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Nigeria's leading finance and market intelligence news report.

Shell’s energy transition can contribute to Nigeria’s economic growth

Royal Dutch Shell’s gambit to diversify into other forms of energy besides fossil fuels could be a game-changer in the way it propels others and in its contribution to Nigeria’s overall economic development.

Shell’s strategy to grow its alternative energy businesses while consolidating on its leading position in natural gas production aligns with the Nigerian government’s plan to use gas as bridge fuel towards a clean energy future.

The energy giant plans to use its upstream business, especially natural gas, to generate the cash and returns needed to fund investments into new market including renewables. In the near term, it plans to spend $4 billion on integrated gas as part of energy transition strategy.

Some of this cash could fund gas projects in many countries including Nigeria. Shell has plan to end gas flaring from its operations globally by 2030, a development that can increase the level of gas used domestically in Nigeria.

The Federal Government has declared years 2020 – 2030 as the Decade of Gas, a declaration of intent to turn the corner from treating gas as an irritant in the quest for oil to viewing the natural resource as an enabler for the economy.

Nigeria’s decade of gas policy speaks to government desire to power the economy using gas. This translates to gas for thermal power plants, industrial development, fertilizers, transport and exports. This desire wrestles with broken infrastructure, poor pricing regime and government rules that contradict stated intentions.

Nigeria has grown its proven reserves of natural gas from 203 Trillion Cubic Feet (TCF) to 206.53TCF largely on the back of indigenous producers who are de-risking operations in troubled Niger Delta areas and skirting around government regulations.

Read Also: Shell’s onshore oil divestment will test local operators’ capacity

“We cannot underestimate the pivotal role gas plays in developing the economy following the global move for cleaner sources of energy,” said Roger Brown, CEO of Seplat, a leading indigenous oil player at the recent energy conference in Abuja.

Brown told BusinessDay in an interview that Nigeria will generate more value by creating free market pricing for domestic gas and grant fiscal incentives to investors to drive domestic gas utilisation for autogas and to power thermal plants.

Brown also called for massive investment in gas infrastructure to reduce greenhouse gas emissions and intensification of efforts to reduce gas flaring in the country.

Seplat currently supplies a third of the gas needed to power Nigeria’s creaking grid, but the introduction of companies like Shell Energy Nigeria will deepen the adoption of renewables to complement grid supply.

Shell Energy Nigeria will be part of a global group of energy and petrochemical companies with more than 80,000 employees in more than 70 countries. It says it uses advanced technologies and take an innovative approach to help build a sustainable energy future.

The company will largely play in the off-grid energy space and consolidate on the work of All On, an investment firm it funded, which is helping to incubate early-stage off-grid entrepreneur.

Industry players say the company will find a space in the Nigeria’s off-grid market, which experts value at over $12 billion. While many of the ongoing projects are small-scale, Shell’s deep pockets could help catalyse mini-grid projects that could produce energy for productive uses in communities and cities.

“It is a good development because it shows that the Nigerian off-grid market is viable,” says Segun Adaju, president of Renewable Energy Association of Nigeria (REAN) and CEO of Consistent Energy Limited.

Adaju says the development could open the floodgates for more investments and participation by other oil companies.

“With the size of Nigeria’s off-grid market, companies with deep-pockets like Shell have a role to play, especially helping to fund big ticket projects and investing in growth-stage businesses,” says Kunle Odebunmi, CEO of AllBase Energy, a Lagos-based energy start-up.

Odebunmi notes that there are vast opportunities in residential solar projects with integration of digital technologies like Internet of Things and Artificial Intelligence technologies to support the weak grid.

Prior to unveiling its strategy, in February, Shell had said it would ramp up spending on low-carbon energy to 25 percent of overall capital expenditure by 2025. It is expected that countries like Nigeria could be part of these plans.

To achieve its net-zero targets will require a broad focus on clean power, investments in renewable energy projects and hydrogen projects.

In Nigeria, Shell-seeded All On is investing in early stage off-grid entrepreneurs through a series of energy challenges where innovative projects are given seed funding to scale up for the wider market. With Shell Energy Nigeria, financing for new off-grid projects could scale.

Already, about 21 Nigerian energy companies such as Auxano, Arnegy, among others, are already benefiting from financing by All On, many new jobs have been created through the supply of 21,000 new off-grid connections for homes and small businesses in many communities.

Shell plans to boost its consumer base by expanding its electricity supply business for homes and its network of electric vehicle charging points, as well as signing long-term corporate power purchase agreements (PPA).

However, Shell’s divestment drive from onshore assets in Nigeria could bring pain if those who pick up the assets fail to deliver them. This could impair the ability of the government to collect taxes, create new jobs and secure new foreign direct investment.

Assets from Shell Petroleum Development Company (SPDC) alone account for about 40 percent of Nigeria’s total crude and condensate output capacity of 2.2 million bpd.

Shell has over 2,700 employees and more than 9,000 contractors on its payroll in Nigeria alone. The company also paid $4.6 billion into government’s coffers in 2019.

The company has also spent millions of naira on promoting community development organisations to strengthen education, health care, vocational training and establish protected nature reserves.

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