ESG IN OIL AND GAS: BALANCING ENERGY DEMANDS AND ENVIRONMENTAL RESPONSIBILITY

EBEN JOELS makes a case for continued ESG in Oil and Gas, and why Nigeria should strike a balance between meeting energy needs and upholding responsible business practices

In recent years, Nigeria’s energy demands have surged, driven by a rapidly growing population and expanding industrial base. With over 200 million people and a burgeoning economy, Nigeria is not only Africa’s largest economy but also one of its most energy-dependent nations. The oil and gas sector, responsible for nearly 90% of export earnings and over 60% of government revenues, plays a pivotal role in meeting these energy demands. However, alongside this, the pressure to adhere to ESG (Environmental, Social, and Governance) criteria has intensified globally and locally. For oil and gas companies operating in Nigeria, the challenge lies in striking a balance between meeting energy needs and upholding environmental responsibility in a rapidly changing regulatory and societal landscape.

Nigeria’s electricity consumption is projected to grow from 40 TWh in 2023 to over 300 TWh by 2040, driven by urbanisation, industrialisation, and population growth. With power shortages a frequent occurrence, businesses and industries remain heavily reliant on diesel and gas-powered generators to keep operations running. For oil and gas companies, the pressure to ramp up exploration, production, and supply is relentless, as they are essential players in the country’s energy security. However, rising environmental concerns mean that meeting this demand cannot come at the expense of sustainability. The energy sector, contributing over 70% of greenhouse gas emissions in Nigeria, is under increasing scrutiny.

Globally, ESG has become the benchmark for responsible business practices, and Nigeria is no exception. Regulatory bodies, from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to the Department of Petroleum Resources (DPR), are increasingly aligning national energy policy with global ESG standards. In 2021, the Federal Government launched the Nigerian Climate Change Act, targeting net-zero carbon emissions by 2060. For oil and gas companies, navigating these expectations, while still meeting Nigeria’s significant energy needs, is a tightrope walk that requires innovative approaches and a commitment to long-term environmental goals.

Top-level executives within Nigeria’s oil and gas sector are aware that balancing energy production with environmental responsibility is not a choice but a necessity. Several strategies can help the industry meet this dual mandate:

Technological Innovations to Reduce Carbon Emissions. Investment in carbon reduction technologies is no longer optional. Carbon Capture and Storage (CCS), already implemented by global players like Shell and Chevron, is becoming a vital tool in Nigeria. CCS technologies can potentially reduce up to 65% of CO2 emissions from gas flaring—one of Nigeria’s most significant environmental challenges. The NUPRC’s mandate for companies to reduce flaring by 2025 means companies must invest in CCS or face heavy fines and reputational risks.

Similarly, methane emissions—another potent greenhouse gas—are a critical focus. Recent data suggests that over 100,000 metric tons of methane is released annually from oil and gas operations in Nigeria. Detecting and repairing methane leaks through advanced AI-driven solutions could save the industry billions while ensuring ESG compliance.

Integrating Renewable Energy into Oil and Gas Operations. Oil and gas companies must diversify energy portfolios by incorporating renewable energy sources like solar, wind, and biofuels. TotalEnergies, for example, has already committed to installing 1 GW of renewable energy capacity across its African operations by 2025. Nigeria, blessed with abundant solar resources, could become a leader in renewable integration, thereby reducing reliance on traditional fossil fuels.

Hybrid energy systems, where renewable energy complements oil and gas operations, can lower carbon footprints while maintaining production efficiency. This shift is not only environmentally responsible but economically viable as global investors are increasingly leaning towards funding companies with strong ESG portfolios.

Water Management and Sustainable Practices. Oil and gas production is water-intensive, a critical concern in a country like Nigeria, where water resources are already under pressure. The industry uses over five billion barrels of water annually for extraction, refining, and transportation. Companies must implement sustainable water management practices, including recycling wastewater and reducing freshwater usage.

Additionally, protecting biodiversity in areas of operation—especially in Nigeria’s sensitive Niger Delta—will be a key factor in maintaining community relationships and meeting environmental obligations. Partnerships with environmental agencies for land restoration and wildlife preservation will further solidify a company’s ESG credentials.

Enhanced ESG Reporting and Transparency. Transparency in ESG practices is crucial for gaining the trust of stakeholders, including regulators, investors, and communities. Globally, 81% of oil and gas companies now publish sustainability reports, yet in Nigeria, this number is far lower. Only 25% of Nigerian oil and gas firms have comprehensive ESG reports in place. This gap presents both a challenge and an opportunity.

Detailed and credible ESG reporting that undergoes third-party verification will not only build trust but also differentiate companies in a competitive market. Investors, particularly from Europe and the US, now prioritise ESG performance, with some placing it as a pre-requisite for capital allocation. Meeting these expectations is critical for Nigerian firms looking to expand their global footprints.

Social Responsibility and Community Impact.

No company can succeed without the support of its host communities. For Nigerian oil and gas firms, contributing to local communities through job creation, infrastructure development, and social investments is essential. The Niger Delta, home to the majority of Nigeria’s oil reserves, remains a region plagued by underdevelopment, despite decades of oil extraction.

Companies like Seplat and Oando have made great strides by investing in education, healthcare, and local enterprise initiatives. However, more needs to be done. Companies must implement proactive community engagement strategies that go beyond philanthropy and focus on long-term social investments, ensuring communities benefit from the wealth generated by the industry.

Adhering to and Advocating for Regulatory Standards. Compliance with national and international environmental standards is essential for maintaining operational licences and avoiding legal penalties. Beyond compliance, Nigerian oil and gas companies should take an active role in advocating for policies that promote sustainability. Collaborative efforts with government agencies, NGOs, and industry associations can help shape a regulatory environment that balances growth with environmental protection.

The Future of ESG in Nigeria’s Oil and Gas Sector. As Nigeria’s oil and gas industry navigates the complex terrain of rising energy demand and increasing ESG pressures, the stakes have never been higher. Stakeholders, from investors to regulators, expect nothing less than oil and gas firms’ commitment to sustainable practices. Companies that adopt innovative solutions, embrace transparency, and invest in renewable energy will lead the charge into a new era of energy production—one where meeting energy needs and protecting the environment go hand in hand.

As Nigerian firms meander the murky waters of  ESG in Oil and Gas and balance energy demands and environmental responsibility, Stransact Chartered Accountants and Audit, an RSM correspondent firm in Nigeria, is geared to help businesses in the oil and gas industry navigate these complexities. Through our ESG advisory, reporting, technology and audit services, we guide our clients in balancing growth with environmental and social responsibility. As the global and local focus on ESG intensifies, Stransact is here to help our clients build trust and achieve sustainable success.

 Joels is the managing partner of Stransact Chartered Accountants and Audit, an RSM correspondent firm in Nigeria