Oil & Gas
With its position as the largest economy in Africa, Nigeria is expected to play a dominant role in the African single regional market, the AfCFTA, but some Nigerian experts lament that the struggling local manufacturing sector is unable to take advantage of the huge market, while the oil and gas sector has various challenges to contend with before it can take advantage of the regional market despite its position as the leading oil and gas producer in Africa.
By Goddy Ikeh
ORDINARILY, any discerning Nigerian knows the poor state of the power sector which is killing the nation’s manufacturing sector and making its goods expensive and non-competitive in the new single regional market. The oil and gas sector which is the cash cow of the country and accounts for over 70 percent of its foreign reserves has its share of woes such as low crude production capacity aggravated by technical and human disruptions, low refining capacities, and the latest challenges posed by the global call for a shift from fossil fuel to green energy.
With its avid desire to tackle some of the challenges militating against the economic growth of the country, the management of Realnews magazine came up with this topic “Nigeria in the unfolding integration of the African market: The Oil and Gas perspective” and invited an industry expert, Simbi Wabote, to give his perspectives on the opportunities and challenges before the Nigerian oil and gas industry in the new AFCFTA deal.
In a well-researched and articulated paper, Wabote noted that the topic of the lecture was “one of the topical issues of our time in respect of the need for greater integration amongst African Economies under the umbrella of African Continental Free Trade Agreement (AFCFTA).”
He admitted that beyond all the attention being paid to Energy Transition, Net Zero Emissions, Green Energy, and others, the topic of this year’s anniversary has elected to focus on the nexus between the oil and gas industry and the integration of African economies.
And focusing on getting the oil and gas perspectives in the unfolding integration of African Economies, especially as it concerns Nigeria, Wabote disclosed that the Africa oil map reveals the rapid spread of the discovery of hydrocarbon, especially in the last two decades. Between 2005 and 2015 alone, we had Ghana, Sierra Leone, Liberia, Mozambique, Kenya, Tanzania, and Senegal as new additions to the league of countries with hydrocarbon resources. Evidently, Africa is practically sitting in oil and gas reservoirs.
According to him, in this year alone, Namibia announced the discovery of 120 billion barrels of oil comparable to the Permian Basin in Texas, USA. Other discoveries include the 2 billion barrels discovered in Cote D’Ivoire, 700 million barrels in Ghana, and 250million barrels in Angola.
“With proven crude oil reserve of 37 billion barrels of oil which is the 11th largest in the world and proven gas reserve of 206 TCF which is the 9th largest in the world, Nigeria is also well known as a strategic player in the global oil and gas industry.
“In consideration of the share volume of Nigeria’s gas reserves, there is a popular saying that Nigeria is a gas province with pockets of oil deposits. It is estimated that even if the current gas consumption level in Nigeria is doubled, the gas reserves could still last for 50 years.
“It is also a well-known fact that Nigeria is highly dependent on revenues from the oil and gas industry to power its economy. With the huge existing, newly discovered, and the yet to be discovered hydrocarbon resources across the African continent, it is pertinent to evaluate the implication of the unfolding integration of African market on the Nigerian oil and gas industry,” he said.
Recalling that on the 1st of January 2021, the whole of Africa became one single market courtesy of the African Continental Free Trade Agreement, AfCFTA, effectively creating the world’s largest free trade area connecting 1.3 billion people on the continent with a combined GDP of about $3.4 trillion, Wabote said that the agreement was meant to address the low intra-regional trade in Africa estimated at 17% compared to 69% obtainable in Europe and 59% obtainable in Asia.
He listed some of the key thrusts and targeted benefits of AFCFTA as free movement of people, goods, and capital, removal of tariff and non-tariff trade barriers, investing in cross-border infrastructure, streamlining trade, investment, and monetary policies. According to Wabote, AFCFTA remains a game-changer in turning the fortunes of the continent around as its economic and social benefits cut across multiple sectors such as trade, education, health, finance, agriculture, transportation, manufacturing, and even the oil and gas industry.
And for Nigeria’s positioning in the emerging integration of the African Market, Wabote explained that the following perspectives are pertinent for consideration to ensure the full benefits of the agreement are realized. These perspectives include Infrastructure, Local Content, Energy Transition, Funding Resource Utilisation Human Capacity Development/Expatriation and Services.
On the infrastructure, Wabote explained that it includes fundamental facilities, services and systems serving a country, city, or another geographical area, for its economy to function. According to him, infrastructure can also be seen as the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions. It is also important to highlight that there are two ways to view infrastructure – hard infrastructure or soft infrastructure.
Hard infrastructure refers to the physical networks necessary for the functioning of a modern industry. This includes roads, bridges, tunnels, water supply, sewers, electrical grids, telecommunications, and others. He added that soft infrastructure refers to all the institutions that maintain the economic, health, social, and cultural standards of a country. This includes educational programs, recreational facilities, law enforcement agencies, emergency services, and governance structure.
Specific to the energy sector, the key driver of infrastructure requirement is the need to convert the energy source in its raw form into a useable form and make it available where it is required to power the needs of humans and the society. Examples of such infrastructure include hydrocarbon processing plants, pipelines, power plants, pylons, ports, jetties, terminals, and several others.
The African oil and gas landscape provides huge opportunities for cross-boarder infrastructure to unlock development of stranded assets or bring energy closer to the people. Such infrastructure also leads to lower unit development costs.
He gave the example of the existing West Africa Gas Pipeline (WAGP) and ongoing AKK gas transmission infrastructure providing a good opportunity to serve regional markets in West Africa and the Sahel region especially with the recent hydrocarbon discoveries. And facility such as the SHI-MCI yard in Lagos, the only FPSO integration yard infrastructure in Africa has put Nigeria at a vantage position to serve the wider African market.
“The next perspective I will like to share my thoughts on is Local Content practice in the oil and gas industry. It is typical for many to consider local content as being against trade liberalization. I wish to state categorically that AFCFTA and Local Content are not mutually exclusive. No nation is blessed with the full list of natural resources, and none can produce every product it requires.
“This implies that a country must be allowed to protect its areas of comparative advantage so that it can be utilized to trade for what it lacks. Discouraging local content laws and practice in the name of free trade is like fostering one-way trading which is not sustainable,” he said.
According to Wabote, Nigeria continues to lead the way in the practice of Local Content in the oil and gas industry. “We have an ongoing collaboration with our brothers and sisters in Angola, Ghana, Siera Leone, Senegal, Kenya, Mali, Mozambique, Niger Republic, Uganda, and many others as we match forward and compare notes in our local content journeys. These collaborations have fostered integration of thoughts and actions thereby further enhancing the realization of the objectives of AFCFTA,” he said.
On Energy Transition, which refers to the global energy sector’s shift from fossil-based systems of energy production and consumption, including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries, he recalled that energy transition is not a recent phenomenon as it has been occurring for centuries. The usual trigger for this is the need to utilize energy that is efficient, effective, and economic.
Wabote explained that as at the 15th century, biomass was used as the main source of fossil fuel and later in the 19th century, biomass was largely replaced by coal as the preferred source of fuel. And a century later, oil was discovered, and it replaced coal as the preferred source of fuel. Crude oil was so much loved and valued that it was nicknamed the ‘Black Gold’.
In the late 20th century, gas was seen as a cleaner fuel and hence it gained much prominence over crude oil as the preferred cleaner fuel. And now in the 21st century, renewable energy has been embraced as a much cleaner and environmentally friendly source of energy with the increasing clamor for outright shift to renewable energies.
For Wabote, some of the key drivers of the push of energy transition in our era include the following: Technological advancements in the creation of other forms of energy. Hitherto far-fetched technology to manufacture solar panels or construct windmill farms are becoming commonplace. Reduction in the acquisition cost of renewable energy source such as solar and wind, as well as the cost of energy storage leading to the massive roll-out of solar power electricity in homes and the increasing adoption of Electric Vehicles by companies and consumers.
Environmental regulatory issues and the need to reduce energy-related greenhouse emissions through various forms of decarbonization.
Depletion of hydrocarbon reserves in most of the European hydrocarbon-rich countries. For example, the North Sea that used to be a prolific producer of oil decades ago, peaked in 1999 and is now largely a location for decommissioning of oil production assets.
It is estimated that UK’s proven oil reserves is not sufficient to sustain its domestic consumption for the next 5 years without increased importation. The Netherlands has zero barrels of proven reserves left and relies heavily on oil importation.
European Countries are mainly at the forefront of the push for energy transition as the level of their hydrocarbon resources has plummeted. Some still retain some elements of hydrocarbon in their energy mix. Last September, UK had to restart some of its coal-fired power plants when it could not cope with the prices of gas.
For instance, in 2007, Germany announced its plan to phase out subsidies for its coal industry. In the year 2016, the Dutch parliament voted for 55% cut in CO2 emissions by the year 2030. Norway agreed to ban the sale of new internal combustion engine vehicles by the year 2025 while Britain also agreed to ban all diesel and petrol cars and vans.
In its Net Zero 2050 Report, the International Energy Agency, IEA, called for an immediate halt in fossil fuel supply projects. Some of the major European banks have heeded this call and announced a halt to financing of hydrocarbon-related projects as part of their support for decarbonization efforts.
These pronouncements have direct and indirect implications on the global energy ecosystem as nations, businesses, and individuals adjust to the shifting energy landscape.
Back here in Nigeria, and in Africa at large, it is important to emphasize that Africa’s industrialization agenda is at the heart of AFCFTA and fossil fuels remain a very significant part of the energy mix required for industrializing the continent. In addition, the revenues obtained from the sale of the hydrocarbon resources remain key drivers of the economies of the African oil and gas producing countries.
The pullback of investments on hydrocarbon development projects is indeed a challenge for oil-producing countries such as Nigeria. There are key areas of focus that could be used to address this challenge: The first is the collaborative platform provided by AFCFTA to provide funding and the technology required to operate and develop hydrocarbon projects.
The second is to have in place an investment-friendly law such as the Petroleum Industry Act, PIA, 2021. This will come in handy to attract much-needed funds for project developments when the effect of the premature halting of new hydrocarbon projects lead to supply shortages with attendant unbearable price hikes.
He also stressed the need to increase in-country hydrocarbon resource utilization. For crude oil, this can be realized through massive refining and production of petrochemicals, while working on the declaration by President Muhammadu Buhari of 2021 to 2031 as the Decade of Gas as gas holds cleaner and more efficient fuel in Nigeria.
Construction works on NLNG Train-7 has commenced which will increase the current capacity of the plant by 30%. The 614km-long Ajaokuta-Kaduna-Kano (AKK) gas pipeline under construction by NNPC is expected to transport 3.5bscf/day of gas.
Other initiatives that have been put in place in line with the ‘’Decade of Gas’’ declaration includes the Nigeria Gas Flare Commercialization Program (NGFCP) and the Nigeria Gas Expansion Program (NGEP) aimed at deepening domestic utilization of LPG and Autogas.
“At NCDMB, we are also pursuing various aspects of gas development and utilization programmes to enhance delivery of government policy directives on gas. And 70% of our partnership investment programmes are targeted towards gas development projects. In the last two and half years, we have commenced partnerships to deliver gas value-chain-related projects to several gas processing companies and power plants in the country.
In addition, there are assurances from OPEC and some oil experts that oil and gas will still be relevant in driving global economic development despite the growing concerns raised by the United Nations Climate Change Conference of Parties (COP26). Reacting to this development, the Federal Government says it is working at creating and attracting financing initiatives for investors through constant engagement with stakeholders in the oil and gas industry.
Speaking at the stakeholders’ engagement with the Independent Petroleum Producers Group (IPPG) in Lagos, the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Gbenga Komolafe, stated that President Muhammadu Buhari, has provided robust fiscal provisions to address the new funding challenges. According to him, the industry is facing critical challenges and the outcome of the deliberations at COP26, there will equally impact the industry due to the fact that the stakeholders are setting the global warming standard at 1.5 degrees Celsius as they target at impacting financing in the energy transition regime.
Speaking in Glasgow at the just concluded COP 26 high-level side event on improving global infrastructure hosted by President Joe Biden of the United States, EU Commission President, Von Der Leyen and the UK Prime Minister, Boris Johnson, President Buhari said that 1.5 trillion dollars was the cumulative estimated amount needed by Nigeria over a 10-year period, to achieve an appreciable level of the National Infrastructure Stock.
According to a statement signed by presidential spokesperson Garba Shehu, Buhari said that Nigeria was ready for foreign investments in infrastructural development in the country.
‘‘My administration has established a clear legal and regulatory framework for private financing of infrastructure to establish a standard process, especially on the monitoring and evaluation process.
‘‘We introduced the revised National Integrated Infrastructure Master Plan – a policy document that ensures our infrastructure expansion projects is cross-sectorally integrated and environmentally friendly, ’’ he said.
He welcomed the G7 countries for its ground-breaking plan to mobilize hundreds of billions of dollars of infrastructure investment for low – and middle-income countries.
Despite the challenges posed by climate change campaign, Wabote believes that “AfCFTA holds a great promise for the economic growth and development of Nigeria and indeed other African countries. There is no doubt that the Nigerian oil and gas industry has a role to play in AfCFTA. However, all the key stakeholders in the oil and gas industry need to align the industry to better fit into the AfCFTA regime.”
– Nov. 29, 2021 @ 15:06 GMT |
A.I
Tags: AfCFTA NCDMB OPEC President Muhammadu Buhari Realnews magazine Simbi Wabote
