Nigeria’s Long-Term Gas Supply Deals Signal a Turning Point

Nigeria, already Africa's leading natural gas exporter, is embarking on a significant expansion of its gas production and export capabilities. This new phase is marked by Nigeria LNG Limited (NLNG) signing six long-term gas supply agreements (GSAs). These 20-year contracts, which collectively cover 1.29 billion standard cubic feet of gas per day, are more than just a technical fix for feedstock shortages. They signify a fundamental shift in how Nigeria intends to utilise its gas resources for both global market positioning and domestic development.

The Strategic Significance of the GSAs

These agreements are crucial for stability, as NLNG has long struggled with inconsistent feed-gas supply due to pipeline disruptions and upstream output volatility. With long-term commitments from partners like NNPC Ltd, Shell, Oando, Aradel Holdings, and First E&P, Nigeria is set to secure a consistent gas supply for its current liquefaction trains and the upcoming Train 7 project.

The nearly 80% complete Train 7 project on Bonny Island, Rivers State, represents a significant US$10 billion investment. Once operational, this expansion will increase NLNG's liquefaction capacity by almost a third. This boost will not only enhance Nigeria's LNG exports but also solidify its position as a reliable supplier in the highly competitive global LNG market, particularly as Europe and Asia seek alternatives to Russian gas. Therefore, these Gas Supply Agreements (GSAs) are more than just contracts; they are crucial for Nigeria to consistently fulfill its international commitments over the next two decades.

Boosting Nigeria’s Industrialisation Agenda

These supply agreements are vital not only for exports but also for Nigeria's domestic gas strategy. The government's "Decade of Gas" policy highlights gas as a key driver for industrial power, electricity generation, and the growth of downstream sectors like petrochemicals and fertilisers. By securing long-term feed-gas for NLNG, these deals enable other producers and independent suppliers to channel more gas towards the domestic market.

Nigeria's long-term gas supply agreements are a turning point for the nation's industrialisation, reinforcing the foundation for key sectors. Local fertiliser plants, such as the massive Dangote Fertiliser Complex, depend significantly on gas as a feedstock. Similarly, gas-fired power stations like Egbin and Azura-Edo are crucial to Nigeria’s electricity grid. Increased gas production will enhance reliability and potentially lower costs for these industries. By stabilising gas supply for export, these agreements indirectly support Nigeria’s industrial growth.

Positioning Nigeria in the Global LNG Market

The global LNG market is experiencing significant changes. Asian demand continues to increase, with India and China, among others, using gas as a transitional fuel. In Europe, post-2022 geopolitical shifts have spurred the search for diverse supply sources. Nigeria, already the sixth-largest LNG exporter globally, is well-positioned to leverage this demand, provided it can ensure supply reliability.

The significance of these new 20-year contracts lies in their long-term nature, which is considered the gold standard in the LNG trade. These agreements stabilise producer revenues and guarantee supply for buyers. By securing feed-gas for two decades, NLNG has ensured its exports are supported by robust upstream commitments. This is particularly crucial given the divestment of several international oil companies from Nigerian onshore assets. The Gas Supply Agreements (GSAs) represent a practical strategy: diversifying gas sources, engaging local participants, and reducing reliance on any single operator.

Managing Routine Flaring Through Growth

Despite increased gas output in Nigeria, gas flaring remains a persistent issue, with approximately 7% of produced gas still being flared. However, Gas Supply Agreements (GSAs) present a potential solution. These agreements, by ensuring that the Nigeria LNG Limited (NLNG) facilities off-take gas, will facilitate its productive use, thereby reducing the amount of gas wasted through flaring.

A tangible shift is evident elsewhere. Angola, for example, drastically cut down on flaring after boosting its LNG capacity in Soyo, thereby capturing gas that would have otherwise been wasted. Nigeria could replicate this path if Train 7 and upcoming projects are able to utilise currently flared volumes. This offers not only environmental benefits but also commercial advantages, transforming wasted energy into income and employment opportunities.

A Broader Economic Ripple Effect

These gas deals have a ripple effect beyond just the energy sector. Building and operating gas infrastructure creates numerous direct and indirect jobs, employing engineers, technicians, and various service providers in local communities. The consistent revenue generated from LNG exports boosts Nigeria's foreign exchange reserves, which are currently vulnerable to the fluctuating oil market. Moreover, a reliable gas supply makes Nigeria a more appealing location for industrial investments.

Nigeria's gas sector could follow a path similar to Egypt's. Egypt, another African LNG exporter, stabilised its gas sector through new supply deals and investments in liquefaction plants. This allowed Egypt to re-enter the LNG market in 2016 and subsequently attract billions in energy-intensive manufacturing investments. If Nigeria's Gas Supply Agreements (GSAs) lead to sustained production and reliable exports, it could mirror Egypt's success.

Looking Ahead

Nigeria's recent 20-year gas supply agreements represent a pivotal moment for its energy sector. These agreements directly address immediate supply deficiencies and underpin the expansion of NLNG's Train 7. Furthermore, they align with Nigeria's broader strategy to leverage gas as a transitional fuel for industrial development. The ripple effects of these deals will extend beyond export facilities, impacting factories, power generation, and homes nationwide.

These agreements are especially noteworthy due to their long-term nature, offering much-needed stability in a historically volatile sector. This presents Nigeria with a chance to convert its extensive gas reserves into enduring prosperity. In doing so, it will solidify its position not only as Africa's leading gas exporter but also as a reliable energy supplier globally.

Written By:

Sesona Mdlokovana

Associate at BRICS+ Consulting Group 

African Specialist

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