Priorities

Security

A top priority for Nigeria is to improve its attractiveness as an investment destination. The major hurdle to this is the sectarian violence that continues to plague the country. The election of President Goodluck Jonathan, a southerner from the Niger Delta region, led to a reduction in hostilities from the Movement for the Emancipation of the Niger Delta (MEND) and a ceasefire from many of the groups it represents.

Loss of production as a result of attacks, repairs to infrastructure, counter-insurgency and protection measures cost the oil and gas companies operating in the country a great deal and poses a barrier to investment. Nigeria is struggling to fulfil its potential as a producer and the security problem is the main cause. Planned LNG projects which ultimately failed to pin down FIDs – namely Brass LNG and OK LNG – have pointed to security as the main reason.

The Islamist militant group Boko Haram’s campaign is not directly related to the oil industry, but the threat of insurgent attack has spread to the south. Christian factions in the south claiming to speak for MEND have threatened reprisal attacks against Muslims in the north, only adding to the instability.

Infrastructure

Nigeria’s gas and power infrastructure is either decrepit or absent. This needs to be addressed before the gas market can expand in the country. Infrastructure is the crux of the government’s gas master plan that ties together regional, domestic and LNG gas strategies.

Infrastructure needs to be built to enable field development in the difficult-to-access parts of the country where gas is found. Power stations have been built, but cannot operate because of inadequate supply. In her Roadmap for Power Sector Reform plan, launched in the summer of 2012, Petroleum Minister Diezani Alison-Madueke unveiled a three-step action plan aimed at ensuring all of the power plants billed to come onstream in the future receive adequate gas supply.

Reduce flaring

Gas flaring is a persistent problem for Nigeria. The practice was made illegal in 1984, but the government is considered too lenient on the industry, granting exemptions to oil companies and extending deadlines. The fines and penalties imposed for flaring are also considered too low to warrant investment in an alternative use for the gas. Nigeria has the second-highest levels of gas flaring in the world, after Russia. Nigerian National Petroleum Corp. claims flaring costs Nigeria $2.5 billion per year in lost revenue.

The gas master plan promoted investment in gas infrastructure and power plants to offer alternatives to gas flaring and provide much-needed power generation.

New markets for LNG

Nigeria’s location in the Atlantic Basin has not been beneficial for its LNG sector in the past few years. The country’s existing LNG facility, Nigeria LNG, was founded largely on the basis that it was well-placed to supply the booming North American market – as was Brass LNG. Demand from the United States has dried up since it began exploiting shale gas, meaning Nigeria needs to find alternative markets.

Page updated: 22/08/2014