Nigeria, Africa's largest economy, has long faced challenges in its power sector and oil & gas industry. While electricity generation, transmission, and distribution have improved over the years, inefficiencies persist. At the same time, Nigeria’s reliance on fossil fuels for revenue is increasingly at risk as the world transitions toward cleaner energy. These realities foretells the urgent need for a strategic shift that balances economic stability, energy security, and sustainability.
In 2015, Nigeria had an installed electricity capacity of 12,522 MW across 25 grid-connected power plants, primarily gas-fired (85%) and hydroelectric (15%). However, mounting insufficiency plagued the sector, and only 3,879 MW of operational capacity was available due to maintenance issues, gas supply shortages, and transmission bottlenecks.
Key Issues in 2015:
1. Generation Shortfalls: Only about 3,317 MWh/h of electricity was generated on average despite the installed capacity. Placing power generation at 26% (only one-fourth) of the actual capability of installed power facilities.
2. Gas Supply Constraints: Nigeria having the world's ninth-largest gas reserves still ranked 22nd in production due to pipeline vandalism, poor infrastructure, and lack of investment.
3. Transmission Bottlenecks: The Transmission Company of Nigeria (TCN) managed 15,022 km of power lines with a theoretical capacity of 5,300 MW, but frequent grid collapses severely limited power availability, creating yet another underperformance of the available infrastructures.
4. Distribution Losses: Of the 3,600 MW transmitted, only 3,100 MW reached end users, with a staggering 46% energy loss due to technical inefficiencies, theft, and unpaid bills. As a result, 55% of Nigerians (95 million people) lacked electricity, a gap that would significantly close over the next decade but yet leaves a lot to be desired.
5. Reliance on Generators: Over 41% of businesses relied on self-generation, with generators costing more than twice that of grid power.
Attempts at Reform in 2015
Privatization Efforts: The unbundling of the Power Holding Company of Nigeria (PHCN) into 11 distribution companies (DisCos) and six generation companies (GenCos) two years shy of 2015 had limited success, as transmission remained under government control.
Gas Sector Bills and Challenges: The stalled Petroleum Industry Bill (PIB) discouraged investment in domestic gas supply. Almost 10 years later, incomplete innovative policy and projects like this continue to deter investments in the country's power sector, a recent example being the abrupt abandonment of 14 new solar farms that had the potential of contributing more than 1100MW of generation capacity.
Slow Transmission Expansion: Of 126 Transmission Company of Nigeria (TCN) projects, only 22 were completed, limiting network growth, leaving transmission capacity to continuously struggle to meet up with generation capacity. However, the TCN continues to develop hundreds of projects over the years to end transmission setbacks permanently.
Nigeria’s Power Sector in 2024: Progress and Stagnation
Despite investments and reforms, Nigeria’s power sector remains critically challenged. Today, the country has 13,625 MW of installed capacity from 27 power plants (19 gas, four hydro, two steam, two combined-cycle), but operational power generation remains far below demand.
Key Realities in 2024:
1. Power Generation:
Installed Capacity: 13,625 MW
Operational Capacity: 4,854 MW
It is still far below peak demand (20,000 MW+) for Nigeria’s 200M+ population.
2. Gas Supply Issues Persist: Nigeria continues to underutilize its vast gas reserves. Pipeline vandalism and outdated infrastructure remain significant constraints.
3. Transmission & Grid Instability: Transmission capacity has improved to 7,200 MW due to TCN projects. However, frequent grid collapses still lead to nationwide blackouts.
4. Distribution Shortfalls: Only 4,000 MW is consistently distributed by the 11 DisCo. Technical and commercial losses exceed 40%, limiting electricity access.
Comparing 2015 and 2024
While there has been a modest increase in installed capacity and transmission capacity, the sector remains miles away from its projected goals. The most critical bottlenecks— gas supply, grid stability, and DisCo performance— persist. Even more so, despite efforts to improve the sector, grid instability, high losses, and underutilized generation capacity continue to limit electricity access for millions of Nigerians.
Nigeria’s Oil & Gas Industry in the Energy Transition
While Nigeria struggles with power sector inefficiencies, its oil and gas industry faces increasing pressure from global decarbonization efforts. Many international investors are shifting away from fossil fuels, and Nigeria’s heavy reliance on oil revenue poses significant economic risks.
Mounting Pressures on African Oil and Gas
1. Declining Competitiveness: African oil production is 15-20% more expensive and 70-80% more carbon-intensive than global averages, making it less attractive in a carbon-conscious market (McKinsey, 2024). Over 50% of African oil and gas producers rely on fossil fuel exports for revenue, with Nigeria deriving 85% of its export earnings from petroleum.
2. Stranded Asset Risks: As global oil demand is expected to peak between 2030 to 2050, investments in the distant but feasible future are likely to be threatened if sustainable energy alternatives are not already in consideration in Nigeria’s oil and gas sector. Carbon pricing regulations like the EU’s Carbon Border Adjustment Mechanism could penalize high-emission energy imports, a regulation that could be negative for Nigeria and Africa considering current emissions in oil production despite it being lower than countries such as Canada, United States, Russia and others who have a soft landing based on economical advantage.
3. Emerging Competition: Countries like Saudi Arabia and Russia are adapting faster by investing in cleaner technologies and securing long-term supply agreements. As for the issue of production, Russia and Saudi Arabia independently produce more than 10 million barrels per day, falling second and third place behind the United States. Nigeria on the other hand, was at 1.4 million barrels per day as of January, 2025, a whooping 87% below aforementioned international players.
Opportunities Amidst the Transition
Despite these risks, Africa, especially Nigeria, can still capitalize on its energy resources if it adapts strategically.
1. Natural Gas as a Transition Fuel: The European Union’s pivot away from Russian gas creates new market opportunities. Nigeria must expand its domestic gas infrastructure and secure long-term export agreements. As trade wars and sanctions grow among strongest international players, a transition to cleaner energy solutions would make Nigeria a viable market for many countries dependent on the major influencers (like the United States and Russia) in the international market.
2. Renewable Energy Investment: Africa has massive solar and wind energy potential. Countries like Namibia are already investing in green hydrogen for future exports. A completion of the 14 solar farms in Northern Nigeria where the sun peaks for about 6-7 hours and could get as hot as 35°C (95°F) daily would in no small way improve the state of power from generation through to distribution and with easier maintenance compared to other sources of energy.
3. Energy Infrastructure Expansion: Gas pipelines, LNG terminals, and regional energy grids can improve energy security while supporting exports. Expanding gas pipelines can enhance domestic energy distribution, ensuring a stable supply for power generation and industrial use. The development of LNG terminals will not only boost exports to international markets but also position Nigeria as a key player in the global gas trade, while regional energy grids can facilitate cross-border electricity exchange, improving energy access across West Africa.
The Path Forward: A Strategic Shift for Nigeria
To remain competitive and address its energy challenges, Nigeria must adopt a three-pronged strategy:
1. Modernizing the Power Sector: Expand local gas production and secure pipeline networks to stabilize fuel supply. Modernize transmission and distribution networks to reduce losses and improve efficiency. Invest in renewables to diversify the energy mix and reduce dependence on gas. Strengthen regulatory enforcement to ensure DisCos improve efficiency.
2. Decarbonizing Oil and Gas Operations: Reduce gas flaring and improve efficiency in oil operations. Invest in carbon capture technologies to lower emissions and maintain access to global markets.
3. Transitioning to Renewable Energy: Develop large-scale solar, wind, and hydrogen projects to create new revenue streams. Implement workforce training programs to reskill workers for the clean energy transition.
Conclusion
Nigeria’s power sector struggles and oil dependence require urgent action. While reforms have brought modest improvements, fundamental inefficiencies remain. At the same time, the global shift (slow but certain) away from fossil fuels threatens Nigeria’s economic stability.
By investing in modern infrastructure, clean energy, and regulatory efficiency, Nigeria can transform its energy landscape, reducing reliance on costly diesel generators, improving electricity access, and positioning itself as a leader in the clean energy future.
With a bold and strategic shift, Nigeria can unlock its vast energy potential and ensure a more stable, prosperous, and sustainable future.