While getting Nigeria to the point where it can realize the full potential of its petroleum resources has been slow going, the country appears to be on the right track
By NJ Ayuk*
On Oct. 1, 1960, everything seemed possible for Nigeria: After nearly 80 years of colonialism under Great Britain, it was finally an independent nation.
During the newly independent nation’s earliest days, there was every reason for Nigerians to envision a bright future for themselves and their country, one in which Nigeria’s vast oil and gas reserves would deliver widespread prosperity. One of stability and growth.
Tragically, Nigeria’s story moved in a different direction. Yes, there was a brief period of economic growth, but that was followed by multiple coups, civil war, military rule, corruption, and poverty. Instead of helping everyday Nigerians, the country’s oil wealth went to an elite few in power while leaving communities, particularly those in the Niger Delta, to deal with environmental degradation and dwindling means of supporting themselves. Instead of using its oil revenue to strengthen other sectors and diversify the economy, Nigeria has made oil its primary source of government revenue. In recent decades, instability in the region has only worsened and contributed to the rise of terrorist groups like Boko Haram.
I still believe that 60 years of independence is an important milestone. We still have much to celebrate, including a future in which we can right the wrongs of our past.
While getting Nigeria to the point where it can realize the full potential of its petroleum resources has been slow going, the country appears to be on the right track. As I write this, Nigeria’s long-awaited Petroleum Industry Bill (PIB) — intended to bring transparency and new life to the country’s oil and gas sector — is closer than ever to passage. Nigeria is working to monetize its natural gas resources, and we’re seeing great interest in the latest marginal field bidding round.
So like those who celebrated their nation’s independence in 1960, I’m hopeful about Nigeria’s future. My optimism might be tempered a bit by Nigeria’s unresolved challenges, including continuing concerns about government transparency, but it has not by any means been extinguished. I truly believe that Nigeria can learn from its mistakes, take a strategic approach to the opportunities before it, and create a country where all Nigerians can begin a chapter of safety and prosperity. Nigeria’s energy industry can realize its full promise.
Nigeria is Rich in Resources, Poor in Policy
Just like I believe that Nigeria’s oil and gas are key to improving the country’s future, I see that mismanagement of these resources has contributed to many of its struggles. Too many times during the last 60 years, Nigeria’s government has missed opportunities to channel the country’s oil and gas resources into economic growth. It has been particularly frustrating to see Nigeria — with natural gas reserves at an estimated 185 trillion cubic feet — struggle with energy poverty. Only about 45% of Nigerians have electricity, and even those with access to the power grid deal with regular power outages.
Again, weak governance plays a role in this. Violence and security issues, and Nigeria’s reputation for corruption, have slowed Nigeria’s ability to develop sufficient power plants and hindered foreign investment infrastructure. Meanwhile, Nigeria is paying a steep cost for its power shortages: about $28 billion or 2% of Nigeria’s gross domestic product, as lack of power impedes Nigerian entrepreneurship, private investment, and job creation.
I’m certain that Nigeria could bring reliable power to more people by harnessing its natural gas resources. And, to its credit, the government has been talking in recent years about putting an end to Nigeria’s costly and wasteful natural gas flaring — more than 276 billion cubic feet of natural gas was burned off from Nigeria’s oil fields between September 2018 and September 2019 alone — and capitalizing on this valuable resource. But up to now, Nigeria’s progress on this front has moved at an agonizingly slow pace. The government, for instance, set a Zero Routine Flaring target for 2020 but announced in August that it will not be able to reach its goal. It also has failed to set a new goal.
Then there is the issue of corruption, which has fed into dangerous chain reactions. In 1966 and 1967, shortly after Nigeria gained its independence, corruption was used to justify coups that led to civil war, and ultimately, to military rule for nearly three decades. More recently, frustration over corruption has eroded confidence in local governments, which in turn, has made it easier for terrorist group, Boko Haram, to radicalize and recruit young Nigerians. What’s more, corruption and mismanagement in Nigeria’s security sector have hampered Nigeria’s ability to effectively protect Nigerians from Boko Haram.
This year, with Nigeria’s economy dealing with the one-two punch of the COVID-19 pandemic and low oil prices, decisive government action is more critical than ever. As of late August, the economy had contracted by 6.1%, and 27% of Nigeria’s labor force was unemployed.
I want to be clear: I’m not saying that Nigeria’s problems are insurmountable. Not in the least. In fact, Nigeria is better positioned to start strategically capitalizing on its natural resources than ever before. And if the country can do that, it will be well on its way to a better future.
All is Not Lost – Far From It
While there’s no guarantee that Nigeria’s PIB will become law this year, it has reached an important milestone: President Muhammadu Buhari approved an updated version of the bill and presented it to the National Assembly Sept. 28 for their approval. Both chambers of the National Assembly have to pass the bill before it can be sent to the president for his final signature. If it is passed, the PIB would be transformational for Nigeria’s oil and gas industry and, ultimately, for the country as a whole. It would play a vital role in addressing the inefficiencies plaguing the Nigerian National Petroleum Corporation (NNPC), from slow approval for oil projects to budget shortfalls that hinder its ability to pursue public-private partnerships. What’s more, the bill would create a supportive environment for both IOCs and indigenous petroleum companies, help protect the environment and the interests of host communities, support economic diversification in Nigeria, and critically important, promote transparency in Nigeria’s administration of petroleum resources.
Putting the oil industry on strong footing also could give the government more room to maneuver when it comes to resolving problems in the Niger Delta — including environmental concerns, lack of economic opportunities, crime, and militant activity — and implementing reforms to restrain the advance of Boko Haram. If oil and gas production stabilize, for example, Nigeria’s government will be better positioned to create jobs in the region, both in petroleum and other sectors, which likely would contribute to greater stability there. More investment by IOCs also could lead to much-needed infrastructure in the area, educational and job-training programs for locals, and environmental initiatives. And greater oil and gas revenue — followed by economic growth and diversification — would help Nigeria to fund the security resources it needs to enforce anti-terrorism measures.
The PIB’s progress is good news, but it’s not the only reason I’m optimistic for Nigeria. The government also deserves praise for launching, through the Department of Petroleum Resources, its first marginal field bid round in nearly two decades. Marginal fields hold discovered resources that have been left unattended for more than 10 years. Nigeria is offering 57 fields with total resources estimated at about 800 million barrels of oil and 4.5 trillion cubic feet of gas. Already, interest in the marginal fields has been high, and this could be just the jumpstart Nigeria needs to rekindle interest in the country’s untapped resources.
I also find it encouraging that Nigeria has moved a step closer to natural gas monetization through the Department of Petroleum Resources’ creation of the Nigerian Gas Flare Commercialization Program. Proper channeling of flared gas could impact the country’s gross domestic product by up to $1 billion per year, the department estimates. It could create up to 300,000 jobs, produce 600,000 million tons of liquefied petroleum gas per year, and generate 2,5 gigawatts of power. I commend the federal government for creating this program. Next, Nigeria needs to put in place the legislation, infrastructure, and pricing regulations necessary to make commercialization possible. Nigeria already has successful liquified natural gas (LNG) projects in place — just this year, Nigeria LNG Ltd. signed a $3 billion corporate loan to finance the construction of its seventh LNG train — and with the right policies, they can be even more beneficial.
Also working in Nigeria’s favor has been the country’s membership in OPEC. Not only has OPEC played a critical role in stabilizing global oil prices through production cuts this year, it also has been working to secure the fair value of member countries’ oil resources with the understanding that a thriving petroleum industry contributes to economic growth and improved standards of living. I believe Nigeria’s membership in the OPEC Fund for International Development, a multilateral development finance institution that targets key projects – primarily in energy, transportation, agriculture, water, education, and health —will be beneficial as well.
It has been encouraging as well to observe the fantastic working relationship among OPEC Secretary General Mohammad Barkindo, Minister of State for Petroleum Resources Chief Timipre Sylva, and NNPC Group Managing Director Mele Kyari. In fact, Barkindo recently expressed a strong vote of confidence in both Nigerian officials. “I’ve known both Timipre Sylva as a friend and Mele Kyari as a colleague for a very long time,” Barkindo said last year. “I had worked with both, and I know that if they work together, they will make a good team that will provide the leadership and the corporation that the industry requires.” The cooperation and respect among these leaders can only work in Nigeria’s favor.
Nigeria’s Independence Must Be Respected
As Nigeria takes measures to revamp its petroleum industry, leaders should be prepared to stand their ground against external forces eager to remake Nigeria’s future in the image they want for it. I’m referring to western environmental groups intent on influencing is how Nigeria, and other African countries, transition from fossil fuel production to sustainable energy sources. Many have been pressuring investors to stop supporting oil and gas projects in Africa to prevent climate change. Frankly, they need to back off.
Nigeria is celebrating 60 years of independence. This is not the time to go backward. Outsiders need to respect Nigeria’s right to control its own destiny — and to choose the path it takes to improve its future. Nigeria must be the one to map out and executive its energy transition. And it must do it on its own timetable. And Nigeria already is, by the way, beginning to embrace green technologies. With a $350 million World Bank loan, Nigeria plans to build 10,000 solar-powered mini-grids by 2023. The government also is investing in hydropower projects, including the $5.79 billion Mambilla Power Station in central Nigeria.
All of those projects can work hand in hand to contribute to Nigeria’s economic growth. No one should be pressuring Nigeria to miss out on the many benefits its petroleum resources offer. And today, when the country is finally moving toward harnessing its oil and gas resources in a way that could truly benefit everyday Africans, it would be heartbreaking to see non-Africans knock Nigeria off-course.
Nigeria is So Close
Sir Abubakar Tafawa Balewa, Nigeria’s first prime minister, had this to say about an independent Nigeria: “Our political advance will be of no value if it is not supported by economic progress.”
He was absolutely right.
Nigeria needs revenue to resolve its challenges, and that revenue is within Nigeria’s reach. With the necessary legislation in place, Nigeria can revitalize and capitalize upon its oil industry. And instead of flaring its abundant gas to power, Nigeria can start using it to power households and businesses. To provide feedstock for petrochemicals and help diversify the economy. The gas can even play a valuable role in Nigeria’s energy transition by providing revenue for green initiatives.
All of this is possible, Nigeria simply needs the kind of legislation and policies that are conducive for business to thrive. One of the best ways Nigeria could celebrate its 60th anniversary as an independent nation would be to finally put those measures in place.
*SOURCE African Energy Chamber. NJ Ayuk, is Executive Chairman, of the African Energy Chamber