Like many petrostates, Nigeria, Africa’s biggest oil exporter, is aware that demand for petroleum may one-day fall victim to solar panels, electric vehicles, more frugal consumption, among others. But the question is how seriously do the authorities take the threat?
A business a.m. investigation reveals that the country’s leaders still dismiss the risk that demand will collapse considerably. Instead, they predict that cars, trucks and planes will still consume growing amounts of fuel into the middle of this century and that plastics and petrochemicals will still use a lot of oil. Little wonder the nation is still hell-bent on seeking to drill oil in Lake Chad Basin, Lagos, and other places.
Curiously, peak oil (the beginning of the end of the world’s addiction to oil) risk has not advised the nation to hedge its bets to invest in alternative energy or, at best, develop skills to make crude less dirty and clean enough to compete.
Instead, the country’s energy authorities are far more concerned with how to gauge and tackle prices as in response to the recent onslaught of American shale production and their faith in the OPEC production curb project.
“The country has failed to realize that oil would not command the influence it has now in the nearest future. That’s why we are still looking to drill oil instead of investing in renewables,” said an industry operator who recommended that skill is highly needed in the industry to drive research for alternatives.
“We are more concerned with the moment than looking into the future. We are just looking at the revenue side without looking at investing,” he added, citing Saudi Arabia, the world’s largest oil exporter selling five percent of its stake in the world’s biggest oil company, Saudi Aramco, to raise $2 trillion for the country’s public-investment fund.
What stops Nigeria from selling some stake in NNPC? Greed and the hegemonic hold on power, he answered. The oil-price crash in the past two and half years, which clobbered the country that had spent its oil revenues lavishly on its political office holders rather than on social infrastructure, has failed to advise the country to wake up and seek profitable and sustainable path, an economist told business a.m., adding that diversification from oil is just a swan song without accompanying action.
The country appears to have placed total faith on an OPEC and non-OPEC producers pact to curtail production by a combined 1.8m barrels a day (or about 2% of global output) to push up prices.
So far the plan has not only worked. According to an article seen by business a.m. in the London-based Economist, oil-rich states in the current state of ebbing demand should in theory pump as hard as possible now so they can bank the money while they can. But that would set off a battle for market share among producers, which would drive down oil prices further.
Those with the lowest costs, such as Saudi Arabia, which can produce oil for as little as $6 a barrel, might feel that this is a fight they are bound to win.
However, the Nigeria failing is that it has hardly focused on the “social cost” of oil: spending on social commitments such as health care, education, and public-sector employment.
In a paper published in January by Spencer Dale of BP and Bassam Fattouh of the Oxford Institute for Energy Studies, the authors argued that the oil price needed to achieve balanced budgets to prosecute investment in social infrastructure is around $60 a barrel.
Mssrs Dale and Fattouh argue that until oil-rich countries shift their economies away from oil, they will need to cover these social costs.
Nigeria, despite earning a whopping $1.09 trillion from oil exports in 35 years to 2015, still lacks the capacity to fund its annual expenditure programme, according to the Nigeria Extractive Industries Transparency Initiative (NEITI). NEITI, in its second occasional paper series titled, “The Case for Robust Oil Savings for Nigeria”, said from 1980 to 2015, Nigeria exported crude oil worth about $1.09 trillion, but as at June 2017, there was barely $3.9 billion in all of the country’s oil revenue funds, which is only enough to finance 16 percent of the 2017 budget of N7.44 trillion.
“Nigeria did not save enough oil revenues to sustain economic activities when oil prices began to tank in June 2014. Also, problematic is the level of consumption relative to non-oil exports. Nigeria typically responds to high oil prices with equally high, but manifestly unsustainable, level of consumption,” it noted.