Chinese investors could provide a much-needed lift to Nigeria’s ailing economy by investing in its energy sector – but not necessarily in the country’s vulnerable oil industry, one analyst has told CNBC.
Dolapo Oni, an energy analyst for Ecobank, told CNBC via telephone that Chinese “interest is less towards oil more towards gas.” He attributed this to security fears in the Niger Delta region, rather than a potential OPEC production cut.
Nigeria’s economy officially fell into recession at the end of August this year, partly due to falling oil prices on which it is heavily dependent. Earlier this month, Nigerian Finance Minister Kemi Adeosun told CNBC that her country was undergoing a “fundamental change in how we finance our oil,” moving away from treasury cash calls and towards private funding.
In a statement reported by Reuters, the Nigerian National Petroleum Corporation (NNPC) said in June that: “Memorandum of understandings worth over $80 billion to be spent on investments in oil and gas infrastructure, pipelines, refineries, power, facility refurbishments and upstream have been signed with Chinese companies.”
Chinese firms involved include Huawei, Norinco and Sinopec. Following up on the pledges, Chinese investors are to visit Nigeria at the end of this month.
According to a document shown by the NNPC to potential Chinese investors and seen by CNBC, Nigeria has the seventh largest proven gas reserves in the world as of 2015. In the document, the NNPC outlines a “restructuring and growth journey” taking place over the coming three to five years which will require $32 – $40 billion investment.
Oni did concede that Chinese investment in Nigerian energy has been “quite limited” and that sentiment was “hesitant generally,” attributing this to a lack of available assistance on government policy. But, he added that the relationship between the two countries was developing, particularly as Nigeria had previously been “laughed out of the room,” by investors in the U.S. and Europe.
“China sees that Nigeria needs power,” Oni explained. Also, “gas exposes them to other investment opportunities,” he added. These include power plants and related technology, as well as the compressed natural gas sub sector.
James McCullagh, an oil products analyst at Energy Aspects, told CNBC via e-mail that “in the past, ‘human risk’ has been a factor in the refusal of some refinery contractors to travel to (Nigeria’s) three plants (particularly Port Harcourt and Kaduna). The Japanese have previously refused to travel.”
CNBC