How has the currency crisis impacted oil and gas projects in Nigeria?

There has been a mindset shift in terms of bankability and investment decisions are today predicated on every element of the value chain being market-affected. Previously, some parts of the value chain were predominantly driven by fiscal policy, but over the past two years, there has been a big mindset shift looking at how the market will react, and this has forced people to be more prudent in their investment decision-making. 

What opportunities are there for Nigeria’s downstream sector, especially considering the Dangote refinery is now operational?

We expect that the midstream and downstream verticals will become more attractive for investment, especially as we start thinking about gas as a consumption or transition fuel rather than an export or reinjection fuel. When you have a downstream sector that is LPG-compliant, the development of infrastructure and markets across that value chain will most likely increase – a local company recently built the largest LPG facility in West Africa. The downstream sector is becoming more investable than before, and as upstream producers start to think long-term, they are also going to think about how they can monetize their resources regionally and domestically. 

What are the main obstacles for the Nigerian oil and gas industry to secure foreign investment? 

We are seeing IOCs divesting their onshore assets and independent local companies taking these over. This invariably increases the appetite and decreases the risk for foreign investors. The policy decisions the government has taken over the past years, such as the deregulation of the downstream sector, the recently announced fiscal incentives, and the passing of the new Public Procurement Act are encouraging indigenous and independent companies to make bets on larger assets, and this creates a more favorable investment climate for foreign investors than there was in the past. If you keep encouraging local content development and you have a government focused on incentivizing investment, foreign investor comfort will be a derivative of that.   

What can the government and the oil and gas industry do to bolster local content and make local companies more competitive with large IOCs? 

Considering the topic of host communities, some might argue that indigenous companies have more accretive relationships with the communities than the IOCs. I believe that we should move from a handouts/give-back mindset to rather an investment mindset where infrastructure and employment opportunities are developed, which will benefit both the communities and the operators, and ultimately the government from a tax stake standpoint. When everyone holds benefits in an investment, it becomes easier to sustain. 

How can Africa, and Nigeria specifically, balance the need for energy security with sustainability? 

McKinsey research shows that around 600 million Africans currently lack access to electricity, and this is expected to rise to 1.2 billion by 2050. Similarly, while 920 million Africans lack access to clean cooking fuel, this could double to around 1.8 billion people in 30 years. Industrialization will also drive Africa’s energy demand, with the continent’s manufacturing output projected to grow by more than 6% each year until at least 2025. Energy security will be a derivative of the investments being made in things like LPG facilities and refineries. Africa is at a time where it is less about the ‘how’ and more about ‘who’ is willing to invest in the roadmap that the continent is executing. For Nigeria specifically, the development of the gas industry kills two birds with one stone as you are transitioning your fuel consumption to a cleaner source while also creating a viable pipeline for energy security as most of the power demand in Africa will be for gas power. Nigeria is a gas country that has associated oil. There will be solar, wind, and hydro, but the incremental power needed will come from gas. The energy transition in Africa has started by virtue of the investments that have already been made, and once these investments start to come to fruition, it will become easier to attract more investment to successfully execute the roadmap towards sustainable energy security. 

What are McKinsey & Company’s priorities for 2024 and beyond? 

McKinsey & Company will continue to support our clients on energy topics to accelerate sustainable and inclusive growth and improve the well-being of Africans. We are bullish on Africa and we are excited for what is to come.