Dr. Ngozi Chinwa Ole1
Introduction
From relying on coal energy for food preparation during the ancient times to employing hydrocarbon and hydrogen to fuel cars and provide electricity to meet household and industrial needs in the 21st century, energy has remained a constant feature of economic growth and social welfare, contributing significantly to poverty reduction, improved quality of life, and national security.2 Energy influences many aspects of human life, including nutrition, health, education, technology, transportation, and communication.3 It is therefore not surprising that at the foundation of strong economies lies a consistent, affordable, sustainable, and available energy supply, which catalyses economic growth.
In Nigeria, oil and gas have, over the years, become the country's primary source of energy and economic resource, with the government increasingly relying on petroleum exports for both foreign exchange earnings and fiscal revenue. It all began in 1956 when following the discovery of crude oil in significant commercial quantities in Nigeria, national attention gradually shifted away from other sectors such as agriculture and solid minerals toward petroleum production and exportation.4 By 1957, Nigeria was producing roughly 5,000 barrels of oil per day, and since then, Nigeria has emerged as a major player in the global oil industry.5
As of January 2025, Nigeria is the largest oil producer in Africa.6 Additionally, recent reports from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) show Nigeria's crude oil production stood at 1,603,766 barrels per day as of April 2025.7 The significance of oil to the Nigerian economy is further underscored by the fact that the national budget is regularly benchmarked against global oil prices. For instance, the 2025 National Budget is benchmarked against an oil price of $75 per barrel.8
But how well have the abundant petroleum resources and reliance on the same in Nigeria translated into abundant and sustainable access to energy for Nigerian residents? While this question begs for answers, the Nigerian government, in a bid to further harness the potential of the Nigerian oil and gas sector to solve energy insecurity, enacted the Petroleum Industry Act on 6th August 2021 (the 'PIA') with significant promises for Nigeria's energy security pursuits. This article examines Nigerian energy insecurity and the potency of the solutions offered by the PIA.
Energy Security: Definition
According to the International Energy Agency (IEA), energy security is the uninterrupted and reliable access to energy resources at affordable prices.9 In a broader sense, energy security refers to a situation whereby a nation and its population can reliably access energy resources over the long term at affordable costs and with low levels of risk.10
Essentially, energy security means the availability of energy required for household and industrial needs at an affordable and sustainable rate. For instance, the ability of a country's populace to afford regularly available electricity and petroleum products to satisfy their needs equates to energy security. Achieving energy security will require policy and investment directions channelled towards a sustainable energy mix to satisfy energy needs.11
Energy Security Problems in Nigeria
Despite being the home to 208.83 trillion cubic feet of gas endowment and reserve, representing 33% of Africa's gas reserves12 and Africa's largest producer of oil, Nigeria faces a severe energy crisis. Over two-thirds of its population still relies on firewood as their primary energy source,13 and more than 75% lack access to reliable electricity.14 The recent removal of the fuel subsidy in 202315 further exacerbated the situation. Petrol prices per litre surged from about N200 in May 202316 to circa N838 in 2025,17 making fuel increasingly prohibitive for many Nigerian residents. Consequently, the price hike threatens the reliance on fuel for transportation, cooking, and business operations.
Electricity that could have otherwise substituted for some energy needs, such as cooking, lighting, powering electronic devices and machines, is equally costly and not regularly available. In April 2024, the Nigerian federal government, through the Nigerian Electricity Regulatory Commission (NERC), increased electricity tariffs from N68 per kilowatt to N225 per kilowatt, representing a 300% increase. The costly electricity is also not regularly available. Between 2013 – 2024, the national grid broke down eleven (11) times.18 It is therefore not surprising that 31.8 million Nigerians suffer acute lack of access to food due to these energy deficits,19 and there has been an increase in the cost of business operations due to higher cost of electricity and buying fuel at high prices to power generators. The Association of Small Business Owners of Nigeria recently reported that energy deficits chiefly contributed to why 25% of manufacturing businesses ceased operations in 2023.20 The right to life of indigent persons is equally threatened, as 40% of primary health care centres in Nigeria lack access to an electricity supply.21
Meanwhile, the reliance on firewood as the major source of energy in rural areas in Nigeria has dire environmental consequences. It is not only unsustainable to harvest wood to meet energy needs, but this also poses the threat of deforestation. Annually, Nigeria loses approximately 400,000 hectares of forest to deforestation.22 This leads to significant negative environmental situations such as increased greenhouse gas emissions and erosion, increasing the risks of climate change.
Not only have energy deficits robbed Nigerian residents of access to a good standard of living, but the right to life is also constantly under pressure. In 2010, a child suffered brain damage due to a power outage during his birth process, and the brain damage eventually led to his death in 2018.23 Another dire effect of energy poverty was in 2024 when a family of four in Kwara state, who put on a generator to aid their sleep, died while sleeping due to inhaling generator fumes.24 In 2022, flood events, which could have otherwise been prevented by deforestation, rendered 2.4 million people in Nigeria homeless, according to the World Bank.25
These energy insecurities are driven by the combined effects of different factors, including overreliance on oil, inadequate legal framework, policy missteps, and low investments in sustainable energy solutions. In an attempt to address these issues, the PIA was enacted, with energy poverty being one of the problems it purported to solve.
How Does the PIA AddressEnergy Poverty?
Although its main focus is regulating the oil and gas industry, the PIA equally has provisions with potential solutions to energy poverty issues.
- Free Market
Sections 205 and 207 of the PIA require that the prices of petroleum productssuch askerosene, petrol, diesel and liquefied petroleum gas must be determined by market forces, taking into consideration the costs incurred by licensees. This is aimed at ensuring that market participants, particularly in the downstream sector, do not engage in monopolistic activities that could ultimately undermine access to these products at affordable rates. The competition among market participants due to the free market system is equally an added advantage to the benefit of the customers, as there would be more petroleum products competitively provided.
- Incentivising Gas Utilisation
Not only does Nigeria have the 9th largest gas reserve in the world, which is projected to last for the next 150 years,26 gas also accounts for about 80% of the country's source of electricity.27 Unlike the Petroleum Act of 1969, which treated gas as a byproduct of oil and fostered its underutilisation, prohibits unhealthy practices relating to gas and incentivises gas utilisation. To maximise the potential of gas in addressing the country's energy deficits, section 104 (1) of the PIA penalises gas flaring activities except for emergencies and when it is done in line with safety measures. The monies realised from the penalties imposed for this breach are to be channelled to the Midstream and Downstream Infrastructure Fund for providing environmental reliefs and remediation of the communities hosting the defaulting settlors. This prohibition conversely encourages gas utilisation, and the PIA provides a licensing regime for gas processing activities,28 including the establishment, construction, and operation of a gas storage facility and a gas transportation pipeline, engagements in bulk transportation of natural gas, operation of a gas network, etc.29 It is important to note that gas flaring prohibitions and gas utilisation regime under the PIA are administered by the Nigerian Midstream and Downstream Petroleum Regulatory Authority. Overall, the provisions of the PIA on gas flaring and utilisation offer a defined regime and stability to motivate investments in the sector towards harnessing Nigeria's gas potential.
- Domestic Gas Delivery Obligations
To ensure equitable distribution and availability of gas for local needs, the PIA mandates the Nigerian Upstream Petroleum Commission (NUPRC), in collaboration with the Nigerian Midstream and Downstream Petroleum Regulatory Authority, to ensure that gas producers meet their respective domestic gas delivery obligations as determined by the NUPRC.30 The NUPRC is responsible for setting the domestic gas delivery obligations of gas producers, and this involves allocating gas volumes based on infrastructure availability. Lessees who fail to meet their obligations may be fined USD 3.50 per MMBtu, unless otherwise stated in contracts, with exceptions made for circumstances beyond their control, such as force majeure or payment failures by buyers. The fact that the compliance with this obligation is a condition for approval of new gas export projects indicates its pertinence and makes it difficult to be breached.
- Host Community Development Trust Funds
Pursuant to section 235 of the PIA, settlors, i.e., holders of an interest in a petroleum prospecting licence or petroleum mining licence, whose area of operations is in any community, are required to establish trust funds in their host communities impacted by their exploitation activities. These are known as the Host Communities' Development Trust Funds (HCDTFs). Upon the enactment of the PIA, questions arose as to whether the obligation to establish HCDTFs was limited to upstream companies. This is because while the combined effect of sections 318 and 240 of the PIA makes it clear that companies operating in the upstream sector are under an obligation to establish HCDTFs, the implication of the provisions of section 236 of the PIA, the definition of "designated facilities under section 318 PIA, and the additional mention of NMDPRA as a regulatory body for HCDTFs under section 234 (2) of the PIA, have made the applicability of HCDTFs obligation to companies in the downstream sector contentious. However, thanks to the NMDPRA, this issue was resolved with the NMDPRA's issuance of the Midstream Petroleum (Host Communities Development Trust) on 5 October 2024, which obliges midstream companies such as refineries to establish HCDTFs. The NUPRC also, in 2022, released the Nigerian Upstream Petroleum Host Communities Development Regulations (2022) applicable to upstream players. The objectives of HCDTFs are ultimately to improve the quality of lives of residents and indigenes of host communities; their access to energy; mitigate the hazards of gas activities; enhance harmonious relationships between operators and host communities; provide sustainable development for host communities in terms of health, educational, infrastructural and environmental facilities.31 The HCDTFs frameworks under the purview of the NMDPR and NUPRC are not passive, as there is a mandatory requirement to set up a board of trustees, which must be registered with the Corporate Affairs Commission using the incorporated trustee vehicle.32 Acquisitions or transfers of the interests in the exploration licences/leases are to accommodate the transfer of an HCDT's undertakings, and upon expiry of the interest in the assets, the obligations under the trust continue to be ensured until completed.33 The HCDTFs are funded by an annual contribution of 3% of the respective settlors' annual operating expenditure of the preceding financial year in upstream petroleum operations. Notably, the HCDTFs are tax-exempt, and the funds contributed are deductible from the hydrocarbon tax due and payable by the settlor.34 Failure to comply attracts grave penalties, $2500 per day.
Is The PIA Method Efficient?
Events following the enactment of the PIA suggest that the PIA's measures against energy poverty have been effective to some extent. Notably, the free market system under the PIA can be said to have yielded some positive results. Recently, the Nigerian National Petroleum Company Ltd (NNPC) had to reduce its petrol price from N940 to N860 per litre following Dangote Refinery's reduction of its gantry price for petrol from N890 to N825 per litre.35 Additionally, the adoption of Compressed Natural Gas (CNG) as Nigeria's transition fuel36 is not unconnected to the PIA. Although CNG is not specifically mentioned under the PIA, the legal framework for gas processing activities provides the needed regulatory oversight and incentives for the investments in CNGs.
On the contrary, the PIA failed to make specific provisions to incentivise the growth of renewable energy and improve the country's energy mix to serve the increasing energy needs and reduce the burden on oil. Although the NUPRC attempted to cure this lacunae with its Upstream Petroleum Decarbonisation Template (UPDT) which mandates the integration of decarbonization strategies into upstream activities such as wells and rig operations, the UPDT only scratched the surface as it is a subsidiary legislation with less emphasis like the PIA itself and does not exactly mandate or encourage the use of renewable energy as an independent source of energy adding to the nation's energy mix, rather the UPDT requires the adoption of decarbonization strategies in oil production processes. Additionally, while there are funds and initiatives such as the HCDTFs that have consequential effects on renewable energy, the lack of specific funds and provisions for renewable energy under the PIA questions the potency of the PIA in ensuring a sufficient energy mix to cater for Nigeria'senergyneeds.
Conclusion and Recommendations
While the PIA primarily sets out to regulate and harness the potential of the oil and gas sector, it consequently enables energy security, but with significant limitations that may impair Nigeria's quest for energy security. To solve the gaps in the PIA's measures to curb energy poverty, a policy approach and regulatory steps should initially be employed pending when an amendment of the PIA will be achieved. The NUPRC and NMDPRA may, under the powers granted to them under the PIA, ensure that the oil activities they regulate accentuate the provisions of affordable energy.
Additionally, it is necessary for the NURPC and NMDPRA to incentivise renewable energy investments through regulations. This may be achieved by making investments in renewable energy a condition for the renewal of licences and permits. And this could also be achieved through an amendment of the HCDTFs regulations to require part of the funds for the trust to be channelled towards providing renewable energy and supporting off-grid and mini-grid energy projects in host communities.
It is equally important for both the NUPRC and NMDRPA to ensure the effective implementation of the PIA provisions guaranteeing energy security. For instance, the HCDTFs funds under the upstream and midstream HCDTF regimes should be effectively monitored by the NUPRC and NMDPR, respectively, to prevent misuse, abuse, or fraud.
Footnotes
1 Dr. Ngozi Chinwa Ole is a Consultant (Director) at Alliance Law Firm, Lagos, Nigeria
2 Obiora et all., 'Advanced Renewable Energy and Sustainability: The Transitioning to Renewable Energy in Realizing Sustainable Global Energy Security' International Journal of Innovative Mathematics, Statistics & Energy Policies (2025), https://www.researchgate.net/profile/Gerald-Okeke/publication/389717302_Advanced_Renewable_Energy_and_Sustainability_The_Transitioning_to_Renewable_Energy_in_Realizing_Sustainable_Global_Energy_Security/links/67cfbeb9cc055043ce6fcd7f/Advanced-Renewable-Energy-and-Sustainability-The-Transitioning-to-Renewable-Energy-in-Realizing-Sustainable-Global-Energy-Security.pdf
3 Oyedepo, S. O. (2012). Energy and sustainable development in Nigeria: the way forward.Energy, sustainability and society,2, 1-17.
4 Udo N. Ekpo, 'An Analysis of the Economic Consequences of Nigeria's Dependence on Crude Oil Exports' International Journal of Development and Economic Sustainability (2022), https://eajournals.org/wp-content/uploads/An-Analysis-of-the-Economic-Consequences.pdf
5 Ibid
6 TheNation Newspaper, 'Top 5 African Countries that Produced Most Oil in January 2025' < https://www.nuprc.gov.ng/wp-content/uploads/2025/04/JAN-TO-DEC-2025-PRODUCTION_March.pdf> accessed 3 May 2025
7 NUPRC, "Crude Oil and Condensate Production – 2025" < https://www.nuprc.gov.ng/wp-content/uploads/2025/04/JAN-TO-DEC-2025-PRODUCTION_March.pdf> accessed 3 May 2025
8 Punch Newspaper, 'FG Okays 2025 Budget, Sets $75 per Barrel Oil Benchmark', < https://punchng.com/just-in-fg-okays-2025-budget-sets-75-per-barrel-oil-benchmark/> accessed 3 May 2025
9 IEA, 'Energy Security' <https://www.iea.org/topics/energy-security> accessed 3 May 2025
10 Orazulike, D. M. (2012). Energy security in Nigeria: Challenges and prospects. International Journal of Energy Economics and Policy, 2(4), 228-238
11 Maurine I. Brooks, et al., 'Energy Security in Nigeria: Challenges and Way Forward' < https://ijesi.org/papers/Vol%202(11)/Version-1/A0211010106.pdf> accessed 3 May 2025
12 https://www.thisdaylive.com/index.php/2023/07/11/komolafe-nigerias-gas-reserves-to-last-94-years last accessed 20 September 2023
13 Abdallah, A. A., & Odeleke, O. B. (2023). Energy security in Nigeria: challenges and prospects.Journal of Arid Zone Economy,1(1), 101-111.
14 Ibid
15 BBC, 'Bola Tinubu inauguration: Fuel subsidy removed in Nigeria' <https://www.bbc.com/news/world-africa-65737846> accessed 5 May 2025
16 The Guardian News, 'Fuel price rises by 87.88 per cent in one year' < https://guardian.ng/business-services/business/fuel-price-rises-by-87-88-per-cent-in-one-year/> accessed 5 May 2025
17 Global Petrol Prices, 'Nigeria Gasoline prices, liter, 05-May-2025' <https://www.globalpetrolprices.com/Nigeria/gasoline_prices/> accessed 7 May 2025
18 The Cable News, 'National grid has collapsed 162 times in 11 years, say GenCos' < https://www.thecable.ng/national-grid-has-collapsed-162-times-in-11-years-say-gencos/> accessed 7 May 2025
19 Reuters, 'Insecurity, rising costs push 31 million Nigerians into acute food shortage, study says' < https://www.reuters.com/world/africa/insecurity-rising-costs-push-31-mln-nigerians-into-acute-food-shortage-study-2024-08-27/?utm_source=chatgpt.com> accessed 7 May 2025
20 Renewable Energy Association of Nigeria, 'Bridging the Gap: Addressing Energy Poverty, Inequality through Renewable Energy' < https://rean.org.ng/bridging-the-gap-addressing-energy-poverty-inequality-through-renewable-energy/> accessed 7 May 2025
21 Ibid
22 Vanguard News, 'Nigeria Loses Approximately 163,000 Hectares of Forest to Deforestation' < https://www.vanguardngr.com/2016/04/nigeria-loses-350000-400000-hectares-land-per-year-deforestation-report/?utm_source=chatgpt.com> accessed 7 May 2025
23 Punch News, 'Hospitals grounded, patients suffer as erratic power supply worsens mortality rate' < https://punchng.com/hospitals-grounded-patients-suffer-as-erratic-power-supply-worsens-mortality-rate/> accessed 7 May 2025
24 Premium Times, 'Generator Fumes Kill Family of Four in Kwara' < https://www.premiumtimesng.com/news/more-news/475022-generator-fumes-kill-family-of-four-in-kwara.html?tztc=1> accessed 7 May 2025
25 World Bank, 'Strengthening Nigeria's Resilience: An EPIC Response Framework for Flood and Drought Risk Management' < https://www.worldbank.org/en/events/2024/11/21/drmhubtokyo-strengthening-nigeria-s-resilience-an-epic-response-framework-for-flood-and-drought-risk-management> accessed 7 May 2025
26 ThankGod Okeokwo, Nuhu John Egya, and Samson Atari Namo, 'Appraisal of Legal Frameworks for Gas Utilization Under the Petroleum Industry Act 2021' International Policy Brief Series Social Science and Law Journal of Policy Review and Development Strategies < https://internationalpolicybrief.org/wp-content/uploads/2023/10/ARTICLE1-177.pdf> accessed 7 May 2025
27 Oduka, U. M., Odutola, T. O., & Oriji, A. B. (2025). Impact of domestic natural gas utilization on the power sector in Nigeria. American Journal of Energy Engineering, https://sciencepublishinggroup.com/article/10.11648/j.ajee.20251301.12
28 Section 125, the PIA.
29 Ibid
30 Section 110, the PIA.
31 Section 239, the PIA.
32 Section 235 (1-3) Petroleum Industry Act 2021
33 Section 237 PIA
34 Section 240 PIA
35 Nairametrics, 'Price war: NNPC reduces petrol price to N860 per litre' < https://nairametrics.com/2025/03/04/price-war-nnpc-reduces-petrol-price-to-n860-per-litre/#google_vignette> accessed 7 May 2025
36 P.M News, 'The role of states and LG in the adoption of CNG in Nigeria' < https://pmnewsnigeria.com/2024/10/27/the-role-of-states-and-lg-in-the-adoption-of-cng-in-nigeria/?utm_source=chatgpt.com#google_vignette> accessed 7 May 2025
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