Nigeria’s energy dilemma – how to foster growth while participating in transition

Nigeria, a major oil and gas producer that in 1971 became the 11th member of the Organization of Petroleum Exporting Countries (OPEC), has committed to every climate change agreement since 1992. The oil and gas industry is important to the African country as a source of substantial revenue, domestic energy supply, sociocultural identity, and geopolitical leverage.

However, as proponents of the energy transition look to minimize the share of oil and gas in the global energy mix, Nigeria will be especially exposed if a dramatic shift to renewable energy sources materializes.

In this article, I provide a data-driven overview of Nigeria’s oil and gas industry, its global linkages, and how the energy transition can shape the industry’s trajectory.

Hydrocarbon reserves and production

With reserves of 37 billion barrels of oil, Nigeria ranks 10th in global oil reserves and accounts for 3% of total OPEC reserves. As of 2024, Nigeria produced 1.55 MMbpd (million barrels per day), ranking it 16th globally and accounting for 6% of OPEC’s total production of 26.74 MMbpd. If produced at the current rate, Nigeria’s oil reserves would last 65 years.

Nigerian gas reserves sit at 209 trillion cubic feet (Tcf), ranking 9th globally and accounting for 8% of OPEC gas reserves. Nigeria holds Africa’s largest gas reserves at 34% of the continent’s total reserves. At the current production rate of 6 billion cubic feet per day (Bcfd), the gas reserves would last 95 years.

The energy gap: Nigeria versus global demand

Final energy consumed is the energy used by end users such as individuals and businesses in residences, transport, industries, and commercial. It includes the use of energy products such as fossil fuels to make non-energy products such as chemicals.

This final energy consumed is transformed from primary energy, resulting in energy losses, hence differences can be expected between primary energy and the final energy consumed.

Figure 1 compares the structure of Nigeria’s final energy consumed as of 2022, with Nigeria showing a heavy leaning toward biofuels and waste at 49%, while coal, oil, and gas make up 46% of the 2.49 ExaJoules (EJ) (~ 406 MMBOE) consumed in 2022, according to data from the International Energy Agency (IEA).

Figure 1 – Comparison of Nigerian and global energy mixes.

Comparatively, the global share of biofuels and waste is at 9%, while coal, oil, and gas make up 66%. Note that electricity makes up 22% of global final energy consumed, compared to 5% for Nigeria.

On a per-capita basis, Nigeria’s total final consumption came in at 11 gigajoules (GJ) per capita [~ 1.82 boe/capita], which is about one-fifth of the global average of 53 GJ per capita [8.63 boe/capita]. This suggests that Nigeria’s total energy consumption would need to increase nearly five-fold from its current level to match per-capita consumption globally.

Table 1 details the structure of the incremental energy requirement to attain parity with global average per-capita final energy consumed.

Table 1 – Nigeria’s incremental energy requirement to attain parity with global energy consumption per capita.

Based on the table, oil product consumption would need to increase by 3.73 EJ (1.67 MMbpd), while natural gas consumption would increase by 1.81 EJ [which is 4.7 Bcfd]. Electricity consumption would require an increase of 2.44 EJ, which would require 14 Bcf/d of gas to generate (assuming 100% of the electricity is from gas-fired plants for the sake of simplicity – currently 75% of electricity generated in Nigeria is gas fired).

Further, to shrink the share of biofuels and waste to the global average of 9.3%, 0.12 EJ of biofuels and waste use would have to be substituted. This would call for the use of more refined oil products, gas, and electricity. In oil terms, substituting 0.12 EJ of biofuels would require equivalent of 52,000 bpd or, in gas terms, 300 million standard cubic feet per day (MMscfd).

Note that the foregoing calculations have not factored in energy efficiency improvements, or the time required for Nigeria’s energy mix to catch up. However, the message is clear – hydrocarbon resources will make up a significant proportion of the country’s energy consumption, for which there is still ample room to grow. Delivering economic growth, a healthy populace, and easing social tensions requires increased energy consumption.

As Figure 2 shows, energy use correlates positively with economic growth.

Figure 2 – GDP per capita correlates with primary energy use per capita. [Data source: Our World in Data]

Although, evidence is emerging that this relationship is being decoupled in some countries, it remains very strong for countries in Africa. The graphic below shows that while for Organization for Economic Co-operation and Development (OECD) countries the strength of the relationship between GDP per capita and energy use per capita has peaked and is in decline, the same cannot be said for the cohort of African countries.

Figure 3 – The changing relationship between GDP per capita and energy use per capita in the OECD vs Africa. [Data source: Our World in Data, World Bank Development Index]

Clearly, growth in energy use is critical for African countries in pursuit of economic growth.

So, what does the energy transition mean for a country such as Nigeria, which needs to increase its energy use per capita and substitute biofuels and waste use with readily available oil and gas?

Energy transition: challenges and commitments

Reducing fossil fuel use has been identified as critical by the Intergovernmental Panel on Climate Change (IPCC) in order to reduce emissions and limit global warming to 1.5 degrees Celsius. Consequently, the IEA “Net Zero by 2050” report (aka NZE2050) released in 2021 prescribed that to reduce carbon emissions and keep global temperature increases under 1.5C, exploration for new fossil fuel supply sources is ill-advised.

Further, the report suggested that no oil fields beyond those projects already given the green light (IEA, 2021) are necessary. This, according to the IEA, is critical to achieving the energy transition.

Elements of the energy transition

According to the NZE2050 report, the energy transition is defined by key items such as carbon pricing, reduced fossil fuel production and consumption, deeper penetration of renewables, incentives for clean technologies, low-carbon infrastructure investments, and net-zero technologies. Globally, energy-transition-focused climate policy such as the U.S. Inflation Reduction Act, the European Union’s Fit for 55, Carbon Border Adjustment Mechanism, and Green Deal Industrial Plan have followed these themes.

Figure 4 outlines the “pillars of decarbonization” as per the IEA.

Figure 4 – The Seven Pillars of Decarbonization framework.

While carbon pricing is not indicated on the table above, the IEA makes clear that governments can adopt a regime of sufficiently increasing carbon price over time as a measure to spur deployment of available near‐zero-emissions technologies in light-manufacturing industries (IEA, 2021).

Nigeria’s energy transition policy landscape

As an imperative of the energy transition, OPEC’s oil production (and, by extension, Nigeria’s) is projected to decline by 3.3% per annum from 33 MMbbls/day (2020) to 13 MMbbls/day (2050) as its own contribution to meet the Paris Agreement target. This is noteworthy even as the oil industry contributes about 90% of Nigeria’s foreign exchange revenue – never mind the challenges faced by the industry, which we will touch upon shortly.

Nigeria became a party to the United Nations Framework Convention on Climate Change (UNFCCC) in 1992, and a signatory to both the Kyoto Protocol and the Paris Agreement. With the signing of the Paris Agreement in September 2016 (ratified in March 2017), Nigeria committed to reduce its greenhouse gas (GHG) emissions, which in 2016, were 0.56 tCO2eq/capita compared to the OECD average of 8.12 tCO2eq/capita.

The passage of Nigeria’s Climate Change Act 2021, consistent with the Paris Agreement, was the crowning effort of three decades of global co-operation on climate change mitigation efforts. The Paris Agreement makes provision for national legislation that addresses climate change.

Within the Climate Change Act (2021) is a framework for achieving low greenhouse gas emissions and to mainstream climate change actions into national plans and programs. The act also provides for the development of a mechanism for “carbon tax and carbon trading”. The proceeds from these, among other sources of funds, will be used to fund the Climate Change Fund proposed by the Act. The components of the Climate Change Action Plan are laid out in Section 20 of the Act, which include producing five-year carbon budget cycles and achieving the climate change goals.

As part of its voluntary nationally determined contributions (NDC), Nigeria pledged to cut emissions unconditionally by 20% or conditionally by 47% (2018 is base year) with international support by 2030.

Figure 5 – Nigeria’s greenhouse gas emissions under business-as-usual (blue line) and conditional contribution (orange line) [Source: Nigeria’s First Nationally Determined Contribution – 2021 Update]

According to the intended NDC (2017), the list of mitigations to achieve potential GHG reduction by 2030 ranked from the most impactful to the least:

1. Economy-wide efficiencies reduce GHG by 179 MMtCO2eq/annum.
2. Improved efficiency of gas power plants (impact of 102 MMtCO2eq/annum)
3. Climate-smart agriculture (impact of 74 MMtCO2eq/annum)
4. Eliminating gas flaring (impact of 64 MMtCO2eq/annum)
5. Adopting renewables (impact of 31 MMtCO2eq/annum)
6. Reduce electricity transmission losses (impact of 26 MMtCO2eq per annum)

Additionally, Nigeria rolled out an Energy Transition Plan (ETP) to achieve carbon neutrality by 2060 by targeting emission reduction across five key sectors: power, cooking, oil and gas, transport, and industry, which are responsible for 65% of Nigeria’s emissions. These sectors are all connected to the oil and gas value chain and responsible for 179 MMtCO2eq of emissions.

Figure 6 – Summary infographic on Nigeria’s energy transition policies.

It would seem odd to mention the “decade of gas” initiative as an energy transition policy. However, it seeks to tap into the zeitgeist of renewed global interest in gas as “bridge” fuel in Nigeria’s “energy transition quest”.

This is seen in the quote from the “decade of gas” website:

“Nigeria’s Decade of Gas initiative represents a concerted effort by the government and private sector to leverage the country’s abundant natural gas resources for economic development and energy transition.”

The “decade of gas” initiative aims to transform Nigeria to a gas-powered economy by 2030.

Headwinds: investment gaps and production challenges

Even as the IEA prescribes a decline of 3.3% in OPEC oil production to stay consistent with NZE2050, Nigeria’s oil production has declined by 5% since 2005 – a rate surpassing the requirement for the energy transition. This does not help with supplying the much-needed energy required for economic growth. Figure 7 depicts the challenges and evolution of oil and gas production since 1990.

Figure 7 – Oil and gas performance in Nigeria since 1990. [Data source: OPEC, Energy Institute Statistical Review of World Energy, and NNPC]

Since 2006, Nigerian oil reserves have “plateaued” at 2.2-times their level in 1990. Oil production in 2023, is now about 90% of its 1990 level of 1.8 MMbpd. Refining utilization declined from its 1990 level of 64% to 0% just before the coming onstream of the 650 Mbpd Dangote refinery.

Gas reserves are at 2.1 times the level of 100 Tcf in 1990, and have been on the rise since 2014. Gas production has been volatile in last two decades, currently at 2.5 times its 1990 level of 2.75 Bcfd.

Investment in the upstream sector has declined as a share of global upstream investment. While capital expenditure in the renewables space has picked up globally – reaching $623 billion in 2023, Nigeria has seen very little of those investment dollars. This creates a conundrum – there is neither enough investment to transition away from oil nor to produce it.

Figure 8 – Trend of global capital expenditure (CapEx) spend vs Nigeria. [Data source: OPEC for global CapEx, Nigerian Bureau of Statistics for Nigerian upstream investment]

In 2009, Nigeria’s CapEx spend was $56 for every $1,000 of global spend. This declined to $16 for every $1,000 of global spend in 2021. In 2014, the high-water mark for Nigeria’s CapEx spend was $22 billion.

Despite these challenges, the $20-billion, 650-Mbpd refinery facility that integrates a petrochemical and fertilizer plant managed to come online. However, it is exposed to the challenge of declining domestic crude supply. It is yet to be seen how Nigeria’s climate change commitments might extend to this asset.

Consistent with their over-arching global-level strategies of “more value with less emissions,” major energy players have recently divested their Nigerian onshore assets to indigenous players. These divestments have totaled $21 billion since 2010. How successful these new players will be in attracting capital, navigating the social license to operate, while balancing the conflicting demands of the energy transition and production growth remains to be seen.

Conclusion

Nigeria is caught between necessary development of its energy resources and the global energy transition. With its vast oil and gas resources, a growing population, and low per-capita energy consumption, the country must balance its economic development through increased energy access, and its international climate commitments. Fossil fuels will remain a critical component of Nigeria’s energy mix for decades to come, even as it explores pathways to honour its climate change pledges.

The future trajectory will depend heavily on Nigeria’s ability to attract investment, improve governance in the energy sector, and integrate renewable and gas solutions strategically.

(Kaase Gbakon, BIG Media Ltd., 2025)