The Future Of Nigeria’s Oil Economy By George-Ikoli

Tengi George-Ikoli at extractive360 official launch

A paper delivered in Abuja by Tengi George-Ikoli, Program Coordinator; Nigeria Natural Resource Charter (NNRC) at the Launch of Extractive360 on March 28, 2019.


Nigeria’s economy has had a checkered history; full of twists and turns, some positive; others, not as such. We began as an economy-rich in commodities and have continued as such. In our early years, we invested in our vast resources from products such as Cocoa, Palm Oil, Rubber, Tin, and Groundnuts up until the discovery of oil, which transformed our economy into the mono economy it has become. Since then, our dependence on oil has only deepened; shrinking our revenue generating capacity. Nigeria’s ability to service her debt, fund her government, maintain a stable exchange rate now all dependent on the revenues we can extract from oil exploitation.

Our dependence on a natural resource that makes us a trillion-dollar economy is not in itself a problem, it is our inability over the years to transform our petroleum wealth into sustainable development above ground. If the promises made by the successive governments to diversify our economy away from oil or deeper into gas had been realized, over the last four decades, the conversation we must have today about the future of Nigeria’s oil, would be one of maximizing the already significant dividends it affords us and not the existential threat we are now faced with. Even yesterday, Congresswoman Ocasio Cortez, delivered an impassioned speech calling for a change to the United States Climate Change Policy with her “Green New Deal” which seeks to transition power generation from “clean, renewable and zero-emission energy sources.”

Oil is no longer the darling it used to be in the 1960’s. It is now the ugly step child; no offence to step children, it’s just a figure of speech, that longs to be accepted but is more and more neglected. Our oil will remain but what will happen when the world no longer needs it. That is a problem, we as Nigerians must recognize and seek to address. We must take advantage of the resource while we still possess it and it retains some value. We should not still be engaging in debates about the reform of our petroleum sector when the world is moving on. Instead, we ought to be horridly deploying policies and implementing them to get as much as we can from the resource, shoring up our savings, diversifying into gas and taking advantage of our 202 trillion cubic feet of gas reserves, ensuring that the Niger Delta cleanup is ramped up so that my children, when God willing I have them, can return home and not ask us instead why we so callously destroyed their heritage.

Nigeria is yet to scratch the surface as it pertains to her natural gas potential. We should be a gas nation instead of oil producing nation, but over the years, we have given precedence over crude oil to the detriment of natural gas which is less lucrative and often produced as a by-product of oil developments as associated gas. The potential significance of natural gas for diversification strategies is larger: it displaces oil in many applications and can also underpin an industrial strategy in a way that oil cannot. There is a need for strategic calculation about where and how gas – often together with renewables – can bring the best value to the energy system. Infrastructure is still lacking in some instances: Nigeria still flare significant volumes of gas despite domestic shortages of electricity.

Gas flaring has continued to take its toll on the Nigerian economy, the environment and the lives of the people of oil-producing communities, as the country lost $987.175 million, about N302.076 billion in 2018, to the continuous flaring by oil and gas firms operating in the petroleum industry. According to data obtained from the Nigerian National Petroleum Corporation, NNPC’s Monthly Financial and Operation Report for December 2018, this, however, represented a 1.93 per cent decline compared to the $1.007 billion, about $308.01 billion lost by the country to gas flaring in 2017. Yet Nigeria ranks among the top three countries in gas flaring in the world.

The management of Nigeria’s petroleum wealth has barely been a benefit to its current generations, lets ensure that it at least benefits its future generations. Let’s not become accustomed to rattling on figures that tell that Nigeria depends on oil for 95% of her foreign exchange earnings, 80% of its government revenues, has the 10th largest crude reserves in the world without recognizing what this means for us. Venezuela is in a black out, they have no access to water, no access to health care and a host of other indices. Venezuela had the same problems as we do, an over reliance on their petroleum wealth, a poorly managed national oil company and a host of other issues. Yet, we are already Venezuela. I spoke to a friend recently and said to her look at Venezuela and she pointed out quite accurately, that we already have power outages, no access to water and no access to health; the only difference is that Venezuela didn’t have generators etc. they were not ready, they relied on the government. If that is Venezuela, one wonders where Nigeria will be when it eventually crashes, and it will crash.

A little dip in oil prices is all that is required to transition us back into a recession. With savings in our excess crude account of $183 million as reported by the Director, Funds in the Office of the Accountant General of the Federation, Mohammed Usman yesterday, March 27, 2019, Nigeria has no ‘rainy day’ fund to stabilize her economy when; and it is “WHEN” and not “IF” the monsoon hits. Nigeria must therefore, use all her natural resources to develop others sectors of her economy such that her revenue base is independent of cyclical nature and fluctuations associated with commodities like crude oil.

Let’s look beyond the NOW, and look to the future, let’s change our story, let’s stop talking only about the tremendous transformation of holiday destinations for a lot of Nigerian’s like the United Arab Emirates; especially Dubai or the wonders of Norway and their trillion-dollar savings from their petroleum wealth and for once, be the darling of the story. Let’s earn the title “GIANT” of Africa and not merely feel entitled to it. Let’s not only have the best jollof rice in Africa, let’s be the “BEST”, in reality. Let’s show that indeed, we can be a WAKANDA that our African Americans brothers and sisters can call home. Let’s drag those 187 million estimated poor Nigerian’s out of poverty.

Countries like the United Arab Emirates have reduced their dependence on Crude Oil such that its services sector is so developed, that it has become a top holiday destination where many Nigeria’s are seen to visit. Yet, Nigeria has not achieved a similar feat, in diversifying its economy away from oil. Oman, which has the lowest GDP per capita among the Gulf Cooperation Council (GCC) countries refocused its development plan and refashioned itself as a hub for shipping and industry. Qatar has moved from being an oil producing nation to a gas producing nation, focusing more on harnessing its huge natural gas resources to produce renewable energy and also building the world largest natural gas hub. It even left the Organisation of Petroleum Exporting Countries (OPEC). The world’s biggest Crude Oil exporter, Saudi Arabia has been working on using its energy resources to build to generate 9.5 gigawatts (GW) of electricity from renewable sources a year by 2023 through 60 projects, involving an estimated investment of between $30 billion and $50 billion. Yet with all our abundant gas resources, we are one of the energy poorest nations on earth. Norway has used its natural resource wealth to amass the biggest sovereign wealth fund on planet earth (I say this for emphasis), while Qatar has invested extensively in ventures across the world.

The world’s major oil producing companies such as Shell, ExxonMobil, Chevron, Total, BP and Eni have embraced alternative energy resources at Silicon Valley by backing energy-technology start-ups, a signal that that those with the deepest pockets in the global oil industry are casting around for a new strategy outside oil. The biggest investor-owned oil companies are putting their money into ventures probing the edge of energy technologies. The investments will go beyond wind and solar power into projects that improve electricity grids and brew new fuels from renewable resources. They are poised for the inevitable transition. Are we?

Add to that, Shell Technology Ventures, a unit of Royal Dutch Shell Plc, on its part, split its spending between oil and gas technology and clean energy equally. The green share, however, may increase to about 60 per cent in the years ahead, according to company officials. Just last year, there were reports that several countries of the world already laid out ambitious plans to eliminate fossil fuel-powered automobiles. The reports listed France, Germany, Netherlands, China, Norway and India among these countries.

Beyond the abovementioned development, in recent times, the employment of fracking technology which has led to a boom in Shale Oil production has changed dynamics of crude oil market. There are indications that crude oil imports from Nigeria could be further threatened with the country’s highest oil buyer, India, signing an agreement to import 0.6 million barrels of oil from the United States. India was Nigeria’s top crude oil buyer in five of the last six years. Moreso, other countries like the United Kingdom are now importing more from the United States, impacting negatively on imports from Nigeria. This raises further questions about the long-term structural implications of two ‘revolutions’ in the world of energy: shale as a new source of supply, and the gathering implications of clean energy transitions on the demand side, including improvements in fuel efficiency and the rise of electricity as an alternative to oil in parts of the transportation sector.

A recent report by Energy Information Administration, EIA showed a gradual decline in crude oil imports by the United States to an average of 7.7 million barrels per day in 2018 from a high of 10.1 million bpd in 2005. This was attributed to the growing shale oil production with the US emerging as the status of the top oil producer in 2018. That development has had a severe impact on US crude import from Nigeria. According to the that EIA report, between 2014 and 2015, before and shortly after the decline in oil prices, there were months that US imported no crude oil from Nigeria.

Still, even with those losses, the discovery of crude oil in many African countries in the last few years erodes Nigeria’s competitive advantage further. Countries like Ghana, Cote d’Ivoire, Tanzania, Kenya, Uganda, all new kids on the bloc, offer alternative markets to investors posing great challenges to Nigeria, thus the need to treat with delve further to into reforms of our oil sector, which has been at the heart of the interventions of the NNRC over the years.

That this conversation about the future of Nigeria’s oil economy is not being had is evident of the fact that the temerity of the challenges facing this country is yet to dawn on the government. With the global shift towards wind, solar and other energy sources and the discovery of commercial quantities across the globe, Nigeria’s reliance on oil revenues to fund its budget as well might leave her in dire straits.

Economic transformation and diversified growth are essential not only to deal with the changing dynamics of global energy, but also to generate opportunities for growing populations, including large numbers of young people entering the workforce. A cursory look at the country’s population growth rate shows that if nothing is done to harness whatever opportunities there are in the oil and gas sector to grow other sectors of the economy, the country will be in very deep problem sooner than later because of its population demographics.

If the Nigerian government embarked in the much needed reforms in the sector, it will create a well-functioning energy sector which will bring a wider range of resources and technologies into play, providing some of the capital and know-how that can support more diversified growth. The reform process will be complex and challenging, but change in the energy sector is a prerequisite for the development of more productive, innovative and sustainable economies. Nigeria should not be an exception, because the future from all indications is not going to be so oily. Worryingly, Nigeria seems to be competing against itself to be left behind as the whole world races to prepare and embrace alternative energy sources and life after crude oil. We should bear in mind that the Stone Age did not end because of lack of Stones, but blunt refusal to adjust to the needs and expectations of the time. According to one Chinese proverb, the best time to plant a tree was 20 years ago; the second best time is NOW.



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