Nigeria may have just 10 to 15 years before demand for its most prized export oil plateaus, and begins to drop as a result of technological innovation and development of alternative energy sources according to an assessment included in the prospectus for Saudi Aramco’s initial public offering (IPO) seen by BusinessDay.
The release of the Saudi Aramco IPO prospectus is putting a fresh spotlight on the big question; the date when global oil demand will peak, a development Africa biggest oil-producing country may not be prepared for.
The Kingdom of Saudi Arabia last week officially launched the IPO for its state-owned oil company Saudi Aramco, announcing that a domestic listing will happen in early December.
The document revealed Aramco used a forecast from industry consultant IHS Markit Ltd which forecasts oil demand to peak around 2035 before levelling off, but that the inflection point could occur by the late 2020s.
The timing of peak demand has big repercussions for the planet and the strategy and future of oil producers most especially countries like Nigeria which currently utilizes proceeds from the sale of the commodity to fund up to 60 percent of it national budget and 90 percent of the budget for a majority of the 36 States in the country.
The 658 page prospectus seen by BusinessDay makes the case that the world’s biggest oil producer Saudi Arabia is very nicely positioned to increase market share in a world where the global thirst for oil is flat or declining.
For many industry watchers, Aramco’s prospectus and the flop of Brazil’s big offshore auction late last week are signs and expectations on the part of many investors that oil has entered its twilight years.
Roughly 3,000 new offshore projects sanctioned between 2010 and 2014 have either barely generated any value for oil companies or are expected to generate none at all, according to a recent study published by Rystad Energy, a Norway based consultancy firm said.
Apart from Saudi Arabia, another oil-producing nation, Norway has a firm petrol car ban deadline of 2030. China, the world’s largest car market plans to ban the production and sale of vehicles powered only by fossil fuels. So are India, France and Britain.
Also, Oil majors such as ExxonMobil and BP engineers are working on advanced batteries while Royal Dutch Shell scientists are working on hydrogen fuel cells.
However in a situation where other bigger oil-producing countries are reducing their economic risk to crude oil or a scenario where the state-owned behemoth Nigeria National Petroleum Corporation (NNPC) keep making losses, stakeholders have questioned why the government keeps spending money it doesn’t have on new exploration of oil rather than creating a favourable investment climate to attract investors.
After about 40 years, NNPC returned the search for oil in the North in February 2019, a decision which generated debate concerning the investment decision and viability of the search, primarily championed by President Muhammadu Buhari.
Buhari had insisted that the need to explore oil in the frontier inland basins remained a national priority that must be sustained for the country’s economic benefits, adding that oil and gas were critical to Nigeria’s economy of today and the future.
Ademola Henry, Team leader at the Facility for Oil Sector Transformation (FOSTER) said other state-owned oil companies like Saudi Aramco and Norway’s Equinor are looking at life beyond So what’s NNPC understanding on the future of oil?
“Other Oil corporations are investing in renewable energy, what is Nigeria doing?” Henry asked.
Another worrisome fact is the fact that India, the largest consumer of Nigerian oil plans to ban petroleum-powered cars in 2030. Early this year, the Indian government approved the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles scheme, offering subsidies based on the battery capacity for automobiles, a scenario that means Nigeria might struggle to find buyers for crude oil in the near future.
Currently, data from Debt Management Office (DMO) revealed the country has a total debt of N25.7 trillion, most of which has largely been spent on recurrent expenditure, and not on critical infrastructure needed to diversify its economy and attract investments to grow its non-oil sector. The country’s refineries are in a shambles, necessitating imports of the products and subsidy, which deprived the economy of N10 trillion between 2006 and 2018, according to civil organization BudgIT.
The developments have already pushed the number of poor Nigerians to 91 million, while unemployment figure settles at 20.9 million.
“Nigeria needs to ensure sustainable fiscal management that is resilient to global oil price cycles. Improving tax collection and administration have become imperative for achieving national growth objectives,” PricewaterCorporation (PwC) said in its publication Nigeria: Looking Beyond Oil.
DIPO OLADEHINDE
