Natural gas untapped as oil rot reigns under Tinubu

Nigeria’s natural gas sector has emerged as a beacon of hope during the inaugural year of President Bola Tinubu’s administration as underinvestment and rampant crude oil theft threaten to erase gains from subsidy removal or refinery renaissance.

Within one year, President Tinubu’s tenure has been marked by a concerted push towards revitalising Nigeria’s energy landscape, with natural gas taking centre stage in the administration’s agenda, according to findings by BusinessDay.

“Strong government support for the expansion of natural gas infrastructure has begun to see results,” BMI Research, a London-based firm that provided macroeconomic, industry and financial market analysis said in its one-year review of the new administration.

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BMI Research noted that private investment in natural gas infrastructure has supported higher commercialisation rates while lowering flaring from 9.2 percent to 7.4 percent from 2021 to 2023.

“Natural gas pipeline construction will see greater domestic consumption,” it added.

The report acknowledged Tinubu’s executive order in March 2024 for tax credits for non-associated gas and a 25 percent gas utilisation investment allowance for equipment and plant for new and ongoing projects.

“Natural gas emerges as industry bright spot” BMI report explained.

With 209.5 trillion cubic feet of proven gas reserves, Nigeria ranks 9th among gas-rich countries in the world. However, this abundant natural resource remains largely untapped for both domestic use and export.

Since he came into power on May 29, 2023, President Tinubu has shown eagerness to change Nigeria’s energy story using the potential of the country’s gas deposits.

Last week, Tinubu inaugurated three milestone projects, which are the expanded AHL Gas Processing Plant; the ANOH Gas Processing Plant, and the 23.3km ANOH to Obiafu-Obrikom-Oben (OB3) Custody Transfer Metering Station Gas Pipeline.

“When these projects become fully operational, approximately 500MMscf of gas in aggregate will be supplied to the domestic market from these two gas processing plants, which represents over 25 percent incremental growth in gas supply,” Tinubu said at the commissioning.

Despite gains from the gas sector, Nigeria’s oil industry, the source of much of the country’s foreign receipts and more than half of government revenues finds itself on shaky ground in Tinubu’s first year.

The pain of this large-scale theft and vandalism, as well as decades of under-investment in infrastructure, was so severe in April 2023, that the country produced less than one million barrels of oil daily, far below its 1.8mn bpd Organisation of Petroleum Exporting Countries quota.

“It’s a classic case of two steps forward, one step back,” lamented Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies. “Nigeria’s oil production did inch up marginally under Tinubu, but the gains are illusory when you consider the rampant theft and the abysmal state of critical infrastructure.”

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Mohammed pointed to dilapidated exporting terminals, creaking pipelines riddled with illegal taps, and a near-total absence of fresh exploration and development activities as stark indicators of the underlying rot.

“When was the last time we had a replica of the Egina project in Nigeria?” Mohammed asked.

Other experts wondered why Nigeria’s energy sector has continued struggling to attract new investment to boost oil production more than two years after the Petroleum Industry Act (PIA) was signed into law.

“Political interference and deliberate refusal to adhere strictly to the law have worsened fortunes of the sector to the pre-PIA era when opacity, graft and tardiness reigned unchecked,” a source said.

“Decline in Nigerian exports indicate that around 100,000 to 200,000 bpd diverted to domestic refining,” a report by BMI Research said.

It noted that new domestic crude supply obligations could tilt exports lower as local needs met settlement in either dollars or naira.

“Deepwater fields hold the key to renewed growth,” BMI research said.

Data sourced from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) showed that out of 57 Petroleum Prospecting Licences (PPL) in the country, about 33 are non-producing oil blocs.

In the downstream sector, Tinubu, in his inaugural address, announced the removal of an almost 50-year-old petrol subsidy regime.

Following the announcement, the Nigerian National Petroleum Company (NNPC) Limited directed its outlets nationwide to sell fuel between N480 and N570 per litre, an almost 200 percent increase from the initial price below N200, leading to a significant increase in transportation fares and prices of goods and services.

The pronouncement was trailed by panic buying and gridlock across filling stations in many parts of the country, even as regulatory bodies called for calm amid the chaos.

“Fuel subsidy reform opens door to new investment. However, domestic price levels fall short of international markets and fuel theft and smuggling remain a drag on government expenditure,” BMI Research said.

“Refining margins squeezed by lower domestic prices encouraging exports over domestic supply. Profitability in the downstream sector is limited by access to crude from domestic sources,” BMI research said.