Investment Opportunities in Nigeria’s Petroleum Industry: What To Know as a Foreign Investor

ABSTRACT:

The oil and gas industry represents a significant driver of global economic activity, offering a wide array of investment opportunities across its various segments. For potential investors, a comprehensive understanding of the industry’s value chain- comprising upstream (exploration and production), midstream (transportation and storage), and downstream (refining and distribution) sectors is essential. This knowledge enables informed decision-making regarding the scope, nature, and level of investment commitments they may choose to undertake, in alignment with their strategic and financial objectives.

INTRODUCTION

Historically, the Federal Government of Nigeria has focused its investment incentives within the petroleum industry primarily on the crude oil and petroleum products sub-sectors. Consequently, most fiscal and regulatory benefits have been designed to attract capital into crude oil exploration and production.

However, recognizing that over 50% of Nigeria’s natural gas reserves are associated with crude oil production and that significant portions of this gas remain underutilized or flared the government has taken proactive steps to stimulate investment in the natural gas sub-sector. To this end, both local and international investors are being encouraged to participate in the development of Nigeria’s gas resources. These efforts include the establishment of gas-focused enterprises, the implementation of gas-specific incentives, and the improvement of the legal and regulatory framework to make the sector more attractive and commercially viable. These policy shifts have already resulted in the initiation of various gas-related projects, signaling the government’s commitment to harnessing the full potential of the nation’s gas reserves.

Accordingly, this document aims to identify and clearly present the available investment opportunities within Nigeria’s gas industry. The goal is to provide prospective investors with a simplified yet comprehensive overview of the sector, enabling them to make informed decisions and participate effectively in its ongoing development.

ANALYZING VARIOUS OPPORTUNITIES

1. Upstream Investments; Exploration and Production (E&P): The upstream sector involves the search for oil and gas reservoirs and the extraction of these resources. This phase requires significant capital but offers high potential returns. Investment opportunities in this area include direct investment in E&P companies, partnerships, and joint ventures. The benefit here lies in the high profitability associated with discovering and producing new oil and gas fields, especially when oil prices are high. The upstream segment, which includes exploration and production (E&P), has become more attractive under the Petroleum Industry Act 2021’s (PIA) new fiscal framework.

The PIA 2021 introduces:

– Reduced royalties for offshore and frontier acreages.

– Cost-recovery ceilings and better profit-sharing for investors.

– Improved transparency and governance mechanisms.

According to a 2024 NNPC Upstream Investment Report, foreign and indigenous operators now enjoy internal rates of return (IRR) as high as 28–35% in deepwater and marginal fields. Projects like TotalEnergies’ Egina field and First E&P’s Anyala-Madu field demonstrate the strong return on investment (ROI) available through joint ventures (JVs), risk service contracts, or outright farm-in agreements.

2. Midstream Investments; Transportation and Storage: The midstream sector focuses on transporting and storing oil and gas from production sites to refineries and end-users. Investment opportunities in this sector include pipelines, storage facilities, and LNG (liquefied natural gas) terminals. Pipelines, in particular, offer a stable investment due to long-term contracts and regulated rates of return.

The benefit of investing in midstream assets is the relatively lower risk compared to upstream operations, coupled with consistent cash flow from transportation fees and storage charges. Nigeria’s midstream segment; refining, pipelines, and storage is undergoing transformation: The Dangote Refinery, Africa’s largest, began operations in 2023 and now processes over 500,000 barrels per day. Private investors in storage, haulage, and crude handling facilities are reaping significant logistics and throughput returns. The PIA 2021 incentivizes midstream investment by offering tax holidays, tariff protection, and capital allowances for pipeline developers. Private participation in pipeline infrastructure, especially for natural gas (e.g., the Ajaokuta–Kaduna–Kano (AKK) pipeline), offers stable long-term returns due to regulated tariffs and guaranteed demand from power and industrial users.

3. Downstream Investments- Refining and Distribution: The downstream sector involves refining crude oil into usable products such as gasoline diesel, and jet fuel, and distributing these products to consumers/end users. Investment opportunities here include owning or investing in refineries, petrochemical plants, and retail distribution networks (such as gas stations). The benefit of downstream investments is their ability to generate steady revenue streams, especially in regions with high demand for refined products. Additionally, refining margins can increase during periods of low crude oil prices, enhancing profitability.

4. Natural Gas and Energy Transition:

– Nigeria’s Golden Opportunity

– Gas processing and LNG infrastructure.

– Compressed Natural Gas (CNG) for transport and domestic cooking.

– Gas-to-power projects that offer long-term power purchase agreements (PPAs).

This year, major players in the Nigerian Oil and Gas Industry like Nigeria LNG Limited (NLNG), Nigerian Independent Petroleum Company (NIPCO), and Shell Nigeria Gas have scaled up projects to meet the growing demand. Investors benefit from zero royalty on flared gas that is captured and commercialized, and dedicated tax incentives under the Midstream & Downstream Gas Infrastructure Fund (MDGIF).

5. Integrated Oil and Gas Companies: Major oil and gas companies, often referred to as super majors, operate across the entire value chain from exploration to retail. Investing in these integrated companies provides exposure to all segments of the oil and gas industry, thereby diversifying risk. These companies typically have strong balance sheets and can withstand market volatility better than smaller, more specialized firms. The benefit here is the combination of stability and potential for growth, along with dividend payouts that many integrated companies offer.

6. Renewable Energy Transition: Many oil and gas companies are increasingly investing in renewable energy sources as part of their strategy to transition to a lower-carbon future. This creates investment opportunities in renewable energy projects backed by traditional energy companies. Investors can benefit from the growth potential in the renewable energy sector while leveraging the expertise and financial strength of established oil and gas firms.7.

7. ESG and Sustainable Energy Integration: New oil and gas projects in Nigeria are increasingly being designed with Environmental, Social, and Governance (ESG) standards in mind. The Nigerian Content Development & Monitoring Board (NCDMB) now offers grants for:

1. Gas-based clean cooking solutions.

2. Carbon capture and storage (CCS) technologies.

3. Women- and youth-led local service companies.

Integrating ESG adds not only to project bankability but also unlocks funding from

green-focused global investors such as IFC, AfDB, and Proparco.

8. Regulatory Certainty and Institutional Support:

Unlike the pre-PIA era, Nigeria now offers more stability in oil and gas regulation The

Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and Nigerian

Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) have

streamlined licensing, reporting, and fiscal compliance. Nigeria’s Sovereign Investment

Authority (NSIA) and Central Bank now support energy projects with financing

windows and FX support for critical inputs. These institutional backstops reduce

political and currency risk for both foreign and local investors.

CONCLUSION:

In conclusion, the Nigerian oil and gas sector presents a wide array of investment opportunities across different segments of the industry. From high-risk, high-reward exploration projects to stable midstream assets and innovative renewable energy ventures, investors can find suitable opportunities to match their risk tolerance and investment goals. The benefits of investing in oil and gas, including high return potential, diversification, dividend income, and inflation protection, make it an attractive option for many investors.

For more insight into the Nigerian Oil and Gas Industry and investment opportunities available to foreign investors and how to benefit from the investment opportunities, feel free to contact BFA & CO Legal via email: info@bfaandcolegal.com, bfa@bfaandcolegal.com and francisca@bfaandcolegal.com.