oil and gas

Nigeria’s energy crisis – what is being done?

Nigeria, a country almost three times the size of Germany, is endowed with bountiful energy resources such as gas, coal and oil, yet the state continues to experience a chronic power shortage. Arguably the primary reason for this discrepancy is the country’s extreme reliance on just one resource – oil – yet other factors weigh in heavily too, such as an underdeveloped oil refinery sector, underdeveloped coal, LPG, hydro and gas sectors, fiscal constraints, poor power infrastructure, political instability resulting in an unhealthy business environment, and industry inefficiencies.

Yet with the Nigerian economy booming, the impetus and means to improve the national energy story are coming together, not to mention the necessity. What is critically needed is sufficient private and public will and acumen to execute the transition from power shortage to stable, adequate supply.

Privatising the energy industry

In 2005 the Federal Government, acknowledging the need to revolutionise the energy sector, embarked on a privatisation programme. It transitioned the Nigerian Electrical Power Authority (NEPA) into the Power Holding Company of Nigeria (PHCN) Plc, incorporated two dozen companies, and then in 2011 set up the Liquidation Committee to start shutting down the PHCN. The Nigerian Electricity Regulatory Commission (NERC) was also established as the industry’s regulatory body.

By privatising the sector fresh blood and finance was allowed to flow into it. Recently the Government has announced its intention to privatise all transmission assets as well. The door of opportunity for foreign and domestic investors to get involved in all aspects of the energy industry – from training and consulting to equipment supplies and IT investment – has been thrown open.

Diversifying energy production

Nigeria’s National Integrated Power Project (NIPP), established in the 1980s off recommendations from the World Bank and United Nations Development Programme (UNDP), says on its website that it expects the national demand for power to rise to between 56 and 95 terrawatt hours (TWh) by 2020. “This will result in an increase in peak load demand from around 5,000 MW in 2011 to between 9,000 MW and 16,000 MW by 2020.”

The oil sector clearly cannot meet this demand on its own; the country’s coal, gas, hydro and LPG industries need to be fostered to supply the deficit. Importantly, the country’s current gas shortage means that gas-fired power stations are unable to produce enough electricity.

Coal in particular could offer Nigeria a lifeline. “A number of developed countries around the world generate about 50% of their electricity from coal power plants,” says Ayodele Oni of Banwho & Aghodalo, a Lagos-based law firm. “Although the initial cost outlay may be high, in the long run such plants are cheaper to run. Coal is also a viable option considering that Nigeria has component states endowed with coal and the cost of coal being only 1/5 (one fifth) of other fuels.”

Building up refining capabilities

In 2012 Nigeria’s oil sector produced 1.95 million barrels per day (bpd), according to OPEC, and the Economist Intelligence Unit estimates its oil production in 2015 at 2.374 million bpd. Clearly oil production can and should continue to play a key role in Nigeria’s energy sector in the decades to come, but what about refining?

At present the state exports most of its crude oil and then imports the refined product at exorbitant prices. In fact, Nigeria is the second largest importer of refined petroleum products in Africa after South Africa. Consumption of petroleum products in Nigeria is forecast to rise from an estimated 10,858 kilotonnes of oil equivalent (ktoe) in 2009 to 16,051 ktoe in 2020. It would be a big boon for the domestic power supply (and consequently the economy) if modern refineries were built locally – and well managed. Existing state-owned refineries in the south and northwest operate at only about 18 percent of their capacity.

Some good news is the fact that Nigeria’s concrete and construction tycoon Aliko Dangote last year announced his intention to build an oil refinery in the Olokola Liquefied Natural Gas Free Trade Zone near Lagos, a $9 billion project due for completion in 2016 that will have the capacity to deliver 400 million bpd of refined petroleum products – enough to meet the country’s total needs. And Dangote is not alone – the Independent Petroleum Marketers Association of Nigeria (IPMAN) as well as a few other wealthy individuals are working to establish state-of-the-art oil refineries on Nigerian soil.

For the African investor, Nigerian power sector is an avenue to invest and impact the sector. The Generation, transmission and distribution of power in Nigeria, now privatised, will offer a strong avenue for collaboration between the government and the private sectors/ stakeholders to bring light into Nigerian homes and power the country’s industries. Though at an early stage with some expected problems, the sector and the privatisation process is bound to deliver its dividends soon; even this seems to be too late to an average Nigerian.

David Okwara

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