BH 2026 Economic Outlook: Energy, power face contrasting prospects

– Oil remains a driver, while power  grapples with endemic woes

Nigeria’s economy will sustain its growth trajectory in 2026 by expanding to between 4 to 4.4% percent in 2026, Business Hallmark’s 2026 Economic Outlook for Africa’s most populous nation is projecting.

The expansion will be largely driven by the  energy sector, which emerged as one of the fastest growing economic sectors in 2025, after it responded positively to several stimuli, especially the oil and gas reforms enacted by President Bola Tinubu, which helped  stabilize the struggling industry; spurred exponential growth in capacity of indigenous oil companies, as well as attracting heavy investments in offshore and onshore fields from International Oil Companies (IOCs).

In 2025, Nigeria’s energy sector performance delivered mixed outcomes across the oil and gas, coal exploration, and electricity sub-sectors, with the oil and gas sector coming out on top.

According to documents released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), upstream activity showed measurable improvement in 2025.

Growth in Upstream

For instance, the nation recorded 18 active rigs in November 2025, compared to 11 in November 2024. This massive jump in active rigs represents 63 per cent year-over-year increase.

Owing to increased exploration activities, Nigeria produced an average of 1.8 million barrels per day in 2025 (condensate inclusive), up from about 930,000 and 1 million barrels per day in 2023 and 2024 respectively.

In the same vein, gas production recorded a massive surge in 2025, standing at 6,997 million standard cubic feet per day in October, as against the total 2.5 trillion cubic feet produced in 2024.

This figure is not inclusive of the 1.44 million standard cubic feet non-associated gas (natural gas produced in fields that do not contain crude oil)  produced in the same period.

Like its oil and gas subsector, the Coal mining industry turned out to be one of Nigeria’s fastest-growing sectors in 2025. From a minus 22 per cent decline in the first quarter of 2025, the industry recorded a 57.5 per cent growth in the third quarter of the same year, earning substantial revenue for the nation. The mining industry’s growth trajectory is expected to be sustained in 2026.

Unfortunately, out of the three legs of the nation’s energy sector, the Electricity subsector has been a disappointment. Despite the injection of billions of dollars into the sector, the industry has struggled to provide stable power to  homes and industries locally.

According to available data, electricity generation has stagnated at around 4,000 megawatts to 5,500 megawatts, as against the 30,000 megawats needed by its over 200 million citizens and businesses.

Expected Positive Performance

BH analysis of current and future trends in the nation’s energy sector showed that aided by subsisting factors, the sector will outperform other economic sub-sectors like it did in the previous year.

Some of the factors that will help the energy sector on its path to growth and consolidation include ongoing reforms, which experts agree will spur confidence and increased Final Investment Decisions (FIDs); stability in international oil prices due to expected thaw crises in Europe  and the Middle East, and increased participation of indigenous oil firms in exploration activities, especially in marginal fields abandoned by IOCs.

IMPACTFUL REFORMS

One of the drivers of growth in the nation’s energy sector is the reforms initiated by the administration of President Bola Tinubu in the oil and gas industry.

Since these reforms were implemented in late 2023, they have helped in opening up the energy sector to massive development. For instance, the Tax Incentives for Deep Offshore Oil and Gas Production, in accordance with the Oil & Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order 2024 has attracted FIDs to the tune of over $10 billion to the industry in just two years.

Some of the FIDs are the $5 billion Bonga North Deep-waters investment by Shell Petroleum; TotalEnergies’ $566 million Ubeta Gas Project and Shell’s $122 million Iseni Gas Project.

Upon completion, these massive projects and others are expected to help Nigeria to substantially drive up its oil and gas production and revenue.

Also, President Bola Tinubu’s Executive Order empowering industry regulators to quickly resolve all outstanding issues arising from exiting IOCs divestment of their assets have turned out to be the magic wand by allowing indigenous oil firms to compete favorably with IOCs after idle oil wells were handed over to them.

Rising Production Output

According to BH findings, the resuscitation of abandoned wells by indigenous oil firm have added between 450,000 to 550,000 barrels per crude oil to the nation’s daily production in the last one and half years.

For instance, Nigeria’s biggest indigenous oil firm, Renaissance Africa Energy Company Limited (RAEC), announced in August 2025 that it ramped up oil production to over 230,000 barrels per day at the end of June 2025, from 100,000 bpd in March.

This accretion, 130,000 bpd, came on the heels of its acquisition of Shell Petroleum Development Company’s (SPDC) onshore assets in Nigeria.

RAEC, a consortium of four local and one international oil companies, namely ND Western, Aradel Holdings, FIRST Exploration and Petroleum Development Company, Waltersmith Group and Petrolin, is currently activating three dormant wells in order to achieve a production target of 300,000 before the end of January 2026.

One of the facilities, the Belama flow station, is a high-capacity asset capable of producing 25,000 bpd.

Also at the forefront of Nigeria’s resurgent oil and gas industry are Seplat Energy Plc, Oando, Heirs Energy, Natural Oilfield Services Ltd (NOSL), FIRST Exploration and Petroleum Development Company (FIRST E&P), Oriental Oil Resources Limited, Addax Petroleum Nigeria Limited, Aiteo Oil, AMNI International Petroleum Development Company Ltd, Consolidated Oil Limited, Dubri Oil Company Ltd, Emerald Energy Resources Ltd, Lekoil Nigeria Ltd, Yinka Folawiyo Petroleum Company Ltd and  others.

Largely to the dogged and  spirited efforts of these local oil firms, the nation’s oil and gas output has risen from a 32-year low of about 950,000 barrels per day and 694,056 standard cubic feet per day (scfd) in August 2022 to 1.8.5million barrels and 9 million standard cubic feet per day respectively in December 2025.

These leading local energy firms and their relatively smaller, but vibrant and determined counterparts, BH findings revealed, are currently responsible for the production of over 60 percent of Nigeria’s current crude oil and gas output.

Barring unforseen shocks, the local firms, alongside major international oil firms, are expected to lead the charge for the Federal Government’s industry production target of 2.06 million barrels per day and budget estimate of 1.8 million bpd at a benchmark price of $64.85 per barrel.

The Federal Government’s budget production estimate translates to about 260,000 barrels more than the 2025 average production output of 1.8 million barrels per day.

At the end of trading on Friday, 9th January, 2026, WTI Crude closed at $59.12, while Brent Crude closed at $63.34. Meanwhile, Nigeria’s three major oil grades, Bonny Light, Brass River and Qua Iboe closed at $65.08, $64.64 and $64.54 respectively.

If crude oil production estimates and price benchmark for 2026 hold according to BH estimates, the oil and gas sector will again end up as one of Nigeria’s fastest growing economic sector.

More Refining Capacity

Buoyed by the full deregulation of the nation’s midstream and downstream petroleum sector, local refiners, led by the massive Dangote Refinery in the Ibeju-Lekki area of Lagos, will continue to reshape Nigeria’s refined petroleum products industry in 2026 as they did in 2025.

Since the refinery started operations in January 2024, it had helped Nigeria save over $5 billion in foreign exchange that would have gone into importing refined petroleum products from abroad.

The 650,000 barrels per day capacity refinery, apart from saving Nigeria huge FX in import bill, has created thousands of jobs, transformed the nation into a regional energy hub, contributed to foreign reserves, as well as ensure national energy security.

With the completion of a scheduled expansion of the refinery to 700,000 barrels per day capacity before the end of the year, and the ramping up of production at the facility, Nigeria’s economy is expected to grow at a much faster rate in 2026.

The refinery will also help in freeing Nigeria from its unsustainable dependence on imported refined petroleum products. For instance, Nigeria spent $2.6 billion on fuel importation in first quarter 2024, compared with $1.2 billion spent on importing refined petroleum products in Q1 2025. This feat came about as a result of Dangote Refinery’s continued supply of products into the local market.

In the same vein, BH projects that the Coal Mining subsector will beat last years performance by a wide stretch.

Power Sector: Nigeria’s sick Child

However, the electricity power subsector will likely continue to drag down the rest of the energy sector despite government’s efforts to lift it out of the doldrums.

In a bold move to free the power sector from its shackles, President Bola Tinubu implemented deeper structural reforms, including the signing into law the Electricity Act 2023 soon after assuming office.

The Act, which decentralized the electricity market, enables state governments to independently generate, transmit, and distribute power.

This has triggered the emergence of state-level electricity markets for the first time in history, allowing regions to design local energy solutions tailored to their economic needs.

Already, several states, including Lagos, Oyo, Enugu, Abia, Ekiti, Ondo and Edo have set up their own electricity regulatory bodies to superintend how electricity is generated, sold, and regulated in their states.

However, teething problems, such as the centralization of electricity transmission in the hands of the Federal Government-owned Transmission Company of Nigeria (TCN), continued exit of heavy power off-takers from the national grid, tariffs freezing and huge indebtedness to power operators, have continued to hinder the growth of the power industry.

While the nation’s power sector has received over $2 billion in fresh capital since the current administration took office in May 2023, power generation, transmission, and distribution have not seen proportional gains.

With average power generation hovering between 4,000 to 5,000 megawatts, far from the about the 30,000 megawatts needed to guarantee energy security, many Nigerian homes and businesses have suffered from frequent power outages.

As a result, many wealthy individuals and companies have exited the national power grid to generate their own electricity. The development has contributed to the national grid becoming unstable, experiencing frequent shutdowns.

Huge Unpaid Debt

To worsen the situation, industry operators are owed N4 triilion in unpaid debts, with electricity generating companies (gencos) and gas suppliers accounting for over 50% of the outstanding debts.

In several reported instances, oil companies cut off gas supply to gencos, while gencos also stopped supplying power to the national grid in an attempt to recover their debts, thus throwing the nation into constant blackouts.

The accumulated debt, BH findings revealed, balloon because of the successive administrations decision to freeze tariff for fear of sparking social unrest.

With the conditions that have stalled the growth of the power industry largely unresolved, BH is projecting that the nation’s energy sector will again, deliver mixed outcomes across its sub-sectors in 2026.

While the coal and petroleum sub-sectors will witness measurable improvement in the new year, problems haunting the power sector will persist, with the subsector likely to record another poor performance in 2026.