Nigeria crawling in a world racing away from oil

Countries in Europe, Asia as well as major oil companies are betting on green energy as concerns about climate change steer the world away from fossil fuels, but Nigeria is not moving fast enough to create policies that will drive investments into a low-carbon energy future.

Africa’s biggest oil producer, after 20 years, is yet to pass a comprehensive Petroleum Industry Bill and the version under consideration by lawmakers does not deal with energy transition. Diversification is interpreted only in terms of a renewed focus on gas and renewable energy is largely a grant-funded enterprise.

Yet, 11 countries including Sweden, Costa Rica, Nicaragua, Scotland, Uruguay, Germany, Denmark, China, Kenya, Morocco and USA are powering towards a low-carbon future by embracing solar, wind and geothermal energy.

For example, Sweden has an ambitious goal to eliminate fossil fuels from electricity generation by 2040 and Costa Rica, which already produces 95 percent of its electricity from renewables, aims to be entirely carbon-neutral by 2021.

Energy giant BP says it will cut its fossil fuel production by 40 percent by 2030 while its refining output will decline about 30 percent. Three months ago, Royal Dutch Shell was gutting 10 percent of its workforce, as part efforts towards low-carbon energy.

Nigeria risks a bleak future by not preparing for life after oil cash. By 2050, the country’s population would have doubled from current levels to 400 million but the government acts unaware of what is coming.

Some of the world’s major funds are also divesting from fossil fuels. The most recent is the New York State’s pension fund, one of the world’s largest and most influential investors with $226 billion in assets, which said it would drop many of its fossil fuel stocks in the next five years and sell its shares in other companies that contribute to global warming by 2040.

Nigeria should be more concerned because the global energy transition presents an existential threat. Analysts say Nigeria, in comparison with other producers, is not making enough investments or quickly creating and implementing the kind of policy that will secure a future without oil.

Early this month, Russia, a leading oil producer, said it would adjust budgeted revenues and expenses in view of declining price. Its president, Vladimir Putin, has appointed Anatoly Chubais, the former head of Rusnano, a state company that invests in renewables projects, as an adviser for sustainable development.

Saudi Arabia is investing $30 billion in the renewable energy sector by 2025 in order to diversify the energy mix.
Norway with a $1 trillion sovereign wealth fund is a leader in the green transition with the biggest share of electric cars per capita.

Read also: What Oil at $100 a barrel would mean for Nigeria, World Economy

India has become a top priority for America’s clean energy giant Tesla, whose market capitalisation of $473 billion is higher than Nigeria’s $448.1 billion Gross Domestic Product (GDP).

The United Arab Emirates (UAE), a geographically small state that holds some of the world’s largest oil reserves, is investing heavily in renewable energy and hopes to diversify its power generation mixture, primarily towards renewable sources, by 2050.

Analysts counsel the Federal Government to see the energy transition as a business opportunity to reduce dependence on crude.

Declining oil prices present a potent economic threat for Nigeria. At between $17 and $20 per barrel, Nigeria’s oil production cost is one of the world’s highest, production is challenged by insecurity, the refineries are inefficient, oil rent is volatile, yet both private and public debts are indexed on oil prices.

“Nigeria needs to take more urgent steps to develop a productive and diversified economy, in 2030, without which we could be looking at the ruins of a failed state,” said Niyi Awodeyi, who runs Subterra Energy Resources Limited, an investment firm keen on the energy sector.

The slump in oil prices has forced upon Nigeria the urgency of exploiting gas. The Federal Government declared 2020 a year of gas and has begun implementing a programme to expand local use of the fuel. The government also recently began a national gas-powered vehicles programme as well as investments in pipeline expansion like the AKK pipelines.

“Nigeria has ridden on the back of oil for more than 50 years, now is the time to fly on the wings of gas,” said Tony Attah, managing director/CEO of Nigeria LNG (NLNG), at a recent conference. He called for a decade-long plan to deepen gas use locally for industries.

But even gas development has its challenges including the inability of projects to reach final investment decision (FID), divestments by international oil companies (IOCs) from onshore assets to focus on deepwater without requisite financial and operational know-how by local producers to take them over, poor regulatory policies to commercialise gas locally, and huge capital outlay to execute projects.

Regardless of the emphasis on gas, which presents Nigeria an advantage due to huge reserves, economic managers should know that it is still part of fossil fuel, said Ayodele Oni, energy lawyer and partner at Bloomfield law firm.

“We should, like Saudi Arabia, invest as a nation in renewables (similar to how Saudi invested in Tesla), not just targets in the power sector for the use of renewables, but NNPC actually investing in renewables, targeting energy efficiency and management,” Oni said.

The Federal Government as part of the Economic Sustainability Plan (ESP) said it would roll out 5 million new solar-based connections in communities that are not grid-connected, thereby creating a N7.5 trillion annual market opportunity to deepen current penetration rate of less than 5 percent of total market potential.

Under the Solar Connection Scheme, the Buhari-led government seeks to rapidly scale pay-as-you-go (PAYG) off-grid technologies to generate an additional N7 billion increase in tax revenues per annum and $10 million in annual import substitution.

The programme which kicked off December 1 still requires clarity on security for the concessionary loan and private sector participation, currently lacking, is crucial for its success.

“On paper, its sounds very good because they are making it compulsory that every project under the scheme will be undertaken locally, but the Central Bank ought to provide clarity on acceptable security and participating financial institutions,” said Chuks Umezolora, a co-founder of Auxano Solar, a local manufacturing/assembling outfit.

The lack of a cohesive national plan to engage with energy transition is impacting local producers, hard hit by the slump in oil prices. Many lack even the capacity for significant investments in green energy projects and are only now keen to ride out the storm of low prices induced by a ravaging pandemic.