Thread by @Dolarpo: Nigeria’s Energy Sector & Global Investment Community
Nigeria needs to send clear signals to the global investment community about its energy sector ambitions. When a country takes 20 years to make a decision on its most lucrative energy sector project; hasn’t held a proper oil licensing round in 15 years and hasn’t been able to pass its most important regulatory bill in nearly 13 years since it was first drafted, amidst a myriad of other sector challenges for investors not limited to long project approval processes/cycles, security, corruption, frequent labour issues,there is need for the economic managers to be given an awakening.This is because the world isn’t waiting on Nigeria to become more attractive to investments.
More importantly, new avenues are opening for investors to invest in energy resources in other parts of the world that are, in comparison, even more lucrative than investing in Nigeria. In Q4 of 2019 alone, about 10 countries held licensing rounds for oil blocks attracting well over $20bn in new investments from oil and gas companies.
Even the United Kingdom, one of the more mature markets for oil and gas activities pulled off its 32nd licensing round attracting over 100 participants while our African peer, Egypt, also managed to secure investment from Chevron, Shell and others.The fact is global market dynamics continue to position us further down the pecking order when its comes to attractive investment destinations for energy sector investments. More importantly, the internal picture also looks convoluted.
The crude oil segment needs a lot of things. Nigeria hasn’t exceeded its highest output of 2.5mbd reached in 2010 since the 90s. Blame it on our OPEC quota all you want but we don’t even have spare capacity to boot and this bring up the issue of funding. There hasn’t been an FID on any major oil production project in the last 3 to 4 years. You have FID on all the large deepwater fields such as Uge, Nsiko, Bonga southwest and North, Satelite fields yet to see the light of day.
Following the start up of Egina, which has helped to sustain the country’s production capacity at 2 million barrels per day (including condensates and NGLs), the country isn’t likely to see any major oil field (producing over 100kbd) come onstream for 5 years. Crude oil revenue which have sustained the government’s finances over the years has riden largely on the wave of price increases instead of production growth. Thus while our FG budget expenditure has grown from under 500 billion naira in 1999 to over N9 trn in 2020 ,we continue to plan to feed the budget based on increases in the crude oil price not increases in production due to the OPEC cap and actual lack of growth in production capacity.
What about the gas sector? The IEA believes that Nigeria holds 15 trillion cubic metres of natural gas reserves, second to only Algeria in Africa and one of the top ten countries in the world ranked by natural gas reserves. We have chosen to monetise our gas via LNG, piped gas to West Africa, downstream to our power sector and retail cooking gas market. Out of all these four, only the LNG option has proven to be a success.
The difficulties in transforming the power sector into a profitable segment has also created a burden for the gas sector, which needs to be solved to free up more capital for investment in the gas sector. Our West African neighbors still owe us for the piped gas to their power plants so supply from Nigeria has been haphazard too. There are so many other ways to monetize gas but we haven’t deployed enough capital to the baseline methods to even consider these ones. So how do you get more gas out of the ground?
The Refining space? Not today. I think we can all agree that the strategy here is to wait for Dangote to finish his refinery. We move.
Externally, we face not just competition from other new and mature oil markets with well developed policies for the oil sector but new technologies. Sitting here in Canada, the oilpatch has suffered a mass exodus too due to shale in the US. Shale technology has improved considerably, making it considerably cheaper for companies to produce from shale and lot of oil companies are migrating back to the US from Canada, UK and other countries to focus on shale.
I maintain, as a personal opinion, that electric vehicles are not a threat to the oil patch yet or anytime soon. However, the pace of adoption and development is such that the threat continues to rise exponentially.
If we put the threat in numbers, IEA believes we could be looking at 44 million EVs by 2030 from under 1 million globally as at 2018. An improvement in battery technology and cheaper access to lithium and other raw materials could crash prices and raise this number.
Despite this and compared to over 2 billion car powered by regular gasoline and diesel globally, EVs have a much longer way to go to mount any serious threat on crude oil consumption. This is just my opinion.
The real danger is losing out on investments and that is why it is important that Nigeria sends a strong clear signal to the investment community about its energy sector ambitions.
One of the key ways we can do this is at the upcoming Nigerian International Petroleum Summit. In February 2020, Nigeria will host players from all over the world at the third edition of this summit.We need to make announcements and commitments to the investment community that they can hold on to. We need to sell Nigeria as an attractive destination for investment capital again. We need to replicate the LNG train 7 success across other areas.