Institutions, experts caution Nigeria, others on energy transition

Oredola Adeola

As the debate on how to achieve global net zero emission by 2050 takes the centre stage of discourse in the energy sector, experts have warned policy makers in Nigeria and other developing countries to trend consciously. This, is to ensure that they do not get trapped in the web as developed nations dump fossil fuel a key source of earnings for most of them.
EnergyDay in a research designed to seek stakeholders views on how best Nigeria and other crude oil – exporting countries can cope with the global demand for transition from fossil fuel to renewable energy, revealed that experts hold different opinions on the issue.

OPEC’s stand

The Organisation Petroleum Exporting Countries (OPEC), seems not to be perturbed by the recently heightened demand for urgent transition in the energy sector with the aim of reducing global carbon emission.
While the oil cartel is very much aware of developed nations’ push towards achieving the goal of net zero emissions globally by 2050, it charged developing nations including Nigeria to be circumspect about the risk and challenge of investments in the future of the oil and gas industry.
OPEC’s Secretary-General, Dr. Mohammed Sanusi Barkindo, stated this while addressing participants at the just concluded 2021 edition of the Nigerian oil and gas conference held in Abuja.
Barkindo who charged developing nations to be mindful of the emerging challenges posed by the quest for energy transition warned against calls for discontinuation of investments in the oil and gas industry.
He said, “We are already dealing with the harsh impacts the COVID-19 pandemic has had on investment, which declined by 30 per cent in 2020. If this were to continue, we could see demand exceed supply, posing a significant energy security risk to both producers and consumers.”
Barkindo disclosed that achieving net zero emissions by 2050 is already a great challenge for advanced economies, some of whom have expressed their doubts about the reality of achieving the goal.
He said for developing nations, it is even that much more daunting, particularly as they are occupied with ensuring their basic needs are met day in day out.
The OPEC scribe noted that there are emerging doubts as to how realistic the net-zero approach is, particularly when considering the unique circumstances of developing countries, especially in combating energy poverty.

PwC, KPMG advice

However, the global consulting firms, PriceWaterHouse Coopers (PwC) and KPMG, seem to disagree with Dr. Barkindo’s OPEC’s stand as they charge developing nations to take advantage of the emerging opportunity offered by the net-zero emission project.
For instance, PwC in its African oil and Gas review 2020, revealed that the continent’s oil revenue declined by $1trillion in estimated projection over period of 20 years, due to green energy push, thereby dampening on the gains that have been made by 14 oil producing countries out of 54 African countries over the last five years.
This trend according to PwC is a welcome call on developing nations to start evolving long term strategies to navigate the global transition goal.
The report emphasized that the net zero push has transited into national policies, legislation and corporate plans across the globe.
PwC therefore charged national oil companies to strive towards balancing climate change pressure with their own financial viability. The report stressed the likelihood of permanent decline in oil and gas prices in the face of ongoing transition negating investment made in developing the assets.
The report reveals that fear of permanent long-term market shift which has impacted International Oil Companies including Africa has forced them to write off some of their stranded assets.
It cited the case of Total Nigerian now TotalEnergies which has opted for a clean energy strategy aimed at transforming the company into broad energy company by profitably growing energy production from Liquefied Natural Gas (LNG) and power generation through renewable. Similarly, ExxonMobil’s relatively high debt to equity ratio and an estimated shortfall of $48billion has seen the company putting its global expansion on hold.
The report submitted that based on the key statistics on renewable energy progress made globally, the market tipping point has been reached and it remains to be seen if developing countries in African will have the capacity to catch up with the trend.
The PwC report stated that in the early/mid 90s, renewable energy industry was characterised by pilot and subsidies, stressing that in two decades the trend saw unprecedented level of technology innovations and efficient improvement driving commercial scape up and cost curved down crossing average global grid parity, thereby making it the cheapest form of energy and commercially viable without subsides.
Presently, the industry represents over one-third of installed global energy capacity.
It warns that if the country continues to refuse to develop renewable energy transition strategy, and go ahead to increase investment in hydrocarbon with more push for exploration, more questions will arise from the bank-ability, implementation and construction of some of these projects in the global market.
It said, the global energy market in recent times has witnessed exponential disruption, especially as major international oil companies including TotalEnergies , ExxonMobil, Royal Dutch Shell, Chevron, and BP, are expected to sell a combined $100 billion in oil and gas assets around the world to focus more on their top-performing products and regions.
Interestingly, the PwC report notes that the market disruption is taking place against the backdrop of fragile African economies dependent on global oil and gas market for foreign revenue.

By implication, the development would, to a large extent, put pressure on the developing nations’ bid to reinvigorate their economic growth and investment.

On it part, KPMG in a similar report tagged, “National Oil Companies (NOCs) in the new reality: Maintaining profitability during the shift to renewable energy”, stated that the global pressure for overall transition from fossil fuel will lead to a permanent decline in oil and gas prices negating investment by the national oil companies in exploration and technological assets.

The firm warned NOCs to embrace several issues impacting on the industry which has forced most IOCs to divest into more cleaner energy.

KMPG urged the NOCs to take a cue from Saudi Arabia Aramco’s climate change journey which has seen its investment in flare-gas recovery system grow in most of its onshore Safaniya facilities.

That report revealed that the commitment by Aramco was borne out of the belief that climate change can only happen if countries reduce the emissions and implement abatement measures, such as natural sinks that absorb Carbon dioxide (Co2).
According to KPMG, Aramco did not see CO2 as emission to be controlled but also a source of additional value capturing the emission and other gases and redirecting them into manufacturing industrial products , and feed-stocks which can stimulate economic growth and job creation.

Evidently, Saudi Aramco could serve as a model for NOCs throughout the world on how to align with climate change agenda.
KPMG disclosed that IOCs are selling a combined $100bn assets around the world to focus on there top performing products.
The firm however charged NOC to take advantage of partnership with large trading companies including Glencore, Trafigura, Olam, Sumitomo e.t.c in form of joint companies for deals that will grant them access to capital for expansionist effort in the new market.

NNPC’s stand

Interestingly, the management of the Nigerian National Petroleum Corporation (NNPC), has continued to assure the nation of her commitment to towing the energy transition track.
NNPC’s group managing director, Mallam Mele Kyari, confirmed the corporation’s drive towards achieving the global goal while speaking at the 2021 edition of the Nigeria Annual International Conference and Exhibition (NAICE) organised by Society of Petroleum Engineers (SPE) in Lagos recently.
Addressing participants at the event, Mallam Kyari advised oil-dependent economies to brace up for the bumpy ride ahead, as the global transition to non-fossil sources of energy will mean declining revenue, plummeting foreign exchange and weaker funding of projects particularly in the context of green finance and activist investor’s action on the boards of major oil companies and global financial institutions.

The NNPC boss said Nigeria has identified various issues that have to be exhaustively addressed on the backdrop of the exit of the oil majors in order to avoid fracturing the Nigerian economy as a result of in hurried exodus of the oil majors.
But despite his optimism, analysis of the corporation’s performance appears to contradict his views, and
leaves much to be desired.
Analysis of his statement from the point of view of the national oil company’s management seems to be more interested in being politically correct rather than being economically . For instance, why should the corporation’s boss who is warning of dwindling income ahead continue to embark on petrol subsidy venture which is currently draining revenues generated from crude oil sales.

Experts view

An economist and Financial expert, Dr. Boniface Chizea, Managing Director of BIC Consultancy Services, charged the Federal Government and NNPC to take a balanced approach to global energy transition.
According to him, “There are other by products of crude oil, gasoline, distillates heating oil, jet fuel, petrochemical feedstocks, waxes, lubricating oils, and asphalt, that are more valuable for revenue earning and environmental useful than petrol.
He urged the government to adopt a balance approach, adding that there is urgent need to optimise the resource base of the country because of decline in crude oil prices and foreign patronage.
He also noted that investing in some of the energy means would earn us revenue that can be used to service our debt and fix infrastructure.
He said, “It would take a long time for a developing country like Nigeria to fully integrate into the Paris agreement. We only need to position ourselves for the transition. It is short sighted to accept global switch to renewal at once.
“We need to be mindful of all actions but very calculative in our approach to switching to alternative energy means. We have resource endowment that needed to be tapped to the fullest. The Government must be experiment on the all the revenue generating energy source using available resources to fund them. This would be useful when other energy sources are going out of vogue,” he concluded.
According to Professor Adeola Adenikiju,  Director, Centre for Petroleum, Energy Economics and Law (CPEEL),at the University of Ibadan, in a conversation with EnergDay urged the Nigerian government to utilise resources and develop the country’s gas reserves, warning that the adopting renewable energy at the expense of huge oil reserve would be a risky venture for the country.
He said, “We need to show some concern on how we manage oil and gas resources for the improvement of our well-being. Of-course the energy transition by the IOCs is a real threat that we cannot afford to allow the process pass us by.
“If these IOCs who are the major investors in the oil and gas sector are reviewing their investments into another form of energy. It would be damaging for us to see their exit plan to renewable as just a normal venture. Strategic plans must be put in place to contain the economic impact of this global move. We can’t abandon our oil and gas because of the pressure to do so, we need to be conscious of the move.
“It is sad that this global trend is catching up with us, as I am one of those who have been calling for the diversification the economy.
“We need to a balance utilisation of our energy resources, Nigeria is blessed with enormous volume water bodies, with small rivers that can be converted to dams to generate hydro-electricity. We have continued to waste the huge reserve of sun and wind energy. There is a conscious need for us to see how to integrate these renewable into our energy production and utilisation mix.
“We also need to optimise our gas reserve and potentials. This is a clean form of energy that does not have negative environmental impact like other fossil fuel. There are ample opportunities for us to use gas for national development. Use for power, cooking, in other related industries including fertiliser, ceramic and petrochemicals.
“What drives development is not production but consumption, what is important is the quantum of energy that is utilised locally. Our petroleum products have not been fully utilised for national development. How much of the by-product are converted to use locally?
Professor Adenikiju however warned developing nations like Nigeria to reduce dependence on oil and gas for revenue, urging them to start adopting renewable energy into their energy sector.
He noted that when oil demand fails, this would affect prices and then lower revenue.
According to him, the dependence on oil has made Nigerian economy volatile and susceptible to global shocks. He called for initiation of policies on gas utilisation. He asked the NNPC and the Ministry of Petroleum Resources to begin to integrate energy mix into our national consciousness.