As energy geopolitics shifts to Europe, Nigeria has limited options

In response to Finland’s decision to join NATO, Russia is on the cusp of excising the Nordic country from its gas supply market, a move that increasingly shows the shifting battleground for energy geopolitics from the Middle East to Europe as producers weaponize supply.

However, for Africa’s biggest oil producer with also the world’s ninth-largest gas reserve, this is not an affair it can exercise an influence on as supply at home is constrained by sabotage and is unprepared to compete abroad.

After the February 24 invasion of Ukraine by Russia, Europe’s energy supply landscape is becoming more fractured with European leaders seeking alternatives to Russian supply but finding themselves having to risk economic growth and stability.

In the case of crude oil, this situation has been worsened by the unwillingness of OPEC members to turn on the taps to plug gaps in Europe where much of Russian oil is under embargo.

Nigeria and other producers on the African continent are struggling to meet previous record output. Africa’s biggest oil producer has seen its production fall to 1.3m barrels per day from as high as about 2m a decade ago.

Only Saudi Arabia and the UAE hold substantial spare capacity that can immediately help to offset a Russian shortfall. The United States, Britain and others have previously urged OPEC+ to quickly boost output. OPEC is unwilling to do that lest it angers Russia with whom it has a pact.

The situation gets even more complicated with natural gas. Europe’s energy transition away from fossil fuels has hit a brick wall with Russia’s war against Ukraine and it finds itself doubling down on fossil fuels.

Read also: Reflections on Nigeria’s slow-paced gas potential

Europe seeks to wean itself from Russia’s gas to weaken Putin’s ability to pulverize Ukrainian cities but alternatives are fraught with challenges.

For example, Germany has been negotiating deliveries of LNG with Qatar but it is not going well. According to a Reuters source, Germany and Qatar have serious differences on issues such as the length of the contract and whether or not Germany could re-sell the gas to other European countries once it had been received it.

Natural gas prices surged 20 percent last month on the back of Russia’s supply cut to Bulgaria and Poland. Russia’s Gazprom PJSC said it was halting gas supplies to Poland and Bulgaria and will continue to do so until the two countries agree to pay for the fuel in Rubles, as demanded by Moscow.

When the EU announced its intention to cut off Russian supply, evidence shows not much alternative was provided.

“On the face of it, as Brussels and several European governments presented it, replacing Russian gas would be relatively easy. Importers would simply switch from pipeline imports to LNG imports via both existing terminals and new ones, yet to be built, many of them floating terminals because they are quicker to put into operation.”

Finding a replacement for Russian gas has proven difficult in the short term. Germany has already secured four floating LNG terminals to be installed at its ports. Only one of these will be ready by the end of the year, with the capacity to handle 5 billion cubic meters annually, which is not a whole lot for a country the size of Germany.

Gas producers prefer long-term iron-clad supply contracts of between ten and twenty years due to the serious financial investment required to build an LNG train. This timetable could also conflict with much of Europe’s plan to transition away from fossil fuels.

In the unfolding drama, Nigeria is unable to plug the gap and meet Europe’s needs at the moment. BusinessDay gathered that ambassadors of European capitals have been talking to the Nigerian government to see if they can leverage the country’s vast gas resources to meet their supply gaps.

Though Nigeria has declared a decade of gas beginning in 2021, it is yet to attract the investments required to unlock its gas potential estimated at over 600TCF. Operators say the country has to do more than sloganeering.

“Nigeria needs to match its gas slogan with effective, measurable, policy actions to drive investments in domestic gas supply,” Austin Avuru, chairman of AA Holdings said in a recent note.

Facilitating the restart of two abandoned gas projects, the Olokola LNG project with 12.6 million metric tonnes capacity stalled because all the international oil companies (BG, Shell, and Chevron) withdrew from the project, with only the Nigerian National Petroleum Corporation (NNPC) left.

The Brass LNG project, which was designed to produce 10 million metric tonnes per annum, was to be built by the NNPC, Total, ConocoPhillips, and Eni Group. But ConocoPhillips withdrew from the project in 2013 and things went quiet.

Nigeria’s Train 7 project, sources say is braving challenges to stay on schedule but like the previous six trains, this supply has been contracted for at least two decades.

“We would be very interested as a customer. It doesn’t matter whom we are dealing with, because, now we don’t have to be dependent on one source,” Bernd Von Munchow-Pohl, head of Mission, Consulate General of the Federal Republic of Germany in Lagos told BusinessDay in a recent interview.

But Nigeria will require deep reforms to meet this need. Ayodele Oni, energy lawyer, and partner at Bloomfield law firm said Nigeria can make its energy sector attractive for both local and foreign independents by crafting efficient rules.

“There should be clarity of policy around upstream gas, market pricing for gas and regulation should be fair, clear and of common application without the government overregulating,” he said.