Will Nigeria recover losses from gas supply shortfall?

Nigeria's Liquified Natural Gas (NLNG) has recently faced a significant drop in its operations, with natural gas supplies decreasing by 80% due to pipeline vandalism. This has led to only two out of the six processing units at the facility currently being functional, while three gas pipelines remain out of commission. The impact of this situation on Nigeria's gas export industry is a cause for concern. In a recent interview on CNBC Africa, Oyeyemi Oke, a Partner at AO2 Law, provided insights into the implications of this developing story. Oyeyemi raised the issue of gas pipelines becoming more vulnerable to vandalism, shifting the focus of security measures from oil pipelines to include gas pipelines as well. The situation presents three key concerns for Nigeria. Firstly, the potential impact on the country's revenues is significant. In 2024, Nigeria earned over 250 billion Naira from NLNG dividends, with a projected dividend stream of about 700 billion Naira for 2025. However, with the current loss in gas supplies, these projected dividends may be severely impacted, leading to financial challenges. Secondly, the country's debt obligations could be at risk. Nigeria securitized approximately $7 billion in 2023 against the expected revenues from NLNG dividends. If pipeline vandalism continues to jeopardize these dividends, Nigeria may struggle to meet its debt obligations to international financial partners. Thirdly, there is a concern about potential breaches in contractual obligations. The NLNG likely has prepaid contracts for the supply of gas cargoes, and any disruptions in gas supply could lead to contractual breaches. While force majeure clauses may be invoked to mitigate these impacts, the situation remains precarious. The discovery of illegal connections to the gas pipelines adds another layer of complexity to the security challenges faced by Nigeria's energy sector. Oyeyemi highlighted the need for increased technological monitoring of pipelines to prevent future vandalism. He also emphasized the importance of regulatory enforcement, particularly in the context of host community development as outlined in the Petroleum Industry Act. Addressing the issue will require a multi-faceted approach involving technology, regulations, and community engagement. Proactive monitoring, regulatory compliance, and stakeholder engagement are essential to safeguarding Nigeria's gas assets and ensuring the stability of the country's energy sector. As Nigeria grapples with the repercussions of pipeline vandalism on its gas export industry, stakeholders must collaborate effectively to address security threats and uphold contractual obligations. The resilience of the NLNG and the broader energy sector will depend on concerted efforts to combat vandalism and protect critical infrastructure.