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Why Algeria and Nigeria Are Vulnerable

Oil and gas revenues play an important role in government budgets, public expenditure and foreign-exchange earnings in both countries.

Algeria remains heavily dependent on hydrocarbons, with state-owned energy company Sonatrach occupying a central position in the economy. The country has continued investing in oil and gas production, including to supply European buyers seeking alternatives to Russian energy.

Nigeria is similarly pursuing higher production.

The Nigerian government wants crude output to reach approximately 3 million barrels per day by 2030, substantially above recent production levels, while attracting additional investment into exploration, natural gas and refining.

International Energy Agency Executive Director Fatih Birol recently said Nigeria could potentially double energy investment within five years, as conflicts involving Iran and Ukraine encourage energy buyers to seek additional sources of supply.

These positions are not necessarily contradictory. Additional production could generate substantial revenue before global demand weakens, particularly if Nigeria and Algeria remain competitive producers.

The danger is that large, expensive projects could begin producing just as global buyers become increasingly selective.

The Race to Become One of the Last Oil Suppliers

Oil demand is broadly expected to plateau or peak somewhere between 2030 and 2035, although forecasts differ considerably.

A decline in global oil demand would not mean that oil consumption suddenly disappears.

Instead, producers would increasingly compete for a smaller pool of global demand.

This could favour countries possessing:

• low production costs;
• large financial reserves;
• reliable infrastructure and supply;
• fiscal capacity to withstand lower prices; and
• flexibility to reduce prices while remaining profitable.

Wealthier Gulf producers could therefore be better positioned to withstand an extended period of weaker prices and revenues.

Nigeria and Algeria have considerably less room to absorb such a shock.

Limited Financial Buffers Increase the Risk

E3G identifies Algeria and Nigeria among significant oil exporters whose financial and political buffers are comparatively limited.

Globally, 17 oil- and gas-producing countries derive more than 40% of government revenue from hydrocarbons, illustrating how disruptive a sustained decline in fossil-fuel demand could become.

The think tank developed its report over several years and conducted simulations involving more than 100 participants drawn from governments, international organisations, academia and civil society.

Rather than presenting one definitive forecast, the exercise considered several possible energy-transition pathways covering 2028 to 2040.

What the 87% and 60% Figures Actually Mean

This is an important qualification.

The projected 87% decline for Algeria and more than 60% decline for Nigeria should not automatically be interpreted as forecasts that their governments will lose those exact percentages of total revenue.

Before treating the figures as national fiscal forecasts, the underlying E3G methodology would need to establish:

the base year, oil-price assumptions, production assumptions and precise definition of “oil revenue.”

For example, a 60% reduction in gross oil export revenue would not necessarily translate into an identical 60% reduction in Nigerian government revenue.

The figures are therefore better understood, on the information supplied, as scenario-based indications of exposure to the energy transition rather than definitive fiscal forecasts.

Nigeria Faces a Strategic Investment Decision

For Nigeria, the report highlights an important policy dilemma.

Accelerate production

Nigeria could attempt to increase output rapidly and monetise its remaining petroleum resources while global demand remains substantial.

If the country achieves its 3 million-barrel-a-day target, additional production could generate considerable export earnings and government revenue before the anticipated structural decline in oil demand.

Limit long-term exposure

The alternative risk is investing billions of dollars in projects whose economic lives extend well beyond 2030.

If global demand weakens and competition among producers intensifies, higher-cost projects could struggle to generate expected returns.

That creates the possibility of stranded assets—oil and gas investments whose expected economic value cannot ultimately be realised.

The Central Question

The report therefore presents Algeria and Nigeria with a difficult strategic calculation:

Should they accelerate oil investment now to maximise revenue before global demand declines—or limit new investment to reduce the risk of being left with expensive, uneconomic assets?

The answer may depend less on whether oil disappears and more on which producers can remain competitive as global demand contracts.

For Nigeria in particular, the crucial issues will be production costs, investment discipline, fiscal resilience and whether additional petroleum earnings generated before 2030 are used to diversify the economy and strengthen non-oil sources of government revenue and foreign exchange.