• Sunday, May 19, 2024
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What Trump or Biden presidency means for Nigeria’s economy

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The Nigerian economy, where crude oil accounts for over 90 percent of foreign currency revenue, will be impacted by the energy policy of the next president of the United States, who have moved from a major buyer to producer of crude oil.

Over the years, the US president’s policies have impact on the Nigerian economy. For example, US wars in the Middle East have spiked the price of crude oil with higher earnings for Nigeria, and tariffs on Chinese goods have boosted export of some of Nigeria’s commodities.

A lower US Federal Reserve Interest rate makes emerging market securities attractive on a yield basis, and a trade war between the US and China could either boost the volume of trade between Nigeria and China or hamper it. Even Nigeria’s electricity tariffs are benchmarked against the US inflation rate.

President Donald Trump’s energy policy provides a basis to understand how the next four years will come out while former Vice President Joe Biden’s energy plans provide a window into how the energy sector would be impacted.

Donald Trump

Under Trump, the US has pushed an aggressive policy of energy security and dominance in the global oil market. It has expanded offshore oil and gas drilling and opened more leases to develop offshore drilling.

Trump has acted aggressively to increase exports of energy resources to the global market, allowing financing for coal and fossil energy projects.

The American president approved the Keystone XL and Dakota Access pipelines and announced the approval of the New Burgos Pipeline, a cross-border project that will export US gasoline to Mexico.

The Trump administration reversed President Barak Obama’s moratorium on new leases for oil and gas development on federal lands, and under his administration American LNG export opportunities increased.

The US is now the top oil-producing country in the world, with an average of 19.51 million barrel per day (mbpd), which accounts for 19% of the world’s production.

Outside the US, President Trump’s tight enforcement of sanctions against Iran and Venezuela has seen their oil exports fall by a combined 3mbpd.

Under Trump, tensions with Beijing have flared to the point that some analysts expect a decoupling of US-China ties, which could have a massive trade impact, including for Nigeria, as the two world superpowers account for about 34 percent of the global crude oil.

There are indications that four more years of Trump will solidify the US’ position as a dominant energy player.

While America wants to cripple OPEC’s dominance in the global oil market, it has no intention to wreck the global oil market. In April, following a price war between Russia and Saudi Arabia, which crashed oil prices to 20-year lows, Trump intervened and achieved a truce.

Five years ago, the World Energy Council warned 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, but this will not matter much in Trump’s next administration.

“Discussion of peak oil has moved to a discussion of peak demand,” Christoph Frei, World Energy Council secretary general recently said, but America will continue to pump, and so will Nigeria.

OPEC, the cartel that controls a third of the world’s oil, says it expects demand to level off by 2040, with crude consumption set to peak at just over 109mbpd before declining gradually thereafter.

Trump denies the risks of climate change, took the US off the Paris Accord and four more years of him will mean ambivalence towards the climate threat and more investments for fossil fuel energy projects.

Nigeria and other African nations already suffering the impact of climate change will experience severe effects including frequent rains, droughts and farmer/herder crisis.

OPEC does not deny the risks of climate change but it expects major consuming countries such as China and India, along with other developing regions, to continue burning and processing fossil fuels for decades after the internal combustion engine is regulated off Europe’s roads by carbon-reducing policies and taxes. It is also counting on the rising global population.

This offers Nigeria only a short while to reform its oil sector and derive real value from the commodity, but it also means that competition will be heightened.

Joe Biden

Under the Obama/Biden administration (2008 – 2016), the energy strategy was to boost domestic energy production, diversify America’s energy portfolio, and promote clean energy innovation.

Obama did place some restrictions on fracking on federal land but producers found alternatives, and fracking now accounts for half of all US oil output. In fact, production jumped from 5.1mbpd in 2009 when he took office to 8.9mbpd in 2016.

This context is important because Biden plans to build on the Obama era policy. Biden says he will take actions including requiring aggressive methane pollution limits for new and existing oil and gas operations; developing rigorous new fuel economy standards aimed at ensuring 100% of new sales for light- and medium-duty vehicles will be zero emissions and annual improvements for heavy-duty vehicles.

Biden will invest $400 billion over 10 years, as one part of a broad mobilisation of public investment, in clean energy and innovation. This could trickle down to developing nations, including Nigeria, driving an aggressive push for more renewable energy investments and help deter the impact of climate change.

The next US president’s approach to Iran could have the biggest global supply impact if up to 2mbpd of Iranian oil returns, either through Biden re-joining the nuclear deal or unpredictable direct talks by President Trump.

Rapidan Energy Group predicts 1.8mbpd of Iranian exports could return by end-2021 under a Biden White House, a year earlier than under Trump negotiating scenarios.

“Saudi Arabia and Russia would be unlikely to make disproportionate cuts to make way for 1 million-2 million bpd from Iran, which could accelerate the next shift back to a market-share strategy,” Platts Analytics said.

President Maduro’s victory in the 2018 Venezuelan presidential election led to oil sanctions from President Trump, a development that had a positive effect on oil prices.

Biden could grant Venezuela relief on humanitarian grounds, which could mean more oil. Easing restrictions on Venezuela’s state-owned PDVSA would potentially increase the country’s export to 500,000bpd and return to 2019 levels, but the country’s oil sector would remain hobbled without a change in government, debt relief, and foreign investment.