Nigeria losing out as oil demand shrinks in 15 years

In as little as 15 years from now, the era of oil will be over and not only is Nigeria unprepared for life after oil, it’s current fiscal and regulatory inadequacies are causing it to lose investment and market share to other African countries.

The warning of the World Energy Council (WEC) that peak oil – the point when the maximum rate of crude oil extraction is reached, after which the rate of extraction is expected to begin to decline forever – is less than two decades away but Nigeria’s lethargic government is straitening deck chairs while a storm gathers.

“Nigeria’s fiscal policy discourages investments and lack of transparency makes investors uncomfortable,” said Lekan Akinyanmi, CEO of Lekoil, in his presentation at the Nigerian Association of Petroleum Explorationists (NAPE) 34th Annual International Conference & Exhibition held at Eko Hotels and Suites, Lagos.

A comparative analysis of Nigeria’s fiscal terms against other African countries shows that while Nigeria charges royalty rates of as much as 20 per cent, Namibia, Senegal and Mozambique do not charge more than 10 per cent. While Nigeria taxes its investors in oil exploration as much as 85%, Senegal, Namibia, and Mozambique charge less than 35 per cent.

“The implication of this is very clear, an investor will move to a country where he can get the best value,” said Akinyanmi.

Akinyanmi further said that the key to attract investors is to provide them comfort, regarding sanctity of contracts, ease of doing business, transparency and reduce risk of investing in the country.

Successive Nigerian governments have demonstrated utter disregard for the sanctity of contracts as evidenced by moves to amend the NLNG Act and renege on Production Sharing Contracts (PSC) agreements whose terms are clearly unfavourable but were agreed upon because of the country’s aversion to risk.

The imperative of clearing these hurdles to investments in exploration is that slow oil demand is forcing home the reality that the commodity is on the way out.

“Everybody has the mind-set that oil is here forever, but analyses done by WEC has shown that the concept of stranded resources is real, peak oil is just 15 years away. That means even if you have the oil, there is not going to be market for it anymore,” said Timi Familusi, leader, sub-Saharan Africa at Accenture Strategy Energy, in his presentation.

This situation, according to him, is driven by growth in renewable energy adoption and a fall in infrastructure cost, electric vehicles, deeper awareness of climate change impact, increased global commitment to cut carbon emissions and non-recovery of oil prices.

Familusi pointed out it is no longer about big oil, it is about fast oil. Investors would look to shale oil in the US and other places because they come on stream faster than deep water or onshore exploration.

Experts say there is a growing shift from capital intensive projects with long delivery dates to faster cycle time projects as exemplified by the US shale oil production.

“Most of the investors are looking for small multi billion dollars projects that would get up quickly, rather than big projects that will take years to develop.”

The panel members at the event urged the Federal Government to develop a strong hydrocarbon management strategy that will grow frontier basins without the challenges that have stalled exploration in other parts of the country.

“How, many countries have a PSC? And why can’t Nigeria develop a policy where its crude is produced mainly for domestic market?” asked Ebi Omatsola, renowned international petroleum explorationists and former head of exploration at Shell Petroleum Development Company of Nigeria.

In view of the current exploration in the north, Oluwafesyisola Adegoke, geology professor at University of Ife, warned the Federal Government to carry out comprehensive studies before drilling to prevent what he called ‘drilling a dry well’.

Olusola Bello, Kelechi Ewuzie & Isaac Anyaogu