- Nigeria has expressed interest in developing its hydrogen sector by utilizing its natural resources for hydrogen production and applications.
- However, the country faces challenges in terms of infrastructure development, regulatory frameworks, and attracting investors for hydrogen projects.
- To advance hydrogen production in Nigeria, the new administration should adopt a different approach, diversify the economy, and recognize the changing dynamics of the international oil and energy markets.
Nigeria has shown interest in developing its hydrogen sector and exploring the potential of hydrogen as an alternative energy source. The Nigerian government has recognized the potential of hydrogen and has expressed interest in leveraging the country’s natural resources to produce and utilize hydrogen for various applications.
But is the country ready to explore hydrogen and scale it as an alternative energy source? Nairametrics recently spoke to Dr Chinnan Maclean-Dikwal, Vice Chairman of the African Energy Council.
He discussed the possibility of exploring and producing hydrogen in Nigeria. Enjoy the excerpts from the conversation.
NAIRAMETRICS: Is Nigeria capable of developing and sustaining a domestic hydrogen market?
Dr Chinnan Maclean-Dikwal: Without a doubt, Nigeria can develop a domestic hydrogen market. However, the country is still grappling with some fundamental issues like basic electricity access and natural gas supply issues.
Before venturing into hydrogen production, certain things need to be in place. A regulatory framework needs to be established, which can be done quite easily.
But the major challenge would be infrastructural development. If Nigeria is going to enter the hydrogen market, a local hydrogen grid will be needed.
For instance, if we are producing hydrogen in Port Harcourt using natural gas, then that hydrogen needs to be able to reach Kano or Kaduna states. To achieve this, pipelines need to be constructed from Port Harcourt to Kano or Kaduna states.
We also require compression and pumping infrastructure up to the North. There are significant technical and funding challenges that must be overcome before hydrogen production can be realized.
Hydrogen exports are the easiest to engage in. It is much easier to produce hydrogen in Nigeria and send it to international markets than to produce, transmit, and distribute it locally.
If we were to operate a hydrogen-based economy, even the natural gas-based power plants running in Sapele, Ughelli, and others would have to be repurposed. All of this requires a substantial number of targeted investments.
NAIRAMETRICS: What should the Tinubu administration do to advance hydrogen production in Nigeria?
Dr Chinnan Maclean-Dikwal: With a new administration coming in, they need to adopt a different approach from what has been done in the past. Nigeria has been relying heavily on oil revenues and exports, which is a volatile and fluctuating market.
The Nigerian economy needs true diversification. The new administration will not be starting from scratch; they will be building upon what has already been initiated.
The Nigeria Energy Transition Plan focuses on gas, solar, and hydrogen investments. The plan also includes independent power plants and others.
This comprehensive approach will lead to a stable, industrialized, and prosperous Nigeria. The new administration must also acknowledge that the international oil energy market is rapidly changing.
In Europe, there is a strong movement towards banning petroleum and diesel cars within the next few years. The United Kingdom is following a similar path.
This means high-cost oil producers like Nigeria, Venezuela, Equatorial Guinea, and Angola, with high production costs per barrel, will eventually lose their market share. The European market is shifting towards electric vehicles.
Nigeria’s cost of production per barrel is significantly higher compared to countries like Saudi Arabia, which enjoys lower production costs. To protect our market share, the new administration needs to understand our competitive position and develop favourable policies in the oil and gas sector.
Moreover, they need to recognize the significance of hydrogen as a commodity in the international space. Nigeria could potentially replace any lost oil barrels with hydrogen for export.
The new administration should take a holistic approach and position Nigeria to seize these opportunities.
NAIRAMETRICS: How can we produce hydrogen in Nigeria for exports?
Dr Chinnan Maclean-Dikwal: Hydrogen can be produced from renewable energy or by reforming natural gas. We can combine gas with steam to produce hydrogen.
During this process, a significant amount of CO2 is also produced, which can be sequestered by pumping it into old and empty oil and gas fields. Alternatively, we can compress and sell the CO2 abroad or use it for industrial purposes in Nigeria.
The hydrogen produced can be converted into ammonia, which is denser and easier to handle compared to pure hydrogen gas. By liquefying hydrogen or converting it into ammonia or liquid hydrogen carrier (MCH), it becomes transportable by ship to international markets.
This is advantageous for Nigeria, considering its experience in transporting liquefied natural gas (LNG) by ships. The hydrogen market is like the LNG market, and vessels used for LNG exports can be repurposed for hydrogen transport.
Nigeria’s experience in commodity trading and existing relationships further facilitate entry into the hydrogen market. While Nigeria has good solar and wind resources for renewable hydrogen production, we are not among the top quartile of the best solar irradiation locations globally.
Many countries in Africa and around the world outperform Nigeria in this regard. However, Nigeria has a competitive advantage in using gas to produce hydrogen.
The Niger Delta basin is rich in gas, and if we can convert that gas into hydrogen efficiently, it would provide an opportunity to export to international markets.
NAIRAMETRICS: How do we convince potential investors to invest in developing the hydrogen market in Nigeria?
Dr Chinnan Maclean-Dikwal: In recent years, convincing anyone to invest in Nigeria has been challenging. Contract sanctity is not honoured, regulatory frameworks are weak, corruption is prevalent, and numerous other issues plague the country.
However, the emergence of the Dangote refinery is a significant statement of confidence in Nigeria. A $19 billion investment by Dangote demonstrates that Nigeria can attract substantial investments.
It also sends a strong signal to risk-averse investors who viewed Nigeria as a risky investment destination. Although some may argue that Dangote’s investment is due to his Nigerian background, it is important to note that he is an international investor with a business portfolio spanning across Africa.
To convince investors to invest in Nigeria’s hydrogen market, one can point to the Dangote refinery located in the massive Free Trade Zone in Lagos, which offers tax benefits.
NAIRAMETRICS: Do oil and gas companies have a chance to go into hydrogen production?
Dr Chinnan Maclean-Dikwal: Yes, many of the largest hydrogen investors today are oil and gas companies such as Shell, TotalEnergies, Repsol, and BP. The energy transition is no longer just rhetoric; it is a real phenomenon.
Markets are transforming, and legislation is pushing for a shift from certain products to others. Oil and gas companies recognize that traditional oil and gas production is unsustainable in the long run due to heavy taxation under carbon schemes.
Therefore, they are making significant investments in hydrogen. For instance, Saudi Aramco is developing the Neom project, the world’s largest hydrogen project.
There is no reason why the Nigerian National Petroleum Company Limited cannot focus on hydrogen development. Although Nigeria is an OPEC member and heavily dependent on oil, other OPEC members are investing in hydrogen.
Countries like Saudi Arabia, UAE, Oman, and Kuwait, despite having more oil reserves than Nigeria, are actively investing in hydrogen. If Nigeria continues to solely rely on oil without re-strategizing, it faces the risk of having stranded assets.
The Carbon Border Adjustment Mechanism (CBAM) poses the biggest threat to oil-centric economies in Africa. This mechanism will impose carbon taxes on certain products exported to the European Union starting from 2026.
Nigeria must diversify its economy and adapt to the changing international markets. The discussion highlights the potential for Nigeria to develop its hydrogen market and leverage its natural gas resources.
However, the country faces various challenges, including infrastructure development, regulatory frameworks, and attracting investors. By addressing these issues and seizing opportunities in the international hydrogen market, Nigeria can position itself as a key player in the energy transition and pave the way for a diversified and sustainable economy.