The role of gas in Nigeria’s Energy Transition Plan

BY OGA ADEJO-OGIRI

Oga Adejo-Ogiri is the Executive Secretary of the Association of Local Distributors of Gas (ALDG) and, also, Principal Consultant at Vappax Advisory, an Energy Consulting firm based in Abuja

On the 24th of August 2022, Nigeria launched its Energy Transition Plan – a framework that sets out in fine detail what is required to achieve net zero carbon emissions by 2060 and end energy poverty in Nigeria by 2030.

By this definition, the plan has two core objectives. We examine these objectives briefly before interrogating how Nigeria’s gas sector fits into the nation’s energy transition plan.

Ending energy poverty by 2030

Energy poverty is a lack of access to modern energy services that enable heating, cooking, transportation, and other daily needs. It describes a situation where large populations, commonly in developing countries, have limited access to energy.

In sub-Saharan Africa, 568 million people live without access to electricity. Ninety-one (91) million of these people live in Nigeria. This is an estimated 45 percent of Nigeria’s population.

Nigeria’s per capita energy consumption is 360 kilowatt hours compared to 12,000-kilowatt hours in the USA and 6,500-kilowatt hours in Europe. The prevailing lack of access to energy in Nigeria undermines the growth of small and medium enterprises and stalls industrial growth. This results in a decrease in the rate of job creation, a drop in industrial productivity, and rising inflation due to the cost of expensive alternative fuels, such as diesel.

Achieving Net Zero by 2060

Net Zero simply means reducing human-caused greenhouse gas emissions to the absolute minimum levels possible. It does not mean the total elimination of greenhouse gas emissions (real-zero). Instead, it calls for a balance between the amount of emissions being released into the atmosphere and the amount being taken out. To get a clear picture of what is required, imagine water being poured into a giant bowl that has a tap. Net zero would mean ensuring that the same amount of water being poured into the bowl is the same amount leaving the bowl.

In November 2021, President Muhammadu Buhari pledged that Nigeria would cut its emissions to net zero by 2060. This promise was made at COP 26 in Glasgow, Scotland. COP stands for “Conference of Parties”- a diplomatic term that refers to all the 197 countries that are parties to the United Nations Framework Convention on Climate Change which was signed at a meeting in 1992.  The number that comes after is an indicator of the number of meetings held since the initial signing in 1992.

This decision was not taken lightly. President Buhari, in declaring Nigeria’s commitment to net-zero by 2060,  pointed to the obvious and present effects of climate change plaguing the country-

‘‘Desertification in the North, floods in the centre, pollution and erosion on the coast are enough evidence. For Nigeria, climate change is not about the perils of tomorrow but what is happening today. Nigeria is committed to net zero by 2060.’’

The rationale was simple and pressing. The accelerated effects of climate change caused by emissions that Africa contributes the least to were impacting life and sustainability. Crop production cycles were being disrupted, urban disasters were commonplace and quality of life was reducing.

Putting action into words, President Muhammadu Buhari signed Nigeria’s Climate Change Bill into law shortly after the declaration at COP26. The launch of the Energy Transition Plan builds on that momentum by providing clear objectives and the resources necessary to achieve net zero by 2060.

According to the plan, $1.9 trillion is required to get to Net Zero by 2060, including $410 billion above projected usual spending. This additional cost translates to about $10 billion annually. The plan’s objective of cutting emissions is focused on six key sectors – power, transport, oil & gas, cooking and industry. These industries are expected to cut down on fossil fuel use, firewood cooking, dependence on diesel or petrol generators, flaring and other practices driving emissions. Instead, we will see a shift to electric vehicles, integration of renewable energy and widespread LPG and biogas use.

How does gas fit into Nigeria’s energy transition plan?

At first glance, any plan for energy transition and carbon neutrality by 2060 seems at odds with a gas utilisation and development agenda. The reason is not far-fetched. Net-zero is anchored on a transition to renewable energy sources and reducing the use of fossil fuels. Although delivering less emissions and found in large deposits across the continent, gas is unfairly lumped with other fossil fuels (petroleum, diesel, coal e.t.c), ignoring its potential to provide affordable power that drives industrialisation and ending energy poverty.

Conscious of this potential of gas, Nigeria has included it in its Energy Transition Plan, stating clearly that “for a fair, inclusive and equitable energy transition, gas must be recognized as a “transitionary fuel”. The plan states that, “Gas will play a significant role in establishing baseload energy capacity, stabilising the grid to allow for the integration of renewables at scale and addressing the nation’s clean cooking deficit in the form of LPG”

Significantly, it also notes that the exploitation of gas is targeted for a limited period, noting that “gas consumption will grow by about 25% above the 2019 baseline by 2030, before declining to approximately 50% of the 2019 value as we approach our 2060 deadline for carbon neutrality”.

This means that in the short term, gas will drive the establishment of baseload energy capacity, and provide stable and consistent power for industrial growth while Nigeria builds out renewable energy infrastructure.

However, market realities point to a longer window for gas exploitation and investment. With extensive financing required to build renewable energy infrastructure from the ground up and growing local consumption and demand for gas exports, gas is positioned to contribute a significant percentage to Nigeria’s energy needs long beyond the 2060 timeline.

In order to align with the urgency of the energy transition, the gas sector has witnessed investment in research and technology that ensures carbon capture, utilisation, and storage is deployed by industry players. This will ensure that the gas production process produces minimal carbon emissions aligning with the goal for a net zero future.

President Buhari, while pledging to deliver net zero by 2060, made it clear that the future of Nigeria’s energy will be shaped by gas.

‘‘Nigeria is actually more of a gas than an oil producing country. Consequently, I am requesting for financing of projects using transition fuels, such as gas.  Nigeria has energy challenges for which, we believe, gas can be used to balance a renewable energy-based system, be it wind or sun.

This would enable us launch the long-term renewable energy infrastructure procurements and investments needed to have a sustainable energy supply.’’

These statements were made by the President, in response to dwindling interest in and, by extension, financing for gas infrastructure projects. CNN describes the situation as a “global drive by banks, pension funds and development finance institutions to limit or altogether halt investments into fossil fuels in line with net-zero emissions goals”; it puts plans to use gas as a bridge or transition fuel in troubled waters.

On the global front, some progress has been made with a landmark vote in July 2022 by European Union lawmakers, “in favour of calling natural gas and nuclear power “green” or “sustainable” sources of energy, backing a proposal from the European Commission, the EU’s executive arm”. This unlocks billions of dollars in funding, helping to potentially drive the pace of gas infrastructure projects.

However, these rules will come into force in early 2023, meaning that the lack of gas financing is still a very present threat, as articulated by Nigeria’s finance Minister, Zainab Ahmed:

“There needs to be a hiatus on the blanket bans on fossil fuel financing in developing countries, particularly for natural gas which is essential as a transition fuel for establishing baseload power capacity and clean cooking solutions”

“Stated and presumed bans on natural gas have significantly impacted the ability to raise financing for key gas infrastructure in Nigeria.”

Despite these concerns, there are still bright sparks for funding gas projects in Africa. Experts are confident that bankable gas projects will continue to attract funding. There is certainly industry activity to that effect with Afrexim Bank’s commitment of $5 billion dollars in January 2022 for investment in Nigeria’s upstream sector. Prior to that, Seplat secured $260 million with a commitment for over $400 million in additional funding for its ANOH gas project. A further testament that gas can be financed and financed successfully.

To expand the funding pool, players in Nigeria’s gas sector must begin to incorporate elements of carbon reduction to make deals attractive to more investors. An example is devoting significant funding to implementing carbon-capture technology in gas infrastructure projects. This provides an interesting compromise that will pique the interest of investors.

Conclusion

An analysis of the role of gas in Nigeria’s energy transition plan reveals that the financing, commercialization and utilisation of gas is critical to the success of the plan.

Ramping up gas production in the face of global demand and local consumption is essential to ensure efficient power generation and contribute significantly to the financing of the required renewable energy infrastructure. Rapid and sustained action must be seen to match the policy direction that names gas as the transition fuel if Nigeria’s net-zero ambitions are to be realised.

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