Turning reforms to tangible gains

Nigeria’s energy sector this year appears set for a significant transformation, with expected unprecedented stability in the downstream petroleum sector due to domestic refining and a strong push for renewable energy investment. The overall outlook is cautiously optimistic, contingent on effective policy execution and infrastructure development, writes MUYIWA LUCAS and AMBROSE NNAJI.

The country’s energy sector is looking up to a promising year ahead. After years of production slumps, underinvestment and policy uncertainty, in the closing quarters of 2025, increased crude oil output, improved security conditions in parts of the Niger Delta, regulatory certainty under the Petroleum Industry Act (PIA) gaining traction and operational activity picking up across segments of the value chain, were precursors to hopes for the sector in 2026. The momentum garnered in may have since set the tone for high expectations this year in the sector.

Stakeholders and economists are optimistic that the oil and gas sector will significantly contribute to Nigeria’s GDP growth and positive external account balance through increased exports. This is why they call for more public-private partnerships (PPPs) and technology transfer to overcome financial and technical hurdles.

While 2026 looks promising for incremental recovery in the sector, it however hinges heavily on resolving security issues and fully leveraging the PIA to boost investment and output.

Oil and Gas

The upstream production is expected to witness modest production growth, driven by infrastructure improvements, pipeline security and gas monetization. While government targets hitting 2.1 million barrels per day (mbpd) production output, analysts remain conservative with a forecast of around 1.7-1.8 mbpd. They however hope that this will get higher following potential restarts of oilfields in Ogoni.

The implementation of the Petroleum Industry Act (PIA) and renewed upstream investment will equally impact on the sector this year.

In the downstream sector, the steady operation of the Dangote Refinery is expected to be a major factor, potentially supplying 60 per cent to 75 per cent of national fuel needs from domestic sources in Q1 2026. This is projected to ease pressure on foreign reserves and stabilise petrol pricing within a band of N800 to N900 per liter.

The anticipated glut in the oil market, following the US action in Venezuela, will further keep petrol prices steady barring any government policy that may lead otherwise, like the implementation of the 15 per cent ad valorem tax on petrol.

This fear has been further confirmed by the International Energy Agency (IEA), which forecasts a record high glut in the crude oil market this year, with supply outpacing demand growth by a staggering 3.84 million barrels per day. This oversupply dynamic is the primary headwind, driving prices down and compressing the revenue potential for incremental barrels.

This is why analysts at AInvest submit that the global oil market is entering 2026 with a fundamental imbalance that directly threatens the value of any new production, including Nigeria’s.

“The policy environment is volatile and reactive. While OPEC+ has paused its planned output hikes for the first quarter of 2026, the group still maintains a significant 3.24 million barrels per day of output cuts in place. This creates a precarious balancing act where the market is held in check by a large but potentially adjustable floor of supply. The group’s cohesion is tested by internal tensions, yet its decisions will be the key variable in determining whether the glut is absorbed or deepens.

“This oversupply is already pressuring prices. The IEA’s forecast suggests the Brent crude oil price will fall to an average of $55 per barrel in 2026. For a producer like Nigeria, this means the economic value of its production gains is being severely undermined. Even if output increases, the revenue per barrel is forecast to decline, turning a potential upside into a muted or even negative financial outcome. The bottom line is that external market forces are creating a structural ceiling on oil prices, making it exceptionally difficult for new supply to find profitable demand,” the AInvest editorial team argued.

Advertisement

NNPCL Group Chief Executive Officer, Bayo Ojulari, described the 2026 outlook as encouraging, citing improved asset integrity, reactivation of shut-in wells and better coordination with security agencies.

“The direction of travel is positive,” Ojulari said, projecting gradual progress toward the government’s medium-term ambition of crossing two million barrels per day.

Yet analysts caution that production targets alone do not tell the full story. The experience of 2025 exposed persistent vulnerabilities beneath the recovery numbers. Improved surveillance and community engagement reduced crude oil theft, but claims of near-total success remain largely unverified.

For government officials and industry operators, these developments signal a sector regaining its footing. For independent analysts and economists, however, the recovery remains fragile, uneven and vulnerable to reversal.

“Recovery must not be mistaken for transformation,” Professor Emeritus of Petroleum Economics and Executive Director of the Emmanuel Egbogah Foundation, Abuja, Wumi Iledare, warned.

According to him, the defining question for 2026 is not whether Nigeria can produce more oil or gas in the short term, but whether it can finally build the institutional discipline needed to sustain performance.

This tension—between optimism and realism—frames expectations for Nigeria’s oil and gas industry in 2026. The year is shaping up less as a moment for dramatic breakthroughs than as a test of consolidation: securing hard-won gains, closing governance gaps, and proving that reforms can outlive political cycles and headlines.

“In 2026, the industry must move from administrative estimates to independently auditable measurement systems. Investors, lenders and fiscal authorities need credible data, not optimistic approximations,” Iledare insists.

According to Iledare, there is also growing pressure for rig activity to translate into actual barrels. Growth figures inflated by low base effects—following years of suppressed production—will no longer suffice. Expectations for 2026 he notes include disciplined capital deployment, prioritisation of brownfield assets and predictable evacuation infrastructure, without these, upstream optimism risks remaining fragile.

Global concerns

Yet, there are concerns of global market glut which the country is not immuned against. This concern has been further accentuated by the US takeover of Venezuela oil sector. This further exacerbates the global supply shock that deepens the existing price glut. Energy markets enter 2026 in a downbeat mood, with the International Energy Agency forecasting supply to exceed demand in 2026 by a head-spinning 3.85 million barrels per day.

This oversupply dynamic is the dominant threat. AInvest argued that a failure of OPEC+ cohesion or a geopolitical shock, such as a Russia-Ukraine peace deal could further increase global supply. It noted that the group has already paused output hikes for the first quarter of 2026, but the underlying tension over production quotas remains. “If a peace deal materialises and sanctions on Russia ease, it would add another significant source of crude to an already glutted market, putting severe downward pressure on prices. For Nigeria, which is trying to boost output to two million b/d, this would be a direct blow to its fiscal and economic recovery plans,” AInvest said.

Gas

While fossil fuels will remain central to Nigeria’s economy in 2026, energy transition pressures are reshaping strategy. Gas-to-power projects, petrochemicals and decarbonisation initiatives are increasingly paired with traditional oil and gas operations.

Regulatory policies, evolving carbon markets and global investment trends are gradually pushing some capital toward lower-carbon solutions—even as producers maintain core hydrocarbon businesses.

Advertisement

For Nigeria, analysts say the challenge is balance: leveraging oil and gas for development while preparing for a more carbon-constrained global energy system.

In the aspect of gas infrastructure, a pivotal milestone for the year is the anticipated commissioning and “first gas” of the OB3 gas pipeline, which would unlock significant east-west gas balancing and boost supply to power plants.

Besides, the government is expected to continue to prioritise major gas projects like the Ajaokuta–Kaduna–Kano (AKK) pipeline as well as developing midstream and downstream infrastructure to enhance energy security. 

Power and Renewables

Government is working with partners, including the UN and the Dutch government, and has secured a $1.1 billion facility from the African Development Bank (AfDB) to expand electricity access by the end of 2026.

Although the national grid experienced relative stability last year, improvement is still expected to be sustained in this regard. The government aims to add 4,000 MW of electricity generation capacity in 2026, a critical step to address persistent shortfalls; current generation hovers around 4,000-5,000 MW from an installed capacity of over 12,000 MW.

Renewable energy growth

The renewables and clean energy sector is projected to grow at a CAGR of 13.2 per cent from 2021 to 2026. The Federal Government has pledged massive investment in this area, building on the “Renewed Hope Solarisation Programme” to provide power to unserved and underserved communities.

Metering and grid modernisation

There is a significant push for rapid deployment of smart meters to close the metering gap, a key trend in modernising Nigeria’s power infrastructure. The government intends for 2026 to be a pivotal year in closing the national metering deficit, which stood at over five million customers without meters as of late 2025.

This year, through the Presidential Metering Initiative (PMI) and the Distribution Sector Recovery Programme (DISREP), which aim to provide millions of free meters, government aims to close the metering gap.  The PMI is a high-priority, direct presidential intervention with secured funding of approximately N700 billion from the Federation Account Allocation Committee (FAAC) to roll out an estimated two million meters annually for five years, with an overall target of installing up to 18 million meters.

DISREP, an initiative backed by a $500 million World Bank loan, targets delivery of over 3.2 million meters by the end of 2026 through various procurement models, including international competitive bidding (ICB) and national competitive bidding (NCB).

The combined efforts of the PMI and DISREP are expected to significantly accelerate the pace of meter installations beyond previous years’ averages.

Challenges

Yet, the challenges of resolving liquidity issues and outstanding debts to gas producers, managing potential global oil price volatility and mitigating the risks of pipeline sabotage stares the country and sector in the face this year. Experts say overcoming these is hinged on disciplined policy execution, transparency in subsidy management and attracting foreign direct investment (FDI).

Advertisement

Still, 2026 is shaping up as a test of institutions. According to stakeholders, strong regulatory guardrails, empowered boards and accountable leadership are no longer optional. Nigeria’s oil and gas industry, they argued, is too strategic to be managed through episodic interventions or personality-driven reforms.

“The lesson from 2025 is clear. Announcements do not substitute for institutions. Recovery without endurance is reversible,” Iledare said.

The road ahead

As 2026 unfolds, expectations for Nigeria’s oil and gas industry are sober but demanding. Though his is attainable, but there are things to be done: Consolidate security gains; anchor production recovery structurally; govern downstream reforms with neutrality; deliver gas infrastructure with discipline; translate barrels into revenue.

“Above all, let institutions—not slogans or short-term targets—drive outcomes. If 2025 was about re-anchoring, 2026 must be about proof: proof that Nigeria’s oil and gas sector can finally sustain progress- quietly, credibly and consistently,” Iledare admonished.