Nigeria’s Long Throat Dependence In Crude Oil

Unfortunately in Nigeria, there is this uncommon faith and huge dependence on oil.

The country is weakened by quick cash revenue from crude oil majorly explored by foreign companies. Even in that industry local play on the reserve side taking crumbs rejected by oil majors through near unsuccessful marginal field policy.

Petroleum experts have consistently raised the alarm about Nigeria’s current heavy dependence on fast-depreciating crude oil receipts at a time forward-looking oil producing countries are speedily transitioning into cleaner energy with zero carbon emissions in line with global targets.

The energy transition initiative is a pathway towards transformation of the global energy sector from fossil-based (crude oil) to zero-carbon by 2050. At its core is the need to reduce energy-related carbon monoxide and carbon dioxide emissions to curb the ruinous effects of climate change.

The energy transition will be enabled by information technology, smart technology (artificial intelligence), policy frameworks and market instruments, which energy producing nations like Saudi Arabia, Algeria, Brazil, Malaysia and others are heavily investing in.

Analysts reckon that the decarbonisation of the energy sector requires urgent action on a global scale, and while a global energy transition is underway, further action is needed to reduce carbon emissions and mitigate the effects of climate change.

To this end, experts have asked the Nigerian government to urgently develop and aggressively implement an energy transition agenda to avoid being left in the lurch.

Although the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr Mele Kyari, has assured that the company was headed in the direction of energy transition with massive deployment of technology, industry watchers insist that the pace was not encouraging, especially when benchmarked with other jurisdictions.

Speaking at a recent Policy Dialogue On Key Oil Sector Reform Issues organised by Facility for Oil Sector Transformation (FOSTER) in Lagos, Najim Animashaun, a petroleum sector analyst and Partner, Gulf of Guinea Consulting, said that the country was frighteningly lagging behind in the energy transition race, advising policy makers and other relevant stakeholders not to play politics with the country’s economic future.

According to him, if the country does not wake up to play in the energy transition league, it will get to a time when Nigeria’s oil will become an albatross rather than an asset because no one will be willing to buy the crude oil because the world would have successfully transitioned into zero emission and eco-friendly energy products.

To escape the looming danger ahead, Animashaun advised the government to immediately hire experts to develop a comprehensive energy transition plan for the country, as the one currently with the Nigerian National Petroleum Corporation (NNPC) does not capture all flanks.

He also advised the government to run an institutional analysis of the role to be played by each key public or private institution in the energy transition project.

Animashaun said: ‘The government should fundamentally reform the NNPC, or privatize it. It should include principles of climate change governance in the NNPC reform agenda.

‘Government should consider setting up a separate strategic division of NNPC or in case of NNPC privatization, an independent entity Hydrocarbon Energy Outlook 2030-2050 – Implications for Nigeria and NNPC fiscal and commercial terms need to be competitive – as more petroleum producers chase fewer investment dollars that need to be turned around in quicker timetable. This means lower rents and returns to the government from taxes, fees, etc.

‘NNPC needs to be commercially oriented and profit driven- but more than that, it needs to be competitive. And needs to do so fast. In contrast to Algeria, Brazil, Malaysia, Norway, and Saudi Arabia, the Nigerian government cannot yet rely on NNPC to harness the energy transition. NNPC’s energy transition programme is weak and lacks strategic and operational means.

‘Reforming NNPC therefore requires new thinking and new strategies. It starts with the recognition that NNPC is not and was never designed, from the beginning, to be a commercially driven enterprise. Had it been so those 42 years ago, it would have been capitalised, granted more operational autonomy and burdened with fewer regulatory functions in the NNPC Act.

‘Its board would reflect that of a commercial enterprise, even if government owned like Saudi Aramco, with fewer “political appointees”. This defect can only be remedied by passing a new law – the Petroleum Industry Bill (PIB), which goes to great lengths to separate commercial from regulatory, and asset management functions, leaving the national oil company to focus on what it does best – finding and producing petroleum.’

Animashaun further emphasised that passing the PIB will never be enough on its own, stressing that implementation requires ensuring that the habits and culture of the past do not infect the new organisation.

‘This means putting in place a board of the most proficient hands with the skill sets needed to turn our strategic national assets into productive wealth to drive and diversify our economy. This also means keeping an eye on the future of energy by having effective energy transition strategies to make sure that we do not become prisoners to our past,’ he added.

However, there has been renewed efforts at getting the revised Petroleum Industry Bill (PIB) passed into law and industry watchers consider it the right step towards solving Nigeria’s energy insufficiency nightmare.

Among other benefits, experts say it would enhance the ease of doing business in the oil and gas sector and also accelerate economic growth in Nigeria.

The new PIB, which was transmitted to the National Assembly by Mr Timipre Sylva, the Minister of State, Petroleum Resources, has already scaled first reading in the Senate.

Ahmad Lawan, the Senate President, directed that full copies of the bill be distributed to all the lawmakers ahead of the second reading where details of the bill will be discussed.

However, while the PIB is being prepared for full legislative scrutiny, experts have continued to point out areas of concentration, so that the Bill does not become obsolete on arrival, as most of the content would have been overtaken by events.

Speakers at the Lagos dialogue urged members of the National Assembly to work in consonance with the new global discoveries and competitive fiscal terms already embraced in other jurisdictions.

They noted that tweaking the PIB will ensure a good document is passed and when implemented, Nigeria will become an investment haven.

Also speaking at the event, Israel Aye, an Oil and Gas Analyst, called for a multi-sector approach in solving the energy and economic challenges of Nigeria, especially as there is an increased level of uncertainty about oil demand.

This, he said, should be treated as an important element in making decisions on the optimal exploitation of petroleum resources.

According to him, countries with abundant petroleum resources are well advised to accelerate the exploration and development before oil loses its luster and value.

He said: ‘In early 2020, some 65 licensing rounds were planned across 48 countries, not including open door licensing opportunities or block auctions of less than three awards. Three rounds have been completed. Two amended and another seven postponed, leaving 54 licensing rounds tabled to the year end. Licensing rounds is currently in progress in 25 Countries including Sultanate of Oman, Kuwait, Gulf of Mexico, Indonesia, Trinidad and Tobago, six African countries among others.’

He warned that many oil producing countries will be locked in still competition to capture investors’ interests especially where differences in terms of resource upside and above ground risk will feature strongly in any investor selection.

In her presentation, Tengi George-Ikoli, Programme Coordinator, Nigerian Natural Resource Charter (NNRC) noted that a good PIB should among others, address administrative bottlenecks to ensure reduced bureaucracy; improved efficiency, elimination of barriers to entry, efficiency in acreage management, simplicity and predictability in administration, reduced cost of doing business, open access to assets, transparent licensing process, regulate competition and anti-trust practices, enhance value addition and creation, and utilize beneficial ownership register.

She also pointed out the need to make adequate provisions in the governance aspects of the new PIB to ensure clarity and separation of roles, disclosure to achieve transparency, commercially defined priorities for NOC, consequences/Penalties imposed to encourage legal compliance, merit- based appointments, workable funding mechanism for NOC, reduction of political interference in appointments, and strong regulator to ensure sector effectiveness.

According the Programme Coordinator, the fiscal aspect should also be made to ensure certainty with respect to the fiscal framework, flexible and responsive fiscal framework, capacity enhancement for administration institutions, streamlines fiscal laws for ease of representation, enhance ease of doing business, sunset provisions for incentive programmes, sustainable fiscal competitiveness, transparency of fiscal terms, simplify tax administration, and stablishment of savings mechanism for economic stabilization and future generations of Nigerians.

On the host community issue, George-Ikoli, noted the need for clarity in definition of the intended beneficiaries, inclusiveness of all interest groups, direct economic benefits and disbursement to Host Communities to restore sense of ownership, meaningful community participation in project identification and development, transparent and accountable management of resources, adopt effective dispute resolution, compensation mechanisms or penalties for pollution and the decommissioning of abandoned assets and CSR.

‘Resource management should secure the greatest benefit for citizens through an inclusive and comprehensive national strategy, clear legal framework and competent institutions

‘The government should encourage efficient exploration and production operations, and allocate rights transparently

‘Tax regimes and contractual terms should enable the government realize the full value of its resources consistent with attracting necessary investment, and should be robust to changing circumstances.

‘The government should pursue opportunities for local benefits and account for, mitigate and offset the environmental and social costs of resource extraction projects

‘Nationally owned companies should be accountable, with well-defined mandates and an objective of commercial efficiency,’ she added.

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