Wednesday, November 30, 2022

Nigeria’s gas demand will continue to grow despite falling production and limited infrastructure

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The future of Nigeria’s natural gas industry looks promising, despite current production levels and limited infrastructure, according to a new report from African investment research agency Hawilti. While European markets are currently the main consumers of Nigerian gas, Hawilti’s report highlights the potential for growth in the domestic market. With demand expected to rise, investing in the development of Nigeria’s gas resources could pay off in the long run.

The study found that there are several factors driving demand for gas in Nigeria, a country where most companies generate their own power to avoid relying on an inefficient grid. Initially, adoption was driven by large industries such as petrochemicals and fertilizers, and by multinationals seeking to decarbonise their operational footprint and replace diesel with gas in their factories and heavy duty trucks. However, demand has recently soared from a much wider range of consumers following the increase in global diesel prices, and is currently heavily driven by costs considerations.

“The highly heralded ‘Decade of Gas’ in Nigeria can become a reality provided the country responds to this surging demand. A lot of headwinds exist like weakening production and an inadequate distribution infrastructure, but Nigeria’s resource base is second to none in Africa,” said Mickael Vogel, Head of Research at Hawilti.

A survey of the country’s top gas suppliers notably shows that Nigerian industries have become a lot more bullish on gas over the past year. “Generally speaking, we have seen much more traction by Nigerian industries seeking to buy compressed natural gas (CNG) and liquefied natural gas (LNG) for their factories as they have concluded that diesel prices are not coming down anytime soon, nor is the power grid going to increase substantially in the short to medium-term,” explained Sumeet Singh, Director of Sales & Strategy at Powergas Africa, one of Nigeria’s leading gas distributors.

Nigeria still imports all of its petroleum products and does not subsidise diesel, whose prices have increased by over 200% from some NGN 250/litre at the start of the year to NGN 800 litre at the moment. In comparison, the prices of compressed natural gas (CNG) have only grown by 50% compared to 2021 levels, making it a very attractive alternative.

The trend is further pushing large and medium-sized enterprises to adopt gas to stay competitive. Earlier this year for instance, the Lagos Free Zone, one of Nigeria’s largest special economic zones, signed a Gas Infrastructure Development Agreement (GIDA) to secure its own uninterrupted deliveries of piped gas as early as 2024. The special purpose vehicle (SPV) in charge of the project, Optimera Energy FZE, gathers three of Nigeria’s strongest gas players including natural gas distributor Falcon Corporation Ltd and independent oil & gas companies ND Western and First Hydrocarbon Nigeria (FHN).

“Gas consumption has become essential to the survival of Nigerian industries – especially manufacturers. The capacity to negotiate friendly and stable long-term gas sales contracts and access locally available gas as a cleaner and efficient replacement for other forms of fuel is gaining traction among manufacturers,” said Ken Etete, Group CEO at the Century Group whose subsidiary Gas-Plus Synergy is in the process of commissioning a terminal in Lagos to receive domestic LNG and distribute it to industries across the country.

Thankfully, the Nigerian government has embarked last year on a “Decade of Gas” to encourage investments in gas infrastructure and increase gas penetration across the economy. But while market conditions are in favour of gas, Hawilti’s report also highlights several challenges that remain to be addressed to meet current needs and address supressed demand in Nigeria. These notably include gas availability, an uncertain macro-economic outlook, and a persistent scarcity of foreign exchange.

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