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Nigeria’s long walk to energy transition

A toddler, twenty years ago, when Nigeria drafted its first comprehensive Petroleum Industry law, is now an adult yet the law is still marooned in the national assembly. Worse still, the version under consideration does not deal with energy transition.

Yet, many countries are powering towards a low-carbon future by embracing renewable energy sources and cutting carbon emissions. Sweden, for example, has an ambitious goal to eliminate fossil fuels from electricity generation by 2040.

The global energy transition is underway. Some of the world’s major funds are divesting from fossil fuels. The New York State’s pension fund, one of the world’s largest investor with $226billion in assets, this month said it will 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.

Realizing that energy transition presents an existential threat, oil companies and oil-producing countries are preparing for life after oil. Saudi Arabia is investing $30 billion in the renewable energy sector by 2025 in order to diversify the energy mix and Norway with a $1 trillion sovereign wealth fund, is funnelling money on clean energy projects.

Nigeria dithers

The oil market now requires output cuts to keep it lissome. Two years ago, it was so volatile from shale producers, geopolitical tensions in the middle east that even a tweet from America’s president, Donald Trump could upend the market.

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So when OPEC members and allies including Russia failed to agree on export curbs in March, producers began pushing insane volumes into the market setting off a price war between Russia and Saudi Arabia which rankled Nigeria’s creaking economy.

The coalition known as OPEC+ agreed to the largest single output cut in history back in April, but that reduction of 9.7 million bpd was subsequently scaled back to 7.7 million bpd in August and 7.2 million bpd at the start of 2021. Nigeria’s production was capped 1.412 million bpd.

Higher OPEC cut and lack of reforms sank Nigeria’s oil GDP to -13.89 percent, the lowest since the third quarter of 2016 and tipped economy into the second recession in four years.

Nigeria’s oil production cost of between $17 to $20 per barrel makes it one of the world’s most expensive. Yet in the face of these existential threats, the government is doubling down on fossil fuel.

In June, investors were invited to bid for marginal fields, the first one since 2003. Marginal fields are oil wells abandoned by oil majors because they may not be very commercially viable.

Nigeria is also seeking to grow refining capacity to exploit over 37billion barrels crude oil reserve. Government officials say we need oil to get out of oil, but waste, corruption, unwillingness to diversify feed dependence.

The Dangote Refineries and Petrochemicals is billed to refine around 650,000 barrels per day. NNPC’S 445,000 bpd capacity refineries is being refurbished to come on stream in 2023 and half a dozen modular refineries with close to 100,000 bpd refining capacity are being planned.

“Now is not the time to be all outbuilding mega new refineries,” said Uchenna Ibe, a chartered engineer and clean energy project expert.

Ibe said that If a project of similar magnitude as Dangote refinery is to be developed today, it would struggle to secure financing in today’s energy landscape because most of the model assumptions and scenarios analysis used would be unrealistic today.

For over two decades, government officials have prioritised importing refined petroleum products rather than maintaining the country’s refineries mainly because it provides an opportunity for graft. In 2012, government officials and private individuals were indicted for submitting invoices claiming billions of dollars for products that were not supplied.

This waste has become unsustainable forcing the government to bend to calls to deregulate the downstream sector but Nigeria may now be waking up at dusk because the much-touted energy transition is on the horizon.

“The boom is over,” said Wolemi Esan, energy lawyer and partner at Olaniwun Ajaiyi, a Lagos-based law firm. “Efforts by countries like the UK to arrest climate change emergency suggests that the crude market may be heading to a mare permanent glut.”

Another challenge is that electric vehicles are on the rise and countries are setting deadlines for banning petrol-cars. Only about 17, 000 Electric Vehicles (EVS) were on the world’s roads in 2010 according to the International Energy Agency (IEA).

By 2019, that number had swelled to 7.2 million, and 47 percent of which were in China. Nine countries had more than 100 000 electric cars on the road. At least 20 countries reached market shares above 1percent in 2019.

Transit bus electrification projects, cheaper cost of batteries, the shift from direct subsidies to policy approaches that rely more on regulatory and other structural measures – including zero-emission vehicles mandates and fuel economy standards could have a lasting impact on how the world moves.

“Our global EV forecast is for a compound annual growth rate of 29 per cent achieved over the next ten years: Total EV sales growing from 2.5 million in 2020 to 11.2 million in 2025, then reaching 31.1 million by 2030,” said analysts at Deloitte.

Deloitte expects that by 2030

China will hold 49 per cent of the global EV market, Europe will account for 27 per cent, and the United States will hold 14 per cent. EVS would secure approximately 32 per cent of the total market share for new car sales

These forecasts suggest that the African market and some parts of Asia could provide the last growth frontier for fossil fuels products but these markets also has some of the world’s poorest countries.

Shift towards gas

Nigeria’s vulnerability to the volatile oil market has done little to spur pragmatic policies that would steer the economy away from fossil fuels.

The government recently declared a decade of gas and launched a National Gas Expansion Programme (NGEP), a series of policy actions aimed at deepening gas for domestic use. With over 202 Trillion Cubic Feet (TCF) of proven gas reserves, it looks like a natural response.

The government also recently began a national gas-powered vehicles programme as well as investments in pipeline expansion like the 614km AjaokutaKaduna-kano gas pipeline with the capacity to transport 3,500 million metric standard cubic feet per day (mmscfd) of wet gas from the Niger Delta to other parts of the country.

“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).

But gas development is constrained poor fiscal and regulatory frameworks that discourage investments, lack of technical and financial capacity by local producers to develop assets acquired from international oil companies (IOCS).

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.

Sustainable energy transition

Industry experts have argued that African oil producers need to leverage their fossil fuel resources to grow their economies, power their industries and develop their infrastructure before embarking on ambitious energy transition programmes.

Over 600million people lack access to electricity validating the need to leverage gas but its people are poor. A Brookings Institute study found that one in three Africans—422 million people—live below the global poverty line. They represent more than 70 percent of the world’s poorest people.

The United Kingdom recently announced that it was exiting funding for fossil fuel overseas. Between 2010 and 2017, Nigeria benefited to the tune of £186million from the United Kingdom energy support programmes and secured another £195milion as aid to developing nation according to a report by Catholic Agency for Overseas Development (Cafod).

A significant chunk of developmental assistance from multilateral institutions could cease if African countries only focused on developing fossil fuels. Governments in Africa should create a coherent energy policy that will leverage renewable energy sources abundant on the continent.

Investments into the renewable energy space need not be cosmetic. In September, the Nigerian government as part of the Economic Sustainability Plan (ESP) said it wants to roll out of 5 million new solar-based connections in communities that are not grid-connected but little has been done in the way of pragmatic policy to operationalise it.

Currently, private investors and multilateral institutions are leading the charge in off-grid energy investments on the continent. The biggest investing firm in the Nigerian off-grid market, All On, was seeded by Shell Nigeria, accused of some of the worst environmental degradations in the country.

There are hundreds of renewable energy programmes across the country but to make a difference, these need to coalesce into a coherent strategy.

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