Bypassing Nigeria’s Oil Sector Financing Challenges to Achieve Net Zero Emissions

“There is a famine in the country” has become a common refrain across the Nigerian landscape due to the effects of the country’s difficult economic situation. While this is a reality on the ground, the narrative is horribly reinforced by traders who, rather than address the contributing factors, prefer to run the blame game, pointing fingers at perceived enemies. Nevertheless, there are causative factors. Addressing these factors would bring quicker relief than constantly complaining about the situation.

Nigeria’s path to its current economic situation has been long and in some ways strange. Much of it is self-inflicted, even if in some quarters this is often downplayed or ignored altogether. The fact remains that Nigeria and its people got so drunk on the petrodollar of the late 60s and early 70s that they went to bed at noon, ignoring other sectors that kept the country in the league of wealthy nations. The handouts that made Nigeria play in the top economic league are still there, but complacency has left them fallow.

Nigeria’s dependence on a commodity whose production level and market price are entirely determined outside its jurisdiction, coupled with the entitlement orientation of the source areas, has brought the country to its present reality. The hardships we experience today are not the result of famine in the country, but of famine in our consciousness. Like most famines, this one was long anticipated but has been overshadowed by the people’s tendency towards political indulgence and religious delusion.

There was a time when agricultural products sustained the country’s economy. The focus on them disappeared with the discovery and exploitation of oil in commercial quantities. Oil became the country’s bride. It was called black gold. It attracted all the attention it could get. Investment in oil dwarfed that in other sectors. Petro-dollars flowed like streams down the slope. Previous economic supporters were neglected and the country sank into fiscal extravagance.

The world needed oil to power its machines in various sectors. Those who had it were worshiped, and those who needed it groveled at their feet. This happened despite the negative environmental impacts, before and after production.

The campaign for a safe environment and the need to protect the earth and humanity became a priority. The gradual depletion of the ozone layer accelerated the need to reduce the carbon footprint, focus on green energy and ultimately eliminate hydrocarbons. Countries that were reduced to monoculture economies due to excessive reliance on fossil fuel revenues began to have a fever. They were forced to begin a gradual transition from fossil fuels, including coal, oil and gas, to green energy and drastically reduce the amount of carbon (net zero) released into the atmosphere by the target period of 2050.

Nigeria is one of the countries in trouble because it still has vast untapped hydrocarbon reserves. As of January 1, 2024, it had 37.5 billion barrels (bbls) of oil and condensate and 209.26 trillion cubic feet (tcf) of gas, which is 30% of the oil and condensate and 33% of Africa’s natural gas reserves. Nigeria’s OPEC production quota for 2024 is 1.5 million barrels per day, but it has technically allowable reserves (TAR) of 1,963,186 barrels of oil and 372,306 barrels of condensate per day and a gas target of 8.9 trillion as of June 25, 2024. Total liquids production (crude oil and condensate) on that date was 1,474,936 barrels per day. Nevertheless, the country has abundant resources of other renewable energy sources.

There is no doubt that Nigeria has vast reserves to develop, but the challenge is financing the development of technology and infrastructure. With oil no longer tempting the industrialized world, financing these aspects is no longer attractive to global financial institutions. It is a highly capital-intensive sector where investors need huge funding to get started. The energy transformation crusade has significantly devalued the equity of fossil fuels and has affected the financing of investments. This has become one of the biggest challenges in developing new reserves, expanding existing facilities and upgrading old ones. As revenues per barrel decline, the revenue stream also declines.

Huge investments are now being directed towards renewable energy. According to the International Renewable Energy Agency (IRENA), annual investment in renewable energy in the regions increased between 2013 and 2020, with the largest increase in East Asia and the Pacific. For example, in 2013, investment in the region was $97 billion, and in 2020 it increased to $170 billion. North America (excluding Mexico) also had a significant investment ranging from $34 billion in 2013 to $53 billion in 2020. Europe had an investment in the region of $49 billion in 2013 and $67 billion in 2020. Latin America, the Caribbean, Eurasia and others also had significant investments in the sector.

In comparison, global annual energy investment from 2015 to 2023 shows an increasing trend towards financing clean energy projects and a decreasing trend towards fossil fuel development.

Key findings from the IEA’s investment report show that global energy investment is set to exceed $3 trillion for the first time in 2024, with $2 trillion going to clean energy technologies and infrastructure. Fossil fuels remain at about $1 trillion. “Clean energy investment has accelerated since 2020, with spending on renewables, networks and storage now higher than oil, gas and coal combined,” it said.

Although there are other challenges, such as environmental issues or gas flaring, financing infrastructure development remains one of the main challenges today and this is a global feature in the area of ​​fossil fuel development.

Nigeria’s upstream regulator, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), has been awake at night pondering ways to increase its share of production through investment and development of new reserves, as well as improving production in existing fields and wells.

James is a member of the Nigerian Association of Editors

Engr Gbenga Komolafe, the Chief Executive Officer of the Commission (CCE), told the House of Representatives Committee on Petroleum Exploration during an interactive meeting with stakeholders on Thursday, June 27, 2024 that with the changes in the global energy map, there has also been intense competition, meaning that oil-producing countries need to move away from conventional strategies to keep up with the global energy footprint.

To do that, he said, Nigeria needs to adapt to global realities to attract investors. One way the commission has won the president’s support is by putting less emphasis on non-refundable upfront wholesale payments — the signature premium — and encouraging a pay-as-you-go version — the production premium — as a means of attracting investment in oil block development, especially as the commission is currently pushing ahead with a bidding round for licenses in 2024, a cocktail of oil blocks available for allocation to investors through competitive bidding.

  • James is a member of the Nigerian Association of Editors