Nigeria’s Burning Problem

As President Buhari assembles his second-term cabinet, one of the many issues his team will need to address is the energy crisis that is crippling Nigeria. The government has announced a long-overdue step towards a solution by approving 205 applicants for the Nigerian Gas Flare Commercialisation Programme (NGFCP).

According to Programme Manager of the NGFCP, Justice Derefaka, “The NGFCP has the potential of generating approximately $3.5 billion of inward investment into Nigeria, as well as the potential to impact the country’s Gross Domestic Product (GDP) by an estimated $1 billion per annum. It could potential [sic] unlock 2 to 3 LNG trains, around 3000MW electricity generation as well as generate circa 600,000MT of LPG per year giving 6 million households access to clean energy through LPG.”

Increasing electricity generation is essential for the Nigerian economy – and for continued efforts at poverty alleviation. In early May, the national electricity grid collapsed three times in less than 24 hours. Over the last six years, Nigeria’s power grid has collapsed over 100 times. This situation was vividly captured by the BBC earlier this year, “Nigeria is Africa’s largest producer of oil and natural gas yet about half of the country’s population has no access to electricity, and those that do face daily power cuts that can last for hours on end.”

Nigeria is one of the largest oil producers in the world, generating nearly 1.8 million barrels per day. So the question so many experts ask: How can it come to pass that a country with abundant natural resources is unable to provide sufficient energy for its citizens and businesses?

The answers are myriad. According to Energy expert Ariel Cohen, “Its state-dominated oil industry is in decline due to corruption, waste, and mismanagement. Keeping in mind that Africa’s largest economy includes a fragile relationship between Christians and Muslims, along with the ongoing threats from Boko Haram, the Nigerian government cannot afford to ignore the reforms of its energy sector much longer.” 

Perhaps the most serious issue in desperate need of reform is the ‘flaring’ – burning off – of gas instead of putting it to productive use.

Gas flaring is the process in which natural gas waste products from the extraction of oil are burned off into the atmosphere.

In a country where 55% of the population does not have access to electricity, citizens have a right to be angry. On top of that, gas flaring is extremely detrimental to the environment and public health.

Many experts have faulted the federal government for an overall lack of commitment to ending gas flaring in the country. Former chair of the Nigerian Electricity Regulatory Commission (NERC), Mr. Ransome Owan, has said that there is presently no infrastructure to harvest gas in most of the oil fields in the country, adding that this was major factor in gas flaring.

However, gas flaring is a decades-old problem. The question at the core of this issue is: why has no-one tried before to eliminate flaring in Nigeria? The answer is that they have. In fact, a decade ago the problem was on its way to being solved.

In 2010, the Gas Supply and Processing Agreement (GSPA), between P&ID and Nigeria would have built a state of the art gas processing plant to refine Nigeria’s natural gas (“wet gas”) into non-associated natural gas (“lean gas”) that Nigeria would receive free of charge to help power its electrical grid. Natural gas from oil fields that would otherwise have just been burned off, would instead be put to good use for Nigeria.

The P&ID project would have generated billions in revenue, and provided electricity to millions of Nigerians over the past decade. Instead, the Nigerian government failed to uphold their part of the agreement and so no electricity was generated, and flaring continues to this day.

In 2017, P&ID won a $9bn arbitration award against the federal government for its failure to follow through with the gas-processing project. On 14th June an English Court heard arguments on whether or not P&ID can enforce this award and seize Nigerian assets in the UK to pay the debt. The P&ID tale offers lessons for all involved – for the Nigerian authorities, that with better governance and commitment to the rule of law, the flaring problem could have been addressed a decade ago; for investors looking to pursue new gas-flaring agreements with Nigeria, for whom P&ID serves as a cautionary tale; and for analysts assessing the political risk of future investments or operations inside Nigeria.