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Adewale Sanyaolu
In the next 49 years, Nigeria’s huge reserves of hydrocarbons in the oil- rich Niger Delta region may dry up, setting sail for a major economic crisis that could shake its foundation and sovereignty.
The anxiety thrown up by this possibility comes as those at home with happenings in the global energy market and politics have warned that the country may find it difficult to meet is obligations as demand and supply forces in the industry could be working against it. This is likely so because while production of crude oil may become difficult and more expensive after the rest of the world have migrated to renewable energy, demand for the black gold could further shrink the more even within the continent.
However, while many who lack knowledge of the dynamics of the global energy market may dismiss the warning as a mere academic postulation, experts who gathered recently at the Nigeria Petroleum Summit in Abuja have warned that the country’s continued reliance on hydrocarbon resources, especially crude oil to generate over 70 per cent of its revenue may end up as a domestic time bomb particularly as global attention is gradually shifting away from the use of fossil fuel.
According to a recent study published in Journal Nature Climate Change, ‘‘companies that laid claim to coal mines or oil wells, won’t be able to turn a profit by digging up that fuel. They will default on their loans, pushing banks to the brink of failure. Prices are likely to crash before 2035, costing the global economy as much as $4 trillion.’’
Add to this is the fact that wind turbines, solar panels and electric vehicles are getting cheaper and more abundant by the day, and hurting demand for coal, oil, and natural gas. As demand falls for conventional fuels, so will prices.
Industry regulator- Department of Petroleum Resources (DPR) has also warned that oil reserves will dry up in the next 59 years.
Indeed, the continuous depletion of the country’s excess crude by successive administration since the time of former President Olusegun Obasanjo who initiated the ECA has become a source of worry to oil industry stakeholders. The balance of the ECA dropped by $253 million between January and February.
Data provided last Wednesday by the office of the Accountant-General of the Federation showed that the ECA balance is $71.81 million, compared to the $324.968 million balance as of January 16, 2020.
More worrisome is the lack of a policy framework/ timeline by the Federal Government to diversify the economy away from oil.
Over the last few decades, attempts to diversify the economy have ended as mere rhetoric than a policy thrust with successive governments failing to give clear direction on how the initiative would work.
The threats to Nigeria’s economic survival appear more real than imagined as United States which used to be a major customer for the country’s oil has drastically reduced its inventory due to its massive investment in shale oil. Similarly, countries in Europe and Asia are equally reducing their demand for oil as they continue to make huge investments in renewable energy.
With Coronavirus raging China and parts of Asia, the likely economic slowdown would also hurt demand for Nigeria’s oil making the call for economic diversification more compelling. Regardless of the thinking in some quarters that fossil fuel and renewable will continue to play complimentary roles in the global energy mix for many years to come, government’s failure to act now would only amount to its living in denial that the day of economic burst for Nigeria was only a matter of time and the reality would dawn of the administration at a huge cost unless takes steps to begin now.
DPR warns of impending danger
Already, the DPR has warned the nation’s crude oil reserves of 37 billion barrels, two per cent of which is being produced annually, will be depleted in the next 49 years.
The reserves, which stood at 37.45 billion barrels in 2014, fell to 37.06 billion barrels in 2015 and 36.74 billion barrels in 2016. It, however, rose to 36.97 billion barrels in 2017 and 37 billion barrels in 2018, the DPR data showed. “The nation’s depletion rate and life index are 2.04 per cent and 49.03 years respectively,” the regulator said. The reserves depletion rate is a measure of 2018 total oil and condensate production divided by the reserves as of January 1, 2019, according to the DPR. It said, “This indicator gives a bird’s eye on an annual basis, what percentage proportion of the quoted reserves was produced.
“The life index, on the other hand, is a measure of the reserves as of January 1, 2019, divided by the total production in 2018. This parameter highlights how long (in years) quoted reserves volumes will be available for production.”
The DPR said to achieve the government’s aspiration of four million barrels per day production and reserves of 40 billion barrels, “there is a need for corresponding increase in reserves as production increases.”
It noted that if that was not done, “the life index will fall from a sustainable long-term threshold to a less futuristic and sustainable medium to short-term range.”
Renewable to contribute 20% of global energy mix
Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr.Mele Kolo Kyari, recently said renewable energy will contribute about 20 per cent to the global energy mix by 2040
“Several researches continue to confirm that by 2040, renewable will be contributing about 20 percent of the global energy mix. This implies that fossil fuels will still contribute at least 70 percent,” he said.
Based on the projection, Kyari called on African countries to focus on providing structures that will ensure energy security for its citizens.
The NNPC GMD said the Corporation has a framework that works towards ensuring energy security in Nigeria. “African countries must know that each must focus on building structures that ensures energy security for the citizens. NNPC is committed to that and has a framework to make sure that the needed energy is available for the needs of the country,” he stated.
The national oil company boss acknowledged the global clamor for energy transition from fossil fuels to renewable sources but, however, noted that hydrocarbons will continue to form the larger part of the energy mix in the foreseeable future.
He therefore urged African countries, which are still mostly underdeveloped, to continue to utilize the hydrocarbon resources available to them to develop energy sources for their populace. “The focus must be in making sure that the energy is clean. We have to use what we have. Today, oil is being found in unexpected places. This contributes to the growth of middle class consumers. And so demand of fuel will continue with increase with population and prosperity.
Global demands will remain over 100 million barrels per day” he said adding that African countries should focus, not solely on the glamour for renewable but largely on the need to deliver energy for the development of their people.
Fossil fuel, renewable ‘ll continue to be complimentary
Chief Executive Officer (CEO) Lekoil, Mr.Lekan Akniyanmi, said countries must creatively complement the use of fossil fuels and renewable energy in the interim pending when renewable energy can stand alone as major source of energy globally.
He said globally, there has been an increase in calls for reduction of fossil fuel consumption which environmentalists have indicted for greenhouse gas emission.
“It is possible to keep an oil and gas company sustainable. The first thing we have got to do is to stop denying that there is an issue. Indeed, there is an issue, Akinyanmi said.
The change over from fossil fuel to alternative energy or cleaner fuels is a multi-decade or probably multi-century thing. The fossil fuel industry will still be relevant. I think probably for the rest of our life time. What we need to do is to figure out ways to be responsible in the fossil fuel production and consumption process.
Historically, several fossil fuel companies produce oil but flared the gas even when it is actually the gas that is more efficient. It’s friendlier to the environment, so we need to shift our attention there. From our perspective as Lekoil, one of the things that helps us is that, a good chunk of our portfolio is actually gas so we are actually well on our way.
Energy analysts suggest that the renewable energy market will grow at a cumulative average rate of 7.6 per cent between 2020 and 2025 to reach 3,812 gigawatts by 2025. Rising investment and improvement in technology has seen a drastic improvement in renewable energy output.
Between 2020 and 2025, the United States and other developed countries are scaling up investments in renewable energy.
However, The Asia Pacific region is emerging as the fastest-growing market for renewable energy globally, accounting for nearly 27 per cent of the global market share. Within the Asia Pacific, China and India together form the leading renewable energy markets having almost 75 per cent of the installed capacity of renewable energy.
In 2018, China heavily invested in renewable energy projects having a total capacity of nearly 696 gigawatts and emerged as the leading country, dominating the global market in three renewable energy technologies, namely, wind, hydropower, and solar energy.
I think we will make our way through this. Unfortunately, I think there is a lot of brinkmanship.
