Market News

Nigeria’s gas export has plunged by 25 percent to the lowest level in three years, mirroring a similar slump in the country’s crude oil exports.

This decline is primarily attributed to low production levels and exit of multinationals, raising concerns about the nation’s ability to meet its export commitments and capture revenue from the global gas market.

Data obtained from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) revealed a 25.5 percent decline in gas exports in the last three years due to low gas production.

Export sales dipped from 1.14 million standard cubic feet per day (MMSCF) in 2021 to 847,755 MMSCF in 2023.

“The significant drop in export could be related to recent exits/divestment of major producers from Nigeria, such as Shell, Eni, Equinnor and ExxonMobil, coupled with the lack of investment in key fields,” said Joshua Olorunmaiye, legal advisor on energy and natural resources, projects and infrastructure at Banwo & Ighodalo.

“Notably, the exploration and development of Nigeria’s deep-water potential are an important factor to change the recent decline,” Olorunmaiye added.

Ayodele Oni, energy partner at Bloomfield Law Practice, said that one of the problems affecting gas production is poor gas infrastructure.

“It is also essential to improve security mechanisms utilizing innovative technology to protect gas infrastructure. This will reduce vandalism to gas infrastructure and also encourage investors.

“It is also important to improve and implement gas utilisation, exportation and consumption policies whilst enforcing the deterrence of gas flaring and encouraging gas commercialisation.

“It is also essential to encourage the development of gas-based industries to improve gas utilisation. Efforts should also be made to eliminate corruption in the sector whilst implementing mechanisms to increase investments,” Oni added.

For Etulan Adu, an oil and gas expert, the continued decline in Nigeria’s oil production due to pipeline vandalism, oil theft (bunkering), insecurity and maintenance issues led to a significant drop in gas production which serves as feedstock to processing facilities such as the Nigerian LNG plant, a major gas exporter.

Gas exported from Nigeria is sold as liquefied natural gas through the Nigeria LNG (NLNG) long-term contracts with countries in Asia and Europe, including Portugal.

“The growing trend of insecurity around gas pipeline infrastructure, coupled with the COVID-19 pandemic and global competition from players such as Qatar, diverted investment opportunities for Nigeria’s gas,” he said.

Between January and April this year, the largest producer of crude oil in Africa continued with the trend, recording a 13.5 percent decline in gas production and 22 percent drop in exportation.

“With several ambitious goals already set out even by previous administrations, the important question now is about how we intend to realise such lofty targets,” Olorunmaiye said.

Other experts noted that the decline in Nigeria’s gas export sales and production poses revenue losses, impacting national budgets and economic stability.

They noted that reduced foreign exchange earnings from gas exports could deplete reserves, affecting exchange rates and potentially increasing inflation, a development the country is already battling with.

Apart from exported gas, BusinessDay’s findings showed Nigeria also uses gas domestically for power generation as feedstock for gas-based industries such as petrochemicals and fertiliser production, industrial heating and as fuel for natural gas vehicles.

According to data from NUPRC, domestic sales showed an overall increasing trend, with slight fluctuations between 2021 and 2023.

From 2021 to 2022, domestic gas sales in Nigeria experienced a slight decrease, dropping from 580,893 MMSCF to 569,329 MMSCF, representing a decline of approximately two percent.

However, from 2022 to 2023, there was a significant rebound in domestic sales, rising from 569,329 MMSCF to 649,930 MMSCF, indicating an increase of approximately 14.1 percent.

“Domestic gas sales have probably rebounded owing to the enforcement posture of the government with regard to domestic gas delivery obligations which Section 110 of the Petroleum Industry Act (PIA) mandates,” Olorunmaiye further said.

Section 110 of the PIA prescribes and allocates the domestic gas delivery obligation among all lessees before 1st March of each year.

According to the PIA, “A lessee may, voluntarily, conclude contracts with wholesale customers of the strategic sectors or with wholesale gas suppliers supplying the strategic sectors for delivery of marketable natural gas on a free market basis to these customers or suppliers.”

For Adu, the domestic gas improvement resulted from regulatory interventions and efforts to ensure producing companies supply the domestic market.

“Also, developments in domestic gas projects and existing gas infrastructure helped boost the market. Power generation is a major market for domestic gas which favors indigenous oil companies,” he said.

On the prospects of Nigeria’s gas production, Adu said that with a renewed interest in gas development from the government, oil companies and investors, coupled with the recent trend of divestments of marginal fields to local firms, the likelihood for an improvement is certain.

“The NLNG train 7 coming on stream soon, the Ubeta gas development project and Floating LNG projects point to a bright outlook for the future of gas in Nigeria. Global demand for gas would remain high in the near to medium term,” he said.

“The likelihood of revenue growth is possible only if new projects and investments in upstream gas would pull through successfully.”

Adu added that some strategies the government can adopt to enhance the situation for gas from 2024 and beyond include: investment in infrastructure, regulatory reforms, diversification of markets, and technology adoption.

“A strong political will, attractive investment climate, developed infrastructure, policy adjustments and stable economy are paramount to making the gas value chain fundamental in ensuring gas export for revenue generation in Nigeria,” he added.