Taking advantage of Europe’s ‘gas thirst’

THE Russia-Ukraine war, now in its third month, has wrought untold destruction, death and misery, and upturned the global economy. A major fallout however of the unfolding tragedy offers an economic opportunity for Nigeria: as Russian gas supplies are cut off from Europe, Nigeria should cash in on the opening and fill part of the vacuum to replenish its diminished treasury.

With over 200 trillion cubic feet in reserves, making it the world’s 10th largest, according to the World Population Review, the turbulence and uncertainty in the global gas market add pressure on Nigeria to quickly further exploit its reserves to maximise revenue potential and block its huge fiscal hole. Already a major gas exporter, the potential to increase production and global market share beckons. The European Union and the United States Trade and Development Agency have separately urged Nigeria to act quickly to develop and raise gas exports. During a recent visit to the Nigerian Upstream Petroleum Regulatory Commission, USTDA representatives pledged to help NUPRC develop infrastructure to fund the gas sector and help satiate Europe’s “gas thirst.”

That thirst is created by boycotts of Russian gas imports and by that country’s retaliatory cutting off of gas supplies to Europe and the rest of the West as the two sides wage economic warfare over Russia’s invasion of Ukraine. With 1,320.5 trillion cubic feet, Russia holds the world’s largest reserves of natural gas and is the largest exporter. It supplied 40 per cent of Europe’s gas in 2021 said Reuters. This has since fallen by over a quarter this year as both sides trade punitive sanctions.

EU ambassadors had also earlier met with the Minister of State for Petroleum Resources, Timipre Sylva, urging the country to raise its gas production and reduce the overdependence on crude oil revenue. This is germane as Nigeria’s 37 billion barrels of proven crude oil reserves pale in comparison to its gas reserves. Sylva insisted last month at a public forum that gas reserves had risen to 206.53tcf worth about $803.4 trillion. Experts say with further investments, reserves could rise to 600tcf.

In April, some Italian ministers visited Africa seeking new energy deals as Italy scrambles to break away from Russian gas. “We do not want to depend on Russian gas any longer, because economic dependence must not become political subjection,” the team told an Italian newspaper. A spokesman said, “Diversification is possible and can be implemented in a relatively short amount of time — quicker than we imagined just a month ago.” One of Europe’s biggest guzzlers of gas, which currently represents 42 per cent of its energy consumption, Italy imports 95 per cent of the gas it uses.

According to Trading Economics, US natural gas futures slumped roughly 25 per cent since hitting a 14-year high on May 6, amid profit-taking and data pointing to higher output levels. According to the International Energy Agency Gas Market Report for Q1 2022, global natural gas consumption rebounded by 4.6 per cent in 2021; more than double the decline seen in 2020.

The strong demand growth in 2021 was driven by the economic recovery that followed the previous year’s lockdowns and by a succession of extreme weather events. Supply did not keep pace which, combined with unexpected outages, led to tight markets and steep price increases, putting the brakes on demand growth in the second half of 2021.

This is an open call to Nigeria, which energy experts have constantly described as a ‘gas nation,’ to take full advantage of the situation by boosting gas production to meet domestic demand and for exports. It should overtake Algeria as Africa’s top exporter and move higher from being 10th largest exporter in the world.

Nigeria’s gas sector has been in constant decline since 2015. From contributing 13 per cent to Nigeria’s GDP in 2013, it dropped to just seven per cent in 2020. Though the government continues to harp on diversifying the economy, particularly sources of government revenue and foreign exchange receipts to include agriculture, petrochemicals, refining, retail, and ICT as priority sectors of the economy, the gas sector has to be fully utilised to stimulate overall economic development. Gas flaring as a by-product of crude oil production activities should be stopped to raise production significantly. PwC, a global consultancy, reported that the country’s annual average production of 2.53tcf in two decades is less than 1.0 per cent of reserves. Evaluating Nigeria’s value chain, it highlighted the numerous challenges in the gas sector such as regulatory uncertainty, poor infrastructure, and price inefficiencies.

The government should step up the gas drive to overcome these issues. To ensure success, policies must be geared towards a private sector-led gas sector. The government should work swiftly towards reducing its direct involvement in the business. Strong regulation amid an effective liberalised operating environment is essential.

The National Domestic Gas Supply and Pricing Regulations and the National Domestic Gas Supply and Pricing Policy provide the framework for gas pricing and supply. The framework also established a Strategic Gas Aggregator and the Gas Aggregator Company to manage the Domestic Gas Supply Obligations. The potential impediments, especially price control and lack of infrastructure, should be promptly addressed to unlock the potential of the gas sector for domestic energy use, foreign exchange earnings and power generation, among others.

The recently signed Petroleum Industry Act, which codifies the regulatory, administrative and fiscal framework for the sector should be effectively implemented to increase energy supply, diversify the energy mix, create jobs and promote gas-based industries through investment and powering Nigeria’s economic growth. Foreign Direct Investment is essential to realise the goal of harnessing Nigeria’s proven gas reserves to stimulate an estimated Gross Value Added of over $18 billion annually to the domestic economy.

This will require effective and sustained policy implementation. The government should mobilise the states, the organised private sector and foreign and domestic investors to make the country a gas production and export hub in the shortest possible time.

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