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Nigerian energy companies have ramped up oil production over the past year as the government intensifies its efforts to restart dormant refineries and monetize untapped gas reserves.
Indigenous companies now control assets that produce more than half of Nigeria’s oil production, according to operators and government officials. Renaissance Africa Energy, a consortium of mostly local firms that took over the operation of onshore oil assets from Shell a year ago, has doubled output from its facilities from a base of about 100,000 barrels per day, Nigeria’s junior oil minister told an industry gathering last week in Abuja.
Reviving the energy sector has been a top priority of Nigerian President Bola Tinubu’s administration as it tries to rapidly grow an economy rocked by two recessions in the last decade. The government push came after several multinationals fled the country’s onshore oil and gas scene in recent years due to rampant theft along pipelines that have in turn strained crude output and created uncertainty. Pipeline sabotage has also stifled government revenues.
Since ending subsidies on imported petrol three years ago, Tinubu’s administration has implemented policies aimed at enabling local players to ramp up production and incentivizing international partners to make new investments offshore.
Last month, the government launched a plan to monetize the nation’s gas reserves, which are the largest in Africa. And state oil company NNPC is holding talks with independent companies to take over the operation of the government’s moribund refineries, NNPC chief Bayo Ojulari said, including one last week with a Chinese petrochemical plants builder.
“The big positive change in Nigerian energy in the last three years has been that there are now targeted frameworks in place to ensure speedier contracting timelines and better fiscal structures,” said Clementine Wallop, an analyst at a New York-headquartered consultancy Horizon Engage, adding that a new cohort of energy regulators has “sent favorable messages to investors.”
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Those investors include Shell, which has invested $7 billion in two projects in Nigeria within the past year and is planning future commitments, according to its global CEO Wael Sawan.
“We are working on a project that could see us invest around $20 billion” in capital and operating expenses, Sawan told Tinubu last month. The project — Bonga South West — is located in the deep waters of the Niger Delta region and is expected to produce 150,000 barrels of oil per day.
Local energy players are pursuing new opportunities too. Heirs Energies became the largest shareholder in Seplat, a Lagos- and London-listed competitor that is one of Nigeria’s biggest oil producers, in a $500 million deal last month. Heirs had raised $750 million from the African Export-Import Bank (Afreximbank) in December to finance the expansion of its own oil producing facility to 100,000 barrels per day within five years, more than doubling the asset’s capacity when it was bought from Shell in 2021.
Nigeria is also benefiting from a favorable global investment climate for fossil fuels driven by the US government’s renewed interest in oil exploration. The trajectory for more energy dealmaking across Africa is trending upwards: In June, the Nigeria-headquartered African Energy Bank — a new lender to oil and gas producers in Africa — will finally launch, according to Afreximbank and the association of African oil producers bankrolling the $5 billion venture.
Alexander’s view
The question for Nigeria’s energy industry is how to sustain momentum built over the last three years.
Investment in African oil and gas could reach $41 billion in 2026 with production estimated at 11.4 million barrels per day, according to the African Energy Chamber, a South Africa-based energy research and advocacy association. Nigeria is poised to be a leading destination for investments but other oil-producing countries like Angola and Mozambique will also feature, the Chamber said.
In Namibia, TotalEnergies has added to its collection of assets by acquiring a 42.5% stake in an offshore oil exploration license (though the government has disputed the deal’s validity). The French giant is also making progress in talks with Mozambique’s government to restart work on a $20 billion liquefied natural gas development.
Nigeria’s challenge is to build “an energy industry that can sustain itself, delivering real and lasting value,” said Adegbite Falade, managing director of Lagos-based energy company Aradel Holdings and head of a trade group of Nigerian oil producers.
Reducing bureaucracy and streamlining industry fees are key pillars of achieving sustenance and making Nigerian producers competitive. “Our industry today operates at a significantly elevated premium in costs” compared to peer nations, Falade said.
Room for Disagreement
A feeling of camaraderie between operators in the upstream sector of Nigeria’s energy industry is contrasted by a strong air of tension in the downstream sector — the part of the industry that takes refined oil products to the last mile.
The Dangote Refinery’s increasing dominance of the local supply of refined petrol is expanding its role in determining the market price. Companies that have served consumers long before Dangote’s emergence over the last 18 months are raising fairness concerns. “We now have a market that is not a market of equals,” said Gabriel Ogbechie, founder and CEO of Rainoil, which owns a nationwide network of pump stations. “We need our regulator to act as a referee without fear or favor.”
Notable
- A steady implementation of the Petroleum Industry Act, Nigeria’s landmark energy law, has increased investors’ perception that “risk has reduced,” a senior executive at Lagos-based group Oando Energy Resources said.