With countries of the world agreeing to transit to cleaner energy, there are strong indications that it will take Nigeria and other developing economies between 30 and 50 years to achieve full energy transition.
The plan for energy transition was meant to limit climate change that is leading to consistent flooding and other ecological disasters that have affected lives and properties across the world.
To this end, some experts, who spoke to LEADERSHIP Sunday at the weekend, expect oil and gas to play major roles in the new energy transition, although, investment in ‘dirty fuels’ might dry up as years goes by, shifting focus on natural gas.
An economist and chief executive officer (CEO) of Cent for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, pointed that “the unfolding scenario for energy transition poses a significant risk to oil and gas investments globally, in the medium to long term. But for many developing economies, the transition may take between 30 to 50 years.”
Yusuf, who was the former director general of the Lagos Chamber of Commerce and Industry (LCCI), stated that profitable investments could still take place in the sector over this period, but that “the economics of such investments must be right. The investment analysis needs to be more rigorous.”
According to him, “the outlook for gas, petrochemicals and fertilisers is still positive over the short to medium term. These are all associated outcomes of oil and gas investments. Meanwhile, the government needs to also put generous incentives in place to attract investors.”
President of the Independent Petroleum Producers Group (IPPG), Abdulrasaaq Isa, identified access to funding as a critical challenge especially for indigenous producers, a factor that had impacted their survival and optimal performance of assets in the industry.
Isa added that as funding opportunities become limited due to global industry concerns regarding the climate, it is imperative for the industry to explore creative ways of funding operations and projects.
Speaking when the group met with the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in Lagos, he suggested that one of the ways this can be achieved is by establishing an energy bank.
He said the creation of the bank should be dedicated solely to the industry with capacity to fund major oil and gas projects at lower and/or globally competitive interest rates.
Moreover, the chief executive of the NUPRC, Gbenga Komolafe, supported the idea and challenged the group to develop an articulated funding structure that will include offshore funding alternative.
As a signatory to the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol, Nigeria has made international commitments to promote low-carbon development, including meeting its reporting obligations to the UNFCCC, reducing emissions of greenhouse gases consistent with its national circumstances and within the context of poverty reduction and economic growth.
However, a new report released by PricewaterhouseCooper (PwC) has shown that about $2.8 trillion investment in clean energy mix is required from Nigeria and other African countries to reduce its current annual carbon dioxide emissions in order to achieve net zero by 2050.
PwC said it had been estimated that achieving global net zero by 2050 would cost as much as $130 trillion, making it the single biggest global growth opportunity.
“However, for those who can’t transition, it will be a significant disrupter, with the risk of major stranded assets across the globe,” it said.
Meanwhile, the group managing director, Nigerian National Petroleum Corporation(NNPC), Mele Kyari, disclosed that investment in Nigeria’s oil and gas industry had fallen by 30 per cent due to global economic downturn.
Kyari, who stated this at the official opening of the 2021 Nigeria Oil and Gas Conference in Abuja, said operators in the sector are now focusing on quick oil.
Even though, the impact of the fall in investment is presently not seen, it would manifest in the next few years, but even when finances for fossil fuel investments are dwindling due to energy transition, Nigeria and other developing economies would depend on hydrocarbon resources to power their economies in the coming decades.
According to Kyari, “Energy transition is not about movement from fossil fuel to renewable; it is creating the right balance and there is this common mistake that in 2050, fossil fuel will go away and we will be dealing with renewables. That is very far from the truth.
“For us as a developing country, an energy resource-dependent county, we know for sure that beyond 2050 that oil will be relevant for us.
“Today, we are deficit in infrastructure, power and many other things, but so much good works are going on, but the fact remains that there is deficit here. All the engagements around electric vehicle, even in terms of carbon-zero objective, probably is very questionable if even it is the solution to carbon zero-emission; so many things are happening.”
Continuing, the NNPC chief executive posited that “post realities will come up in the next five years and we will have to deal with it, but for us we know for sure that things have changed; financial institutions have changed their priorities, some of them have stopped lending to energy borrowings, among others.
“Yes, it may be for the moment, they may come back to the realities probably in another five years, but the reality today is you can’t find easy financing for fossil fuel-related businesses.”
Nonetheless, despite the energy transition policy, he said, there is still demand for crude oil.
“For every forecast that we have, including updates from very many other institutions that are not in this business, everybody says even by 2050 we still have oil demand of about 100 million barrels, so what you will see is growth.
“We are still at about 95, 96 today but if we’re still at 100 by year 2050, it means that the growth is very small but there will still be 100 million barrels production on the ground, so the position we are taking as the national oil industry and also as an industry in this country is to produce the quick oil.
“Quick oil means that we have to monitor every resources that is available today, so we will create the resources that will create a future for our country and for our businesses and the oil will provide that fulcrum for us to create the wealth, but one thing we are also sure is that gas is everything,” he pointed out.
To this end, Africa energy ministers, nonetheless, said African countries will rely heavily on fossils fuels like natural gas as Africa Oil Week conference opens in Dubai on Monday.
Although, 55 African countries account for only 4 per cent of the world’s total emissions, they are being asked to implement energy transition policies while most of them have low access to electricity.
“When we say energy transition, it does not exactly apply to Africa. Our agenda is access to reliable and affordable energy,” commissioner for infrastructure and energy of the African Union Commission, Amani Abou-Zeid, said at the Africa Oil Week conference.
African countries want the global community and investors in particular to exploit their growing gas resources to be used as a transition fuel, ministers told Africa Oil Week.
“In addition to working to reduce emissions, we need the support of investors because we need to exploit gas and we need more financing for that,” Senegal’s minister of petroleum and energies, Aissatou Sophie Gladima, said.
Nearly 40 per cent of global new gas discoveries in the last decade were in Africa, mainly Senegal, Mauritania, Mozambiquev and Tanzania, with 17 countries producing gas, seven net exporters and seven net importers, according to the African Energy Commission.
However, over 45 per cent of Africa’s natural gas production is exported and the contribution of gas in energy balance is ‘minimal.’
Mauritania, which is developing the floating Greater Tortue Ahmeyim LNG project offshore with Senegal, wants the continent to be given time to tap its nascent oil and gas industry, saidminister of petroleum, mines and energy, Abdessalam Saleh.
He added that “as African countries, we have just started to discover our own fossil fuels. So, the big question for us is: how do we move along this dynamics of energy transition while optimising the use of our fossil fuels.”
On November 2, Nigeria committed to achieve net-zero carbon emissions by 2060 and President Muhammadu Buhari underlined the importance of gas as a transition fuel.
Buhari said for Nigeria and other African countries, gas should be embraced as a transitional fuel, and not demonised.
Many financial institutions have come under pressure to reduce their funding for oil and gas businesses because of the large carbon footprint of such projects. These companies have already started to reduce their investments in oil and gas as part of their net zero carbon targets.
Abou-Zeid said the continent needs to encourage the use of gas over crude and other dirty fuels.
The Organisation of Petroleum Exporting Countries (OPEC) had earlier said oil demand will continue to accelerate in the coming years as economies bounce back from the COVID-19 pandemic, with OPEC seeing oil demand returning to pre-pandemic levels next year and continuing to surge by 1.7 million barrels per day (bpd) in 2023.
Presenting the cartel’s annual World Oil Outlook at OPEC headquarters in Vienna, in September, secretary general, Mohammad Barkindo, warned that funds are critical to keeping up with surging demand.
“If the necessary investments are not made, it could have not only implications as viewed in current gas developments in Europe and elsewhere around the world, but leave long-term scars, not only for producers but consumers as well,” Barkindo said.
This year’s oil outflow shows that investments of $11.8 trillion will be required between now and 2045 in the upstream, midstream and downstream sectors, he said.
Oil will retain its number one position in the global energy mix, providing 28 per cent of global energy needs by 2045.
After the huge 9.3 million bpd drop in global oil demand last year when the coronavirus pandemic crushed global business activities, oil markets are regaining their mojo as economies recover.
Barkindo cautioned that there are plenty of strains and conflicts related to energy, affordability, energy security, and reducing emissions that demand attention from policymakers.
“Focusing only on one of these issues while ignoring the others can lead to unintended consequences, such as market distortions and price volatility that we witness today. This has been evident in recent weeks, and more so in recent days,” he said.
Looking forward, OPEC sees oil demand in 2026 exceeding 2020 levels by 14 million bpd with less developed economies driving the lion’s share of that gain.
But the long-term oil outlook calls for a sharp slowdown, with total demand reaching 104.4 million bpd by 2026, and climbing to only 108 million bpd by 2045. Gas will see the largest growth, driven in part by higher urbanisation rates, industrial demand, and its competitiveness over coal as a cleaner alternative for power generation.