Nigeria’s Dash for LNG Risks Asset Stranding with European Gas Demand Forecast to Fall

June 6, 2024—Nigeria’s push to expand its Liquified Natural Gas (LNG) production could put the country in a precarious economic situation, prolonging its dependency on fossil fuels and leaving it with stranded assets as international demand for gas falls, according to new research by the International Institute for Sustainable Development (IISD).

With the IEA predicting international demand for natural gas will peak this decade amid global decarbonization efforts, there is a “high likelihood” any scale up of LNG production could leave Nigeria with unprofitable and abandoned assets, and reduce the available financing for clean energy sources, warns IISD’s brief A Balancing Act: Considerations for the expansion of liquified natural gas projects in Nigeria.

The paper also found Nigerian LNG exports may struggle to compete in the global market after 2030, while replacing oil revenues with LNG may not generate the expected income.

Bathandwa Vazi, policy advisor at IISD said: “Nigeria’s LNG dash is short-term thinking that could end up costing the country dearly. Economic diversification away from fossil fuels is critical in building a sustainable future for the country, not locking in further dependence on polluting commodities.”

“Nigeria is already up against bigger players in the LNG market, and new LNG developments take 8–10 years to produce gas. As international demand for gas peaks, Nigeria must recognise that a fossil fuel-based economy cannot carry it far into the future.”

Facing declining oil revenues, economic turmoil following the Covid-19 pandemic, and inflated European demand for LNG following Russia’s invasion of Ukraine, Nigeria has moved to address its revenue shortfall by significantly scaling up LNG production.

Oil revenues have long underpinned the Nigerian Treasury, accounting for about two-thirds of government earnings and 90% of its foreign exchange income. However, as production has fallen due to lower levels of investment and regional unrest, there is renewed focus on LNG, which provides considerably smaller, albeit growing, revenues. In 2023, LNG revenues reached NGN 74 billion (USD 51 million), accounting for around 7% of total government revenues.

As of 2022, Nigeria was already the sixth-largest LNG exporter worldwide, with a 6% market share. As oil contributes less to revenues, the government plans to build on its existing LNG developments, with ministers declaring 2021–2030 “the decade of gas”.

Currently Nigeria has six operational LNG terminals; nine more are proposed, with LNG construction investment totalling NGN 28.3 trillion (USD 18.5 billion).

But to replace Nigeria’s falling oil revenues, LNG exports would still have to increase “by an order of magnitude,” IISD experts say. Such a scenario would require sustained international demand and high prices for LNG.

Meanwhile, the assets planned would be operating far beyond the middle of this century. The eventual transition to a low-carbon world, expected to accelerate after 2030, could leave LNG assets stranded as demand dries up.

Underscoring this, the researchers note that Carbon Tracker projects a 69% reduction in Nigeria's fossil fuel revenues over the next two decades if global energy trends shift toward a low-carbon pathway.

Instead of investing overzealously in the fossil fuel economy, Nigeria “must manage its gas ambitions realistically, align with transition plans, and prioritize community development in gas projects,” the paper’s authors write.

Electricity access challenges can be met by adding more sustainable and affordable energy sources into the energy mix, and LNG expansion “should not come at the expense of addressing inequality, energy access, and socio-economic challenges,” the paper says.

Media contacts:

Bathandwa Vazi, Policy Advisor, Energy – bvazi@iisd.org

Harry Cockburn, Communications Consultant, Energy – harry.cockburn@iisd.net