OPEC: Nigeria May Be Hard-hit by Declining Investment in Oil Sector
The Organisation of Petroleum Exporting Countries (OPEC) yesterday warned that with declining investments in the global oil and gas industry, Nigeria’s economy as well as that of other resource-dependent countries may be the badly affected, especially if the current push against fossil fuels continues to gain ground.
The international oil-producers’ cartel, therefore warned Nigeria to ramp up efforts to diversify its economy to avoid being caught off guard by the projected crisis, which it reiterated would require a global cumulative investment of $12.6 trillion in the upstream, midstream and downstream between now and 2045 to resolve.
Speaking at the 14th edition of the Nigerian Association for Energy Economics (NAEE) Annual International Conference in Abuja, the Secretary General of OPEC, Dr. Sanusi Barkindo, noted that nations like Nigeria now face a, “triple whammy”, including the impact of COVID-19, which has crippled the economies of poorer countries more than wealthier ones.
The theme of the three-day conference was: “Strategic Responses of Energy Sector to Covid-19 Impacts on African Economies,” and it was organised in collaboration with the International Association for Energy Economics (IAEE).
Investments in the oil and gas sector have been on a downward spiral, following boardroom pressures on Internally Oil Companies (IOCs) and increasing push by Civil Society Organisations (CSOs) to cut funding for fossil fuels and refocus their attention on growing renewable sources of energy.
But Barkindo noted that nations to be mostly affected have less cushion in place to deal with the devastating health and socio-economic outcomes of the predicted situation as well as less ability to immunise their citizens quickly.
The OPEC helmsman stressed that the pandemic has had a devastating effect on the oil industries of poorer countries, pointing out that the accelerated energy transition in the light of the pandemic was encouraging a move away from fossil fuel usage and investment in addition to the likely suffering emanating from the effects of climate change.
“The energy security risk that would result from too little investment would heavily impact both producers and consumers. Oil-producing developing countries, like Nigeria, would be particularly hard hit. History has shown that energy insecurity brings with it economic insecurity and geopolitical instability.
“All OPEC members, including Nigeria, will have to re-strategise to maintain their positions in the new global energy mix, including focusing on economic diversification. Oil-producing countries, and in particular African countries that rely on oil and gas production for revenues, must create an investment friendly climate,” Barkindo stated.
The former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), however posited that with the passage of the Petroleum Industry Bill (PIB), there was renewed hope in reviving the fortunes of the oil and gas industry in Nigeria.
According to the OPEC boss, reduced Foreign Direct Investments (FDI) into Africa’s oil industry could be catastrophic for many countries, noting that OPEC was greatly concerned about increasing pressure on the oil industry coming from many sides, including decision-makers, along with investors.
“Even within the boardrooms of oil majors, the push is strong to strive for policies and initiatives that could have a drastic negative effect on oil-producing countries. Oil is the lifeblood of our country, thus the importance of this issue cannot be underestimated.
“The Environmental, Social and Governance (ESG) criteria are being written without considering the unique circumstances of developing countries. This was seen recently in a Dutch courtroom.
“Royal Dutch Shell was ordered in a landmark case in May to reduce global carbon emissions by 45 per cent by the end of 2030 compared with 2019 levels — extraneous to the provisions of the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement,” Barkindo said.
He pointed out that environmental activists have now secured support from investors to install international oil company board members with a stronger focus on climate, while there has been a blanket rejection regarding new investment in the fossil fuel industry by investors where climate-related risk disclosures are now to be included as legal requirements.
In May the International Energy Agency (IEA), a strong voice against the continued use of fossil fuels released a publication entitled ‘Net Zero by 2050’, which focuses on emissions to the exclusion of demand and supply, and raises many questions related to implementation and possible implications.
Listing the IEA conditions for meeting zero carbon emissions by 2050, Barkindo stated that it includes the proposition that there will be no need to invest in new fossil fuel supply after 2021.
In addition, the IEA report, Barkindo noted, also sees no new sales of fossil fuel boilers after 2025 while 60 per cent of global car sales should be electric with no new Internal Combustion Engine (ICE) car sales after 2035 globally and 50 per cent of heavy truck sales being electric from 2035.
As a result of this, he said that primary energy demand could drop by seven per cent below 2020 figures, even though the economy would be twice as large and the world’s population two billion people larger.
“Naturally, a massive drop in oil demand would be expected to follow. These postulations would be catastrophic to the economies of oil-producing developing countries and by extension the world at large,” he projected.
He predicted further that this may be followed by litigations which could continue and may expand to oil-producing developing countries, urging members to help steer the global conversation and influence policymakers to understand the “folly of this direction”.
Barkindo said rather than push for the end to fossil fuels, the world needs to tap into all technology available to reduce emissions; work together with IOCs to present a common case in litigation; and engage in multilateral platforms, including the UNFCCC, to present oil-producing developing countries’ position.
He argued that energy poverty continues to disproportionately impact millions across Africa, stressing that OPEC data show that an estimated 47 per cent of Sub-Saharan Africans have no electricity and 85 per cent lack access to clean fuels and technology for cooking.
He explained that access to energy enables development and must be viewed as a human right, stressing that the inequalities which were in place before the pandemic stand to be amplified.
“We must build resilient, sustainable, equitable and inclusive societies in the face of the energy transition,” he argued.
He maintained that oil has a powerful role to play in the energy transition, “and it should not be swept under the rug based on old credentials”.
“With the help of technology, our industry can become low carbon or even zero-carbon. This includes technologies already being implemented such as carbon capture, utilisation and storage. Additionally, great strides have been made in efficiency gains in the industry, along the entire production chain.
“It is essential that one compares the lifetime credentials of each source of energy in terms of emissions. For example, electric cars may appear cleaner, but emissions are buried in many of the industrial process required to produce them,” he emphasised.
“The transport sector — particularly road and aviation transport — will see a return to pre-COVID levels much later. Road transport is expected to recover by sometime in 2023 and aviation in 2024. These figures assume that the pandemic will be contained within this year,” he added.
Some other participants at the open session included the President of NAEE, Prof Yinka Omorogbe, a founding member of the association and former president, Prof. Adeola Adenikinju, a renowned industry expert, Prof. Wunmi Iledare as well as Managing Director of Waltersmith Petroman, Mr Chikezie Nwosu.
Meanwhile, Deputy Prime Minister of the Russian Federation. Mr. Alexander Novak, has lauded Nigeria’s Barkindo for his invaluable contribution to stabilising the oil market, despite the recent crisis.
In a letter he wrote to the OPEC scribe, Novak reaffirmed the commitment of the Russian side to the development of the constructive cooperation with OPEC both within the framework of the bilateral dialogue and in the OPEC/non-OPEC format – based on trust, mutual respect and recognition of interests for the benefit of oil producers and consumers.
“I share your high assessment of the efficiency of our cooperation within the OPEC/non-OPEC format and, in this regard, would like to underline your invaluable personal contribution as OPEC secretary general to the joint decisions that ensure the stability and predictability of the world oil market.
“I believe that in the conditions of continued uncertainty in the development of the global economy, the significance of the coordinated work in order to maintain the stability of the global energy markets will only increase,” he stated.