Some institutional investors and multilateral organisations like the World Bank and the European Investment Bank are placing a freeze on financing new oil projects, a development that could hurt Nigeria, largely dependent on oil.
This is why many oil producers are reforming their sectors and easing fiscal policies to get a head-start in the race to attract fast dwindling capital.
Oil projects are facing threats from pandemic-driven demand destruction, and a relentless call for mitigating climate change impacts by cutting back on funding oil projects is forcing executives to consider that vast oil and gas reserves may end up undeveloped.
Over 1,110 institutions have now committed to policies blacklisting coal, oil and gas projects from new investments. These include sovereign wealth funds, banks, global asset managers, insurance companies, cities, pension funds, health-care organisations, universities, faith groups and foundations, according to Canada-based Anadolu Energy.
READ ALSO: Buhari Stakes His Legacy on Oil Reform – Bloomberg
European Investment Bank (EIB), the EU’s financing department, has announced plans to bar funding for most fossil fuel projects.
Under the new policy, energy projects applying for EIB funding will need to show they can produce a kilowatt-hour of energy while emitting less than 250 grams of carbon dioxide, a move which excludes traditional gas-burning power plants.
The EIB’s decision comes after EU finance ministers last year unanimously backed the phasing out of funding of fossil fuel projects to help combat climate change.
Gas projects are still possible but would have to be based on what the bank called “new technologies” such as carbon capture and storage, combining heat and power generation, or mixing in renewable gases with the fossil natural gas.
Also, World Bank Group has previously announced it will cease to finance upstream oil project from 2020, claiming its decision would “align its support to countries to meet their Paris goals”.
Chief executives and board members from more than 30 banks met at the UN last year to pledge their support for the “Principles for Responsible Banking” which include alignment with the Paris Agreement. They should all be working on plans to phase out fossil fuel finance.
Other institutions that have expressed interest to divest include Norway’s sovereign wealth fund, the Catholic Bishops’ Conference of the Philippines, the Rockefeller Brothers Fund, the British Medical Association, Amundi Asset Management, Caisse des Depots, New York City, the City of Cape Town, KfW Group, Stockholm University, the Tate museums in the UK, Allianz Insurance, and St Mary’s Episcopal Cathedral, Edinburgh – the first cathedral in the world to divest.
For example, Norway which racks in about $1 trillion sovereign wealth fund that’s come handy in softening the impact of the pandemic also prides itself on being a leader in the green transition. It’s got the biggest share of electric cars per capita, sponsors rainforest preservation across the globe and even claims its oil is just about the cleanest in the world thanks to low emissions in the production phase.
The present development puts Nigeria, Africa’s largest economy, in a precarious situation. Oil exports account for more than half of its government revenue and 90 percent of its foreign-exchange earnings.
According to Tony Attah, CEO of Nigeria LNG Limited, some multilateral organisations are increasingly withholding financing for fossil fuel-based projects, indicating that time is running out for Nigeria to harness its gas potential.
“Some investors told me they have a moratorium from the World Bank and IMF not to finance anything linked to oil in any fossil fuel power plant,” Attah said at BusinessDay Energy series.
Experts and economists have clamoured for the diversification of an economy that has for too long been subjected to volatile oil price fluctuations.
“Nigeria must be bold to declare a decade of gas and establish a 10-year window to attract the needed investment,” Attah said.
Nigeria’s gas reserves are the most extensive in Africa and in the top 10 globally. According to the International Energy Agency (IEA) in Paris, gas-based economies were largely shielded from the impact of the pandemic in the first quarter as prices held up.
In April 2020, when oil was sold at negative prices, supply crippled, and cargoes of oil were stuck on water; eyebrows were raised as to how long the economy would survive on this dependency. Forex inflows diminished as the CBN was forced to devalue the naira in line with global realities, after several months of playing hardball.
An unprepared life beyond crude oil could be catastrophic for Nigeria where more than 80 million people already live on less than $1 a day.
