Why Nigeria must maintain tactful posture on gas supply negotiation with EU  

Editorial

Nigeria has been approached and is well-positioned to provide significant relief to the European Union(EU) through a transactional arrangement that will increase gas supply to the European market.  However, there are a couple of bottlenecks to think deeply about, ranging from domestic politics , economic implications and global outlook.

First, EnergyDay believes that Nigeria is in a seller’s market scenario at this point and should be well guided to gain optimum advantage.   Clearly, the lingering war between Russia and Ukraine has put the entire European Union bloc, comprising 27 Sovereign States into an unprecedented energy crisis and a temporary policy shift on methane gas emission campaigns.

This development would have been unimaginable a year ago, with the price of natural gas pushing inflation to new heights across Europe, coupled with the fearful burden of food supply constraints looming beyond doubt.

EnergyDay has followed very keenly the unfolding negotiations between the EU and the Nigerian government and has noted with approval, Nigeria’s unwillingness to be used as canon fodder to assuage the pains of Europe while the country itself remains in energy poverty.

Tentatively, Nigeria has said that it is possible to give more gas to Europe but pointed out that the bulk of its gas resources are locked up in the bowels of the earth and would need long-term infrastructure to extract the resource.  This will involve money from the international financial markets.

Unfortunately, Europe, as a matter of policy, had placed an embargo on financial institutions’ ability to support hydrocarbon resource developments.  A situation that was very inimical to Africa’s interest in optimizing the full value of its natural resources and now also, a stumbling stone to Europe itself at this crucial moment.

Paradoxically, with Russia closing its gas supply taps to the EU, more and more European countries have found themselves returning to the use of coal, regardless of methane gas emission restrictions. Putting even more pressure on gas because of its value as a transition fuel. At the moment, Nigeria’s LNG cargoes to Europe are limited to about 14% of the country’s total output, with the Asia-Pacific market being the dominant buyer of crude oil and gas produced in the country.

In actual fact, according to data made available to EnergyDay, in 2019, Europe imported about 108 billion cubic meters(bcm) of LNG, of which more than 12 bcm (equivalent to 28.92 billion metric tonnes) came from Nigeria, but the EU at this time wouldn’t contemplate or commit itself to long-term infrastructure investments that will safeguard its gas energy security.

Matthew Baldwin, the European Commission’s Deputy Director General, seems overly optimistic that the immediate needs of the EU for gas supplies can be secured without necessarily considering the longer-term interests of Nigeria in developing its own domestic economy using the same gas resources that the EU is demanding to acquire.

The EU, in negotiating to increase volumes from Nigeria, has offered to provide limited infrastructural support to ease the flow of gas to its shores, including the resuscitation of the 180 km long Trans Niger Pipeline.

This strategic move, agreeably, is important to boost Nigeria’s LNG production to full capacity by as much as 40% while quelling the more fundamental problem of pipeline vandalism in the country’s Niger Delta region.  Nigeria’s production volume dwindled by as much as 4.1 million metric Tonnes due to challenges with gas feed stock.

“If we can get up to or beyond 80% of new capacity ramp up, there might be additional LNG that could be available for spot cargoes to come to Europe.” Baldwin was quoted to have said.  However, the EU propositions are short-term interventions that are skewed unfavourably against Nigeria’s overall future economic growth.

Long-term perspectives and immediate gains are required for mutually beneficial cooperation between Nigeria and the European Union market to flourish.  The EU expects firm commitments from Nigeria by the month of August 2022 and EnergyDay wishes to call the attention of all stakeholders to the urgent need to defend , promote and protect Nigeria’s interests.

Nigeria needs capital-intensive investments across the entire hydrocarbon value chain but with a higher focus on natural gas as a transition fuel; a deliberate move that ensures ‘Returns on Investment'(ROI) over a longer period of time that is not lower than 30 years.

EnergyDay is of the strong opinion that the EU should be more open, honest, and realistic with its policy position on net zero emission targets because of its negative impact on financing critical energy assets, particularly hydrocarbon resources in Africa.  A good illustration of what is at stake was succinctly explained by James Rockall, CEO of the World LPG Association, at the WGC 2022 meeting .

Relatively speaking, he said, it’s easier for wealthier economies to achieve their goals of carbon neutrality, than it is for emerging economies.  The UK, as an example, expects to spend about $2 trillion to eliminate its 1% share of global emissions and get to net zero by 2050.

Nigeria, on the other hand, Baldwin continued, expects to spend about $400 million to get to net zero, but the impact of Nigeria’s efforts—which by 2050 will be the third most populous country in the world—will be huge compared to the UK’s small contribution.

James Rockall then echoed a fundamental truth that, perhaps , may taste bitter but nonetheless,  factual. He said , “It’s controversial to think, but if the UK were to invest its $2 trillion into Nigeria, it would still have a lot of money left over to help itself, having also helped Nigeria.”

EnergyDay is in firm agreement with this simple logic because methane emissions are not just about regional geography; they are a universal challenge that no one can be exempted from.  Nigeria needs to remain focused on domestic gas market development over and above what Equatorial Guinea is contemplating for instance.

Gabriel Mbaga Obiang Lima, that country’s Minister of Mines and Hydrocarbons recently signed agreements with Egypt’s leading private sector energy and utility provider, TAQA Arabia, for the development of LNG, CNG, and several gas utilization projects, with further plans to convert 50% of its car fleet to run on compressed natural gas (CNG)

Recall that EnergyDay pointed out in its last editorial the need for Nigeria to radically shift dependence from the use of Premium Motor Spirit (PMS) and convert to CNG and other options.

It is extremely provocative and unacceptable that the country is running a subsidy invoice amounting to several billions of Naira with zero proof that those expenditures are not bloated through corruption.

Investigations by EnergyDay revealed that the country spends about N1.243tn monthly to defray subsidy bills on Premium Motor Spirit.  Aliko Dangote heeded the call long before now and pioneered the use of CNG as fuel for about 4000 of its trucks operating within the South-South region of the country, and this template, or its modification , should be extended across the country.

According to reports, the economic benefits to the Aliko Dangote operations amounted to about  50% savings on fuel costs.  In conversations with Tatiana Khanberg, Director, Strategic Communications, International Gas Union, she said, “We see a very positive momentum for African gas development, and the continent should continue to leverage this momentum to enhance its own wellbeing, while also supporting a secure and achievable global energy transition.”

“Ongoing right now, Tatiana pointed out, there is over 120 Million Tonnes per annum(mtpa) of proposed capacity in Africa, and this is a very positive prospect. It is also vital to ensure that domestic energy access is in focus, and the necessary infrastructure to provide access to modern energy for Africans is part of the considerations to be put into focus.

Nigeria’s economy is now firmly anchored to gas development and this reality should reflect in its industrialization  agenda .  The mass media should be awash with  campaigns to rapidly drive the brighter future that is ahead of the country and stimulate actions beyond clichés.