Can Nigeria fill Europe's oil and gas supply gap?

Nigeria, in addition to being among Africa's top oil and gas producers in 2022 with over 37 billion barrels of crude oil reserves, has the potential to improve its energy exports to Europe and help address projected shortages of crude oil and natural gas.

With the European Union considering banning crude oil imports from Russia by increasing trade with other non-Russian economies and the Russian government promising to reduce gas supplies if Western sanctions continue, potential disruptions to Europe's supply are expected.

As a result, Nigeria is expected to increase production in 2022 and retain its position as Africa's largest crude oil producer.

Nigeria's annual crude oil production is expected to increase to 1.46 million bpd in 2022, following low production levels in 2021 due to the Covid-19 pandemic. This will be an opportunity for Nigeria to increase exports to Europe, become a global energy hub and fully utilize its hydrocarbon resources for economic growth.

The country relies on its offshore projects to support crude oil production and supply, with 65% of its total production in 2022 expected to come from these projects. However, this will change as Nigeria's crude oil production is expected to decline from 2023 onwards due to reduced production from existing fields. Nigeria will have to wait for the commissioning of deepwater projects to improve its production capacity.

"Nigeria needs to accelerate crude oil production from existing discoveries that have yet to materialize in order to be able to maintain a secure supply in the future to meet local, regional and international demand. The lifting of the force majeure at the Brass terminal, Bonny NLNG and Okpai power plant is timely," said NJ Ayuk, executive chairman of the African Energy Chamber (AEC).

As for gas, Nigeria's massive production capacity in 2022 will place the country among the top three producers in Africa and a potential supplier to meet demand in Europe. Nigeria has an estimated 209 trillion cubic feet of gas reserves and will produce 1,780 billion cubic feet in 2022, up from 1,450 billion cubic feet in 2021. With this portfolio, Europe can look to Nigeria as a potential supplier.

In addition, the multi-billion dollar, 2,565-mile Trans-Saharan pipeline, built by the governments of Nigeria, Niger, and Algeria, will integrate the Trans-Mediterranean, Maghreb-Europe, Medgaz, and Galsi pipelines so that Europe can tap into the oil and gas resources of West and North Africa to meet demand. When completed, the pipeline will transport 30 billion cubic meters of natural gas per year and Nigeria can produce a significant portion of this capacity.

"Nigeria is rich in oil and gas resources, but still lacks adequate infrastructure such as a functioning refinery. To effectively use its oil and gas resources, Nigeria needs to build more local infrastructure to process its energy," said Hendrick Malan, CEO of Frost & Sullivan.

In addition, Nigeria's current natural gas production fields are expected to decline sharply as we approach the mid-2020s. Majors such as ExxonMobil, Shell and TotalEnergies - the main producers in Nigeria - are expected to diversify their portfolios from 2022 onwards and exit the market. ExxonMobil has already signed a $1.2 billion deal with local company Seplat Energy to hand over four oil licenses and natural gas recovery plants.

Factors such as infrastructure vandalism, continued lack of investment in new exploration activities and political instability/civil unrest in Nigeria's oil and gas rich regions also continue to disrupt the country's ability to maximize oil and gas production and increase exports.

The enactment of the Petroleum Industry Act (PIA), which will help increase the number of majors and international investors in Nigeria, is a positive development. The PIA is expected to bring clarity on taxation, investment and licensing that previously slowed down project deployment. The law will stimulate investment in upstream oil and gas activities to improve exploration, production, infrastructure development and the country's energy portfolio.

It should be noted that 50% of the Nigerian population still lives in energy poverty, as the country's energy potential remains totally untapped.