Navigating New Horizons: Opportunities in Nigeria’s Oil and Gas Sector Amidst IOCs Exit
By William Emmanuel Ukpoju
Over the years, the International Oil Companies [IOCs] have been essential to Nigeria’s oil and gas production. However, environmental pressures and a global shift towards renewable energy have led many to reconsider their positions in the country. As the IOCs gradually divest from Nigeria’s oil and gas sector, a new era of opportunities is emerging for local players and investors.
Oil production started in the late 1950s, following its discovery in Nigeria in 1956. In the following decade, oil exploration was open to foreign companies, with some exceptions due to economic circumstances, and the oil industry in Nigeria grew relentlessly to become a universal giant. Today, 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 globally. The petroleum industry accounts for about nine per cent of Nigeria’s GDP and almost 90 per cent of all export value.
Ahead of Nigeria is an over $100 billion worth of opportunities within the nation’s upstream space. Assertively, the divestiture of IOCs offer a silver lining for local capacity development. Indigenous firms now have the opportunity to expand their operations and expertise. The Nigerian government has expedited this transition through marginal bid rounds and production licenses, guaranteeing that local entities can grow their competencies in the upstream sector.
This shift presents a unique opportunity to reshape the industry and foster sustainable growth in the Nigerian oil and gas sector. Currently, the Nigerian oil and gas landscape is undergoing a significant transformation. The exit of IOCs has opened doors for indigenous companies and investors to step into roles once dominated by these global giants. This transition marks a pivotal moment for the Nigerian economy and sets the stage for a more inclusive and diversified energy sector. The exit of IOCs from Nigeria’s oil and gas arena is not the end but the beginning of a new chapter filled with prospects. It is a call to action for local companies and investors to rise to the occasion and harness the potential of both traditional and renewable energy sources.
With strategic planning and collaboration, Nigeria can secure its energy future and drive economic prosperity by capturing major oil and gas markets in West Africa and beyond. Nigeria is poised at the precipice of a transformative era. Amidst its bustling cities and expansive landscapes however lies a paradoxical reality – while Nigeria brims with natural resources and potential, millions of its inhabitants remain in the dark, figuratively and literally. The energy deficit plaguing Africa, particularly evident in Nigeria, presents profound and unprecedented opportunities for progress, especially for indigenous companies and investors to step up their game and make huge profits.
A closer look at Africa’s energy deficits
According to a 2017 report by the African Development Bank Group, over 640 million Africans, equivalent to roughly two-thirds of the continent’s population, have no access to energy, corresponding to an electricity access rate for African countries at just over 40 per cent, the lowest in the world. Per capita consumption of energy in sub-Saharan Africa (excluding South Africa) is 180 kWh, compared to 13,000 kWh per capita in the United States and 6,500 kWh in Europe. This staggering figure encapsulates not only a lack of electricity but also underscores deeper socio-economic disparities. From healthcare to education, business to agriculture, the absence of energy permeates every facet of African life. The report further stated that, to help Africa achieve universal electricity access by 2025 will require providing 160 GW of new capacity, 130 million new on-grid connections, 75 million new off-grid connections and providing 150 million households with access to clean cooking solutions. To achieve these goals, it is estimated that the investment needed will range between US $60 billion and US $90 billion per year.
The economic ramifications are equally stark. Limited access to energy stifles productivity, constrains business growth, and hampers job creation. However, amidst these challenges lies a silver lining – a burgeoning investment opportunity estimated at $75-115 billion. Electrification, clean cooking solutions and the harnessing of renewable energy sources represent not only a moral imperative but a strategic pathway towards sustainable development.
Nigeria’s energy quandary
Nigeria, Africa’s most populous nation and economic powerhouse mirrors the continent’s energy dilemma. With over 82 million citizens lacking access to electricity, the nation stands at a crossroads. Yet, within this challenge lies immense potential. Investments in electrification and clean cooking solutions could not only bridge the energy gap but also unlock a $10-16 billion revenue stream annually.
Additionally, addressing clean cooking access in Nigeria could lead to a substantial reduction in CO2 emissions, aligning with global efforts to combat climate change. The imperative for action is clear – Nigeria’s energy transition requires collaborative synergy among stakeholders to drive meaningful change. The local companies at the helm of the IOC divestment, especially those that are battle and business-ready to manage the oil and gas sector in Nigeria must take advantage of these investment opportunities to invest massively in the energy, oil and gas sectors.
Charting a path forward
The solution to Africa’s energy deficit lies not in isolation but in collaboration, innovation, and investment. Harnessing Africa’s abundant renewable resources, such as solar and wind power, offers a sustainable pathway towards energy security and economic prosperity.
Moreover, initiatives aimed at increasing access to clean cooking technologies hold the potential to improve health outcomes, reduce environmental degradation, and empower communities. Governments, businesses, and civil society organizations must unite in a concerted effort to address these pressing challenges. If properly addressed, the gloomy situation will provide succour and in the end, investors will smile to the bank.
Key investment areas in Nigeria’s oil and gas sector
With IOCs exiting Nigeria, there’s a need for local companies to take a more significant role in the industry. This presents opportunities for local businesses to develop capacity, acquire assets, and take on more significant roles in exploration, production, and service provision. As IOCs focus on larger fields, there will be opportunities for smaller players to invest in marginal fields that were previously overlooked. These fields can still yield significant returns with the right investment and technology. With increasing global demand for cleaner fuels, there’s a growing focus on natural gas. Nigeria has significant untapped gas reserves, presenting opportunities for investment in gas exploration, production, liquefaction, and distribution.
For instance, lack of access to clean cooking in Africa represents a $9-12 billion opportunity for a population that does not have access to clean cooking. Additionally, yearly C2 emissions could be reduced by 8.9-9. Also, the provision of clean cooking in Nigeria represents a $2-3 billion yearly revenue opportunity for populations that do not have access to clean cooking. In addition, yearly CO2 emissions could be reduced by 480-540kt.
Similarly, the lack of access to electricity in Africa represents a $75-115 billion opportunity when considering grid, mini-grid and solar home systems. Equally, electrification in Nigeria for unelectrified people represents a $10-16 billion opportunity when considering grid, mini-grid and solar home systems.
There are further opportunities in downstream activities such as refining, distribution, and marketing of petroleum products. Local companies can invest in refining capacity to reduce reliance on imported fuels, meeting domestic demand. There is also an opportunity for technology transfer and innovation. This means that local companies can partner with technology providers or invest in research and development to improve efficiency, reduce costs and enhance production techniques. Additionally, the exit of IOCs will necessitate investment in infrastructure such as pipelines, refineries, and storage facilities. This presents opportunities for construction companies and infrastructure developers to fill the gap and support the industry’s growth. The gains are equally enormous in terms of returns on investments.
Most importantly, to successfully actualise the aforementioned, there’s a need for supportive policies and regulations to attract investment and foster growth in the energy, oil and gas sectors. The government should create favourable tax regimes, provide incentives for exploration and production activities, and streamline regulatory processes to encourage investment.
Conversely, it is essential to recognize the challenges that come with the exit of IOCs, including potential job losses, revenue impacts, and gaps in technical expertise. Therefore, effective government policies, collaboration between stakeholders, and strategic planning are crucial to maximize the opportunities and mitigate the challenges in the evolving landscape of Nigeria’s oil and gas sector.
As Africa embarks on its journey towards sustainable development, the energy sector emerges as a linchpin of progress. By leveraging its vast renewable resources, fostering innovation, and promoting inclusive growth, Africa has the opportunity to not only illuminate its cities but also empower its people, transforming challenges into catalysts for a brighter future. Overall, Nigeria’s oil and gas sector presents diverse investment opportunities across policy implementation, infrastructure development, and local content compliance. As IOCs exit, local players and investors have a chance to shape the industry’s future and contribute to sustainable growth.
