The economy of Nigeria relies heavily on oil exports, but attention has shifted to liquefied natural gas (LNG) in recent years amid declining oil revenues. The West African country is the sixth-largest LNG exporter in the world, but it could take up to a decade — and significant investments — before it could bring in revenues.
The International Institute for Sustainable Development (IISD), a think tank with headquarters in Winnipeg, Man., has published a new report examining the risks of expanding LNG to boost Nigeria’s economy.
The report notes that oil and gas development is often considered a factor in creating conflict and that expanding LNG would also result in higher carbon dioxide and methane emissions. But it focuses heavily on the economic concerns, too. Among them are the unpredictable future of the global market for LNG, given the global transition to low-carbon energy and uncertainty over whether the rise in demand for LNG from Europe, driven by the need to make up for reduced supplies from Russia, will last over the long term.
That could leave Nigeria and its growing population with stranded assets that get in the way of efforts to diversify its economy and otherwise undercut the success of larger development goals.
The executive summary of the report includes several recommendations:
Rethink Economic Dependencies
Nigeria is reliant on oil and gas revenues and subsequently faces economic challenges due to declining oil production and a rapidly growing population. Despite LNG contributing to revenue, Nigeria needs to pay immediate attention to addressing its economic model’s challenges. The expansion of LNG projects in Nigeria requires careful long-term, scenario-based, and sound financial analysis. It is also crucial to address issues related to inequality, environmental sustainability, and economic dependence on fossil fuels.
Assessing LNG Expansion Risks
While there are regulations in place to manage gas flaring, in the longer term, the continued extraction of fossil fuels contributes to higher carbon dioxide and methane emissions. Efforts should be intensified to manage such impacts while ramping up the implementation of the Renewable Energy Roadmap. This will introduce cleaner energy sources into Nigeria’s energy mix, capitalizing on potential economic opportunities that may arise and reducing emissions from gas and oil.
Global Market Dynamics
Given the current uncertainty in global LNG demand, Nigeria must reflect carefully before approving further LNG exploration tied with export markets and investigate the domestic use of LNG to boost its electrification efforts and employment creation. Before embarking on state-supported expansion of LNG for export, there needs to be contingency planning to account for the possibility that demand may fall as new capacity comes online or is in commercial operation. Some of the global risks can be offset with local demand generation, but for export-led projects, there remains a substantial risk.
Sector Diversification
Nigeria’s attempt to replace dwindling oil revenues with LNG faces challenges amid global shifts toward clean energy. Expanding LNG projects poses risks of stranded assets and increased fossil fuel subsidies, hindering true economic diversification and sustainability. Nigeria should carefully navigate the expansion of LNG projects to balance its economic
growth and development aspirations with global economic dynamics. This can be achieved by supporting new industries, enhanced taxation, diversified exports, and better-targeted public spending. Nigeria must reflect carefully before approving further LNG exploration tied with export markets and investigate the domestic use of LNG to boost its electrification efforts and employment creation.
Energy Security
Nigeria still has significant electricity access challenges that can be met by adding more sustainable and affordable sources of energy into its energy mix. Considering that there are already green energy plans underway, LNG expansion should not come at the expense of addressing inequality, energy access, and socio-economic challenges.
“A Balancing Act: Considerations for the expansion of liquefied natural gas projects in Nigeria,” by Bathandwa Vazi and Richard Bridle, was originally published by the International Institute for Sustainable Development (IISD) on June 6, 2024. Download the report.
