EU Banks its Hopes on Nigeria for Gas Supplies

/ Oil & Gas / Monday, 25 July 2022 11:44

Reacting to a partial cutoff of natural gas exports from Russia – its largest energy supplier, the European Union is now looking to Nigeria for its energy supplies.

Matthew Baldwin, Deputy Director General of the European Commission's energy department has maintained that Nigeria’s officials have informed him about the improving security in the Niger Delta and their plans to re-open the 614-kilometers long Trans Niger pipeline after August, which would yield more gas exports to Europe. The EU imports 14% of its total LNG supplies from Nigeria, and there is potential to more than double this, Baldwin said.  Nigeria shipped 23 billion cubic meters (bcm) of gas to the EU in 2021, but the amount has been reducing over time.

The European economy is facing a grave situation when it comes to trade, investment and finances as a result of the Russian invasion of Ukraine.  European infrastructure and global supply have withstood a 60% drop in Russian gas deliveries since June 2021. Total gas consumption in the first quarter was down 9% from a year earlier, and alternative supplies are being tapped, especially LNG from global markets.  According to a new regulation, EU member states must reduce their gas consumption by 15% between August 2022 and March 2023. The target will be voluntary to start, but could later become mandatory.  Germany and the rest of Europe are looking for ways to stop dependency on Russian natural gas but cannot afford to see gas flows “cut off immediately” and the subsequent risks to the economy in the short term.  The Kremlin-controlled energy giant Gazprom reopened the Nord Stream 1 pipeline to Europe after 10-day maintenance shut down albeit at a 40% capacity.  Russian President Vladimir Putin has blamed the West and the sanctions imposed on Russia for supply problems.

Nigeria is Africa’s main oil producer. With 18 operating pipelines and an average daily production of some 1.8 million barrels in 2020, Nigeria is the eleventh largest oil producer worldwide. The petroleum industry accounts for about 9% of Nigeria’s GDP and for almost 90% of all export value.

Additionally, Nigeria has re-launched its state-owned energy firm the Nigerian National Petroleum Company (NNPC) as a limited liability company that will operate independently of the government and without access to public funding. NNPC was founded in 1977 as a wholly state-owned entity for energy-related operations. NNPC states that they want to transform Nigeria's petroleum industry and "strengthen its capacity and market relevance for the present and future global energy priorities."

A recent McKinsey report “The future of African oil and gas: Positioning for the energy transition” states that energy demand in Africa is forecast to be around 30% higher in 2040 than today, compared to a 10% global increase, leaving many African countries highly exposed to the global pressures of the energy transition. Such exposure is exacerbated by the fact that many of the region’s economies depend on oil and gas revenues, whilst their reserves cost more to produce and are, on average, more carbon-intensive than oil and gas from other regions.

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