Introduction
Nigeria’s oil and gas sector has long been characterized by policy instability, import dependence, and persistent governance challenges. At this critical juncture, however, the sector’s trajectory is being shaped less by new discoveries or ambitious production targets and more by strategic choices around industry structure, incentives, and institutional conduct. As 2026 dawns, emerging developments suggest the possibility of a transition toward a more economically rational, value-oriented petroleum industry. Whether this transition results in consolidation or regression will depend primarily on governance discipline rather than geology.
A notable shift is underway—from crude oil exports toward domestic refining and gas processing—aimed at strengthening local value creation and economic resilience. While this transition disrupts import-dependent business models and may result in downsizing or stranded assets, it reflects necessary market evolution rather than policy failure. The role of regulation is not to preserve outdated structures, but to guide adjustment through clear rules, fair competition, and predictable market conduct.
Domestic processing and expanded gas utilization offer substantial long-term benefits, yet production shortfalls and governance weaknesses remain binding constraints. The pressures associated with structural change are real, particularly for actors accustomed to price controls and protectionist arrangements that historically stifled innovation and efficiency. Current reforms seek to correct these distortions, making effective transition management the central policy challenge for 2026.
This op-ed critically examines the evolving landscape of Nigeria’s oil, gas, and energy sectors, with emphasis on policy credibility, institutional behavior, and governance rigor across the value chain. Drawing on insights from the Nigeria Oil, Gas, and Energy Policy (OGEP) Forum and observable market indicators, the analysis assesses domestic refining, gas commercialization, fiscal policy and economic incentives, and implementation of the Petroleum Industry Act (PIA) within a broader governance context. The core argument is simple: Nigeria’s petroleum future will be shaped less by resource endowment or installed capacity, and more by consistent rule enforcement, institutional accountability, and the ability to sustain functioning markets.
Status and Challenges in Nigeria’s Oil and Gas Sector
As the 2026 journey begins, Nigeria’s oil and gas sector has again taken center stage in national policy discourse. This renewed attention reflects a mix of fresh investments, targeted fiscal incentives, and persistent performance gaps that continue to expose deep structural weaknesses. While progress is visible—particularly in domestic processing capacity and the growing role of natural gas—crude oil production shortfalls, fiscal pressures, and reliance on discretionary policy actions underscore the need for stronger institutional discipline. The Petroleum Industry Act (PIA) has begun to reset governance norms, but its full promise is yet to be realized. Expectations for the year ahead must therefore remain grounded in realism.
Upstream
Nigeria’s crude oil production performance in 2025 highlights the sector’s core challenge. Despite an OPEC quota of about 2.06 million barrels per day and budget assumptions aligned with that target; actual output consistently fell short. Both OPEC and domestic regulators attribute this gap to entrenched structural constraints, reinforcing a familiar lesson: ambitious targets cannot substitute for unresolved fundamentals.
Several interrelated factors explain Nigeria’s inability to meet its quota. Most producing basins are mature, with declining output and limited scalability from new discoveries. Chronic underinvestment—driven by fiscal uncertainty, regulatory inconsistency, and security risks—has compounded these declines. Oil theft, vandalism, and operational disruptions persist despite improved surveillance and coordination. Compounding these challenges is the disconnect between fiscal planning and market realities, as government budgets continue to rely on optimistic assumptions about production volumes and oil prices.
These conditions raise questions not only about OPEC compliance but also about the credibility and resilience of Nigeria’s upstream sector. Sustainable production growth cannot be mandated by decree; it depends on investment confidence, infrastructure reliability, and regulatory stability.
Midstream and Downstream
Historically, Nigeria’s petroleum economy relied on exporting crude oil while importing refined products—a model that drained foreign exchange reserves, weakened energy security, and constrained domestic value creation. Recent developments, however, suggest a gradual but meaningful departure from this legacy pattern.
By the end of 2025, domestic refineries and gas processing facilities supplied roughly 87 per cent of Nigeria’s Liquefied Petroleum Gas (LPG) demand, a sharp improvement from just two years earlier. Increased output from Nigeria LNG Limited (NLNG), the commissioning of the Dangote Petroleum Refinery, and contributions from modular refineries and gas processors have reshaped domestic supply dynamics.
This shift represents more than a quantitative gain. It reflects a realignment of incentives across the petroleum value chain. Domestic processing generates refining margins, reduces logistics costs, creates employment, and retains fiscal revenues that would otherwise flow offshore. At the macroeconomic level, it reduces exposure to foreign exchange volatility and strengthens energy security. Strategically, it signals a transition from exclusive reliance on upstream rents toward a more balanced petroleum economy.
Looking ahead, regulators must consolidate these gains by promoting competition, avoiding protectionism, and focusing on consumer welfare. Future downstream opportunities lie in logistics, storage, blending, retail, and gas distribution within a liberalized and efficient market structure.
Fiscal Policy and Economic Incentives
These structural realities frame the ongoing debate around investment incentives and governance. In response to declining production, the government has announced targeted fiscal incentives for deep-offshore projects such as Bonga Southwest. Proponents argue that such incentives are necessary to unlock stalled investments, reverse output decline, and reposition Nigeria competitively in global upstream markets. Critics warn that these measures risk undermining the PIA’s commitment to uniform fiscal rules and reopening the door to discretionary policymaking.
Both perspectives carry merit. Deep-offshore projects require large, long-term capital commitments and must compete globally for investment, particularly in an era of energy transition. Given Nigeria’s recent production performance, the motivation to stimulate such projects is understandable. The critical issue, however, is not whether incentives can attract investment, but how they are structured, justified, and governed. It is not conjectural that Nigeria has been on that discretionary path before (PSC 1993) with conflicting outcomes.
The PIA was designed to replace ad hoc fiscal interventions with a transparent, rules-based framework. Incentives perceived as bypassing this framework, especially through executive discretion, risk weakening policy credibility and long-term investor confidence. Production shortfalls driven by underinvestment, theft, and ageing infrastructure cannot be resolved sustainably through incentives alone. Durable solutions require consistent application of fiscal rules, improved infrastructure security, expedited regulatory processes, and institutional discipline.
In sum, Nigeria’s oil and gas sector stands at ainflection point. Progress in domestic processing and gas utilization offers a foundation for long-term value creation. Yet persistent production shortfalls and governance tensions highlight the unfinished reform agenda. Ultimately, the sector’s future will be determined less by geology or incentives and more by the consistency, credibility, and discipline of its governance framework.
Natural Gas: Central to Nigeria’s Energy Strategy
Natural gas sits at the center of Nigeria’s future energy mix. Despite holding one of the world’s largest proven gas reserves, Nigeria continues to flare significant volumes of associated gas. While flaring has declined over time, progress remains uneven and inconsistent, undermining both environmental objectives and economic value creation.
The persistence of gas flaring is not due to a lack of legislation. Nigeria has enacted multiple laws, policies, and initiatives aimed at eliminating routine flaring. The real constraints lie in weak enforcement, poorly aligned incentives, and infrastructure limitations. Historically, flaring penalties have been too low to compel compliance, while exemptions, inconsistent monitoring, and inadequate gas gathering and transportation infrastructure have eroded regulatory credibility and limited commercialization opportunities.
Recent policy debates around energy mix and gas-to-power reinforce the strategic importance of gas to Nigeria’s development agenda. Gas-to-power offers the most realistic pathway to improving electricity reliability, supporting industrial growth, and reducing dependence on diesel generators. However, success requires more than policy declarations. It depends on cost-reflective gas pricing, liquidity in the power sector, bankable offtake arrangements, and coordinated infrastructure development. Without these foundations, gas risks becoming another well-intended policy constrained by execution failures.
Looking ahead to 2026, the focus must shift to effective commercial regulation of the midstream gas sector. Penalties for flaring should exceed compliance costs, pricing frameworks must incentivize investment, and infrastructure development should be aligned with realistic demand growth. Treating gas as a valuable economic asset—rather than an inconvenient by-product—is essential for unlocking utilization.
Within the global energy transition discourse, Nigeria must remain pragmatic. Energy transition without energy access is a contradiction. For Nigeria, natural gas is not a detour but a bridge—supporting cleaner power, industrial feedstock, and clean cooking while broader diversification unfolds. Anchoring gas policy in energy equity is therefore both an economic and developmental imperative.
The Petroleum Industry Act: Strengthening Governance Matters
The Petroleum Industry Act (PIA) represents a major milestone in Nigeria’s effort to strengthen governance in the petroleum sector. It clarifies regulatory responsibilities, establishes explicit fiscal rules, and advances the commercialization of the national oil company, addressing several long-standing structural deficiencies. Early indicators suggest improved fiscal transparency and more consistent regulatory practices. However, the passage of legislation alone is insufficient to guarantee meaningful or durable outcomes. The true test of the PIA lies in the discipline of its implementation.
Thus, effective implementation of the PIA requires institutional power anchored in transformational leadership, rather than personality-driven authority exercised through transactional arrangements. Historically, Nigeria—shaped by transnational influences and elite capture—has often responded to governance gaps by creating new agencies or commissions instead of strengthening existing institutions. Recent attempts to introduce additional entities, despite their functions already being provided for under the PIA, raise legitimate concerns about institutional coherence. The proliferation of agencies risks increasing transaction costs, weakening accountability, and reintroducing discretionary oversight into a framework that was deliberately designed to be rule-based.
Efficiency across the petroleum value chain depends as much on institutional effectiveness as on physical infrastructure. Regulators with clear mandates, adequate capacity, and strong enforcement authority consistently outperform fragmented oversight arrangements. As Nigeria approaches 2026, restraint in institutional expansion will be as important as the reforms themselves.
Key sectoral challenges—crude oil production shortfalls, incentive design, domestic refining capacity, and gas development—are fundamentally governance issues. While the PIA provides a strong foundation, its success depends on consistent application rather than selective interpretation. Resorting to institutional duplication instead of institutional strengthening risks undermining policy credibility. Effective governance is also central to attracting investment.
In an increasingly selective global energy market, capital flows toward jurisdictions with stable policies and predictable regulation. Countries such as Guyana and Namibia have attracted investment not merely because of geology, but because of governance clarity. However, Nigeria has clear advantages: a large domestic market, vast gas reserves, established infrastructure, and regional energy hub potential. Yet these strengths will only translate into sustained investment if reforms are credible and enduring. By 2026, investor confidence will hinge less on incentives and more on the consistency, integrity, and reliability of Nigeria’s petroleum governance framework.
Summary and Conclusion
Nigeria’s oil and gas sector faced considerable challenges in 2025, including persistent shortfalls in meeting OPEC production quotas, mounting fiscal pressures, and ongoing debates over targeted incentive frameworks. These challenges reflect deeper structural and institutional weaknesses that cannot be resolved through policy announcements alone. Rather, they require the consolidation of credible, rules-based institutions capable of delivering consistency, predictability, and discipline.
The future trajectory of Nigeria’s oil and gas industry will be shaped less by reserves, quotas, or incentive packages than by the quality of governance. As the sector evolves into increasingly complex value chains, its central challenge is no longer the absence of ideas or legislation, but weaknesses in enforcement, institutional capacity, and the consistent application of economic logic in decision-making. With the era of easy petroleum revenues fading, the imperative has shifted toward managing transition, strengthening institutional discipline, and prioritizing sustainable value creation. Progress in these areas could position 2026 as a year of tangible consolidation—characterized by expanded domestic refining and gas utilization, reduced import dependence, enhanced regulatory credibility, and a stronger development orientation.
In summary, Nigeria’s long-term success in the oil and gas sector will depend not on the abundance of its resources, but on the depth, integrity, and consistency of its governance. In a value-chain-driven industry, effective governance remains the decisive driver of sustainable value creation. If Nigeria succeeds in strengthening reform implementation, aligning incentives with established regulatory frameworks, and grounding decisions in sound economic principles, 2026 could mark an important year of consolidation and transition. Absent such progress, however, the sector risks remaining trapped in a cycle of underperformance and reactive policymaking.
OMOWUMI O. ILEDARE, PhD, Sr. Fellow USAEE, Fellow NIPetE, Fellow EI, Professor Emeritus, Louisiana State University, Baton Rouge, USA & Executive Director, Emmanuel Egbogah Foundation, Abuja, Nigeria.
