oil and gas

Energy Transition: What is Nigeria’s Plan B?

January 3, 2022

For as long as any Nigerian can remember, the campaign for economic diversification has almost been eternal and transformed into an anthem of sorts. Expectations have always been that government, with near-absolute control of the economy and state resources, will spearhead such revolution away from sole dependence on crude oil. But what do we have in reality? Diversification has emerged just a nice-to-have that should be left to someone else to implement. This is regardless of the fact that politicians frequently flaunt slogans around diversification to stir up their political bases or to deceive gullible Nigerians. From one regime to another, we have been heavy on sound and empty in deed.

This brings me to the dilemma and probably a catastrophe the country would contend with in the future if the current nonchalance persists. Enugu grabbed my attention for two things as a kid growing up in the East in the 70s. It was from this town that Col Emeka Odimegwu Ojukwu, my eventual hero, marshaled the Biafran side of the civil war. The other reason was the pseudonym, Coal-City, which the city still bears. On its own, Enugu, which means ‘top of the hill’ in Igbo language, is also remarkable.

Embedded underneath Enugu were huge deposits of coal from which the city earned its famous sobriquet. Before the turn of the century, the global economy was largely powered by coal after it was discovered as a major source of heat and light. Its discovery in Enugu in 1909 raised the city’s profile as an administrative and economic base, and further strengthened the economic mission of Britain, who exploited the mineral for consumption and exports. Such interest prompted the gruesome massacre of 21 miners at Iva Mine in 1949 by the colonial police over the workers’ demand for better working conditions.

Coal was a major contributor to the GDP of both the national and regional governments as it was hugely utilized in domestic and industrial uses. It was the mainstay of the power generation and rail systems in Nigeria. Its decline however began from the 70s as attention shifted to petroleum. The coal deposits still lie underneath Enugu but the mines have long gone cold. Enugu is today dominated by civil servants, traders and the service industry. The same situation obtains in several states across the Middle Belt where coal exists.

At the global level, coal was the engine of the world economy, contributing enormously to meeting energy needs. It still powers some sectors among the major economies. It also had its hazards. Then the tide turned. Issues around environmental concerns and the discovery of new technologies gained ascendancy at the turn of the century. Beginning from the late 30s, hydrocarbons was discovered in commercial quantities across the world. Within a decade, it emerged the paramount energy source and effectively shoved “King Coal” aside.

The technology for drilling oil came cheaper and simpler, its refining yielded several useful byproducts and it was adjudged more climate-friendly as emissions from it were much lesser than coal’s. Petroleum became instrumental in advancing economic progress.
Few years after becoming a major energy source, a number of oil-producing countries rapidly transformed into economic hubs and frontbenchers in oil policy decisions. The Organization of Petroleum Exporting Countries (OPEC), which Nigerian joined in 1971, emerged a powerful cartel in the global oil marketplace.

In response, Nigeria, Africa’s current biggest oil producer, practically abandoned agriculture, which was the economic foundation up to the 60s. Even today, the country depends on oil exports for 90 percent of its national revenue and 9.25 percent of gross domestic product (GDP) in Q1 2021. Agriculture went on its knees.

But in a twist of fortunes, the fate, which befell coal five decades ago now stares oil in the face. The combustion of petroleum has become a major emitter, contributing to high levels of carbon dioxide that propels global warming. The Intergovernmental Panel on Climate Change (IPCC), in a report, stated that global warming is causing increased changes to rainfall patterns, oceans and winds in all regions of the world and some of these trends are irreversible. The potential depletion of fossil fuel resources also triggered concerns in policy circles.

After several years of partisan brickbats, the global community gathered in Glasgow, the Scottish capital, last November, with one item on the agenda: a referendum on the future of fossil fuels for their role in global warming. The earth has been heating at an alarming rate, which, if unchecked, could lead to its melting. Africa in particular faces a dire fate being at the heart of the tropics and with very minimal effort at checkmating deforestation and desertification.

After two weeks of exchanges in Scotland, over 100 countries agreed to cut methane emissions, transition to clean energy and decarbonisation. In addition, national governments, cities, states, and car manufacturers signed the “Glasgow Declaration on Zero-Emission Cars and Vans” in which they resolved to stop the sale of internal combustion engines by 2035 in major markets, and worldwide by 2040.” “Eleven countries went further by creating the ‘Beyond Oil and Gas Alliance’, to jointly set an end date for national oil and gas exploration and extraction.”

Here’re some of the commitments by major economies on the energy transition. The European Union, Nigeria’s second largest oil importer, after India, collectively agreed to adopt cut green gas emissions by 55 percent by 2020. The US, the world’s largest economy, aims at 50-52 percent reduction in greenhouse gas pollution from 2005 levels in 2030. Japan, China, and India have set similar targets.

Against this evolving trend, what has been Nigeria’s policy on energy transition? At present, the country lacks a coherent strategy. What we hear are intermittent pronouncements about oil demand not abating any time soon. Officials of the incumbent government, just like others before it, are mostly indifferent. Their attitude is informed by an unverifiable confidence that oil will remain in high demand over the next 40 years. Malam Mele Kyari, group managing director of the Nigerian National Petroleum Corporation (NNPC) and Chief Timipre Sylva, Minister of State for Petroleum Resources, are advocates of this school.

Their position is also shared by some industry operators, including Mike Wirth, chief executive of Chevron, who said at the World Petroleum Congress in Houston, that, “Our products make the world run.” Similarly, the chief executive of Aramco, Amin Nasser, said, “I understand that publicly admitting that oil and gas will play an essential and significant role during the transition and beyond will be hard for some. But admitting this reality will be far easier than dealing with energy insecurity, rampant inflation and social unrest as the prices become intolerably high and seeing net zero commitments by countries start to unravel,” the Financial Times quoted him as saying.

Nonetheless, there is general conviction that fossil fuels and biomass will remain a large part of the energy mix for over the next ten years. Then the plunge starts, gradually. Flowing from the Nigerian standpoint, official attention has focused on attracting investment to the sector in order to expand production in offshore operations. Their assumption ignores the fact that presently the country finds it difficult to get buyers for its oil and such sales are done at heavily discounted rates. An illuminating report captured the situation thus: “Combined, investment in the upstream in the 13 members of the Organisation of Petroleum Exporting Countries declined from $40 billion in 2017 to $30 billion in 2019. Among major oil producers, Nigeria’s situation is precarious.

With an installed capacity of 3.0 million barrels per day, production, including crude and condensates, has not surpassed 2.0mbpd since 2017, with output oscillating between 1.5mbpd to 1.9mbpd 2017 to 2019. On the back of OPEC quotas, reduced demand, oil theft and sabotage, and the COVID-19 setback, production has gone barely above 1.5mbpd since late 2020, plunging to 1.25mbpd in September 2021.”

Nigeria may as well ignore the entire din about energy transition and develop local capacity to independently run the entire industry. This would ensure self-sufficiency. An ancillary is to develop the agriculture industry for food security and export. In so doing, imports will drop while earnings from agric exports will sustain income generation.

The trouble with this trajectory is that presently and in the foreseeable future, Nigeria lacks the local capacity to administer any aspect of the industry, not even the upstream segment where the running of refineries has proven a herculean task. The withdrawal of foreign technology and expertise means the crumbling of the industry. On their own, Nigerian banks lack the resources to fund signature projects in the sector, a situation that requires collaboration with their foreign counterparts. Unfortunately, the foreign banks, under pressure from their home governments, are steadily retreating from such investments.

Curiously, several African countries have come to terms with the energy transition. One report indicates that 12 out of the 21 African countries it surveyed are already relying on clean energy as an important part of their power mix. Meanwhile, Saudi Arabia, the world’s largest oil producer, and pivot of the OPEC cartel, has outlined measures for a seamless transition to renewable energy.
As more countries take firm positions on renewable energy and activist shareholders become more aggressive, Big Oil will ultimately buckle and toe the line. Such moves are already discernable. Apart from completely rebranding itself as a broad energy supplier, TotalEnergies has outlined a clear path to renewable energy, yielding a template applauded across board. Similarly, BP has repositioned with solid renewable energy targets and a defined roadmap to decarbonization.

Also, oil firms were said to be facing a workforce crunch as the renewables industry is becoming increasingly attractive. According to a survey conducted by Oilandgasjobsearch.com, over half of all oil workers are looking to make a move to renewables. About 43% of all oil and gas workers have a desire to leave the industry altogether within the next five years. “Investment that was going into exploration work previously is now going into renewables markets, largely by acquiring licenses and the transition from off-shore gas to off-shore wind, but mainly in operating in new areas. Some large companies have been paying premiums to access renewables markets, I hope it works out for them”, says Glynn Williams, CEO of Silixa.]With agriculture largely unproductive and abandoned to rural dwellers, the anchors Nigeria needs to commence the journey towards diversification and renewable energy are forlorn. So, similar opinions as this will probably resonate years from now as the motion without movement continues apace.

thisdaylive



Top News



oil and gas

The world needs smarter policies for the...
January 20, 2022
Outlook for oil remains positive in 2022...
January 20, 2022
Total invites bids for grave relocation ...
January 19, 2022