natural Gas (LNG) and pipeline infrastructure,” the IEA said.

During a recent webinar organised by the African Energy Chamber (AEC), the panellists discussed how Africa can emerge as the preferred supplier to European markets in the wake of the Russia-Ukraine crisis.

“Africa has the money to build its own infrastructure; it is getting half a billion US dollars by selling oil and gas per day,” said Leoncio Amada Nze Nlang, president of the AEC. “We just need to direct that money towards infrastructure development.”

At the same time, Africa also needs to improve its taxes on energy to attract investments and to avoid majors exiting the market, according to Nlang, who added that “Chevron and other big firms are leaving the West African market because fiscal terms are not making sense; there are high taxes.”

This could open up new markets for Nigeria’s 206 trillion cubic feet of proven gas reserves valued at over $803.4 trillion, but the country must fix challenges including pipeline vandalism and access to financing.

The IEA forecasts that production inside the EU and non-Russian pipeline imports (including from Azerbaijan and Norway) could increase over the next year by up to 10 bcm from 2021.

It believes it can replace around 30 bcm in additional gas supply from non-Russian sources through a ramp-up of its LNG imports, considering its ample access to spare regasification capacity.

“The LNG trade is inherently flexible; so the crucial variables for the near-term are the availability of additional cargoes, especially those that have some contractual leeway over the destination, and competition for this supply with other importers, notably in Asia,” the IEA said.

Nigeria’s best hope of meeting an LNG gap in Europe is the Nigeria LNG Limited (NLNG), which is currently struggling to keep its supply going amid a wave of pipeline attacks.

“The escalating pipeline vandalism is affecting every pipeline including the ones transporting associated gas, which is bad business for NLNG and other companies in the gas business,” said Niyi Awodeyi, CEO of Subterra Energy Resources Limited, a firm exposed to Nigeria’s gas market.

Italian oil major, Eni, recently said an attack on its 24-inch gas line at Okaka in Yenagoa forced it to declare a force majeure at NLNG in Bonny.

Other measures advocated by the IEA go towards cutting down consumption storage and enhancing market resilience.

The IEA is betting on a harmonised approach to minimum storage obligations for commercial operators in the EU’s single gas market, together with robust market-based capacity allocation mechanisms, to ensure the optimal use of all available storage capacity in the EU.

Another strategy under consideration by the IEA is to accelerate the deployment of new wind and solar projects. It projects an additional 35TWh of generation from new renewable projects over the next year, over and above the already anticipated growth from these sources, bringing down gas use by 6 bcm.

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The IEA is counting on maximising generation from existing dispatchable low-emissions sources, including bioenergy and nuclear. The large fleet of bioenergy power plants in the EU operated at about 50 percent of its total capacity in 2021 but they could generate up to 50TWh more electricity in 2022, if appropriate incentives and sustainable supplies of bioenergy are put in place. This, the IEA hopes, will add 70TWh of power generation from existing dispatchable low emissions sources, reducing gas use for electricity by 13 bcm.

The IEA is also urging member countries to enact short-term measures to shelter vulnerable electricity consumers from high prices. It is calling for temporary tax measures to raise rates on electricity companies’ windfall profits and tax receipts redistributed to electricity consumers to partially offset higher energy bills. It hopes this will bring down energy bills for consumers even when natural gas prices remain high, making available up to EUR 200 billion to cushion impacts on vulnerable groups.

Another practical measure offered by the IEA is to speed up the replacement of gas boilers with heat pumps.

“Heat pumps offer a very efficient and cost-effective way to heat homes, replacing boilers that use gas or other fossil fuels. Speeding up anticipated deployment by doubling current EU installation rates of heat pumps would save an additional 2 bcm of gas use within the first year, requiring a total additional investment of EUR 15 billion,” the IEA said.

Other measures promoted by the IEA include accelerating energy efficiency improvements in buildings and industry, encouraging a temporary thermostat adjustment by consumers and stepping up efforts to diversify and decarbonise sources of power system flexibility.