Oil Economy: Lest We Forget

EDIFYING ELUCIDATION BY OKEY IKECHUKWU

Take inventory of the federal government’s expenditure in Niger Republic, over the last five years and you will be speechless with dismay and consternation. Brand new Rail line service on a route of questionable economic value. Petroleum refineries started and finished, while we have neither repaired our damaged ones nor built new ones. We are still importing petroleum products and increasing the pump price of the product against global trends in oil prices. New expressways and other major infrastructural projects are springing up in, and around, Niger Republic at the expense of the Nigerian State; with more projects still loading, according to reports. Our government is increasing taxes, is still borrowing and is still spending on mostly economically and socio-politically unproductive ventures. Is it that Zakat is now state policy, as most cost items are “palliatives” of sorts? But we are digressing.

Our concern here today revolves around the dawning global oil crisis, which will certainly impact negatively on our economic fortunes. True, oil is going to be around for quite a while yet. Afterall coal has not quite disappeared as industrial fuel, has it? Without denying the likely continued relevance of oil, the issue today is that forward looking nations are already migrating into the new fuel-and-energy future; which is not oil determined, or oil dominated. While some commendable industry thinking is trying to weave great survival initiatives around that, current political thinking appears to be light years behind.

Former Senate President, Ike Ekweremadu, was once quoted as saying: “… we should do everything possible to frustrate the sale of electric cars in Nigeria to enable us sell our oil.” This was during the Senate Plenary on a bill sponsored by Senator Ben Murray-Bruce. The latter was angling for an Act to phase out petrol vehicles by 2035 and introduce electric cars in Nigeria. Continuing, and as if saying “Let us close our eyes, ears, doors and windows to the match of world events, in terms of where the global economy was headed, on that occasion, Ekweremadu was reported to have said, “Besides, in economic sense, we are an oil producing country.”

This was coming years into the Obama Presidency. It would be recalled that Obama, on being elected, said that the US would look for alternative sources of energy, to reduce its dependence on petroleum products for the bulk of its energy needs. America was screaming “biofuels.” American farmers got sundry matching orders. A lot of research and innovation went into ascertaining the fuel output of various food items. Most US research on energy and related endeavours were geared towards this one goal. It also coloured discussions on the country’s national energy policy. Then research confirmed that most agricultural products did not turn out impressive fuel yields. The massive volumes for agricultural products needed as input, to produce small quantities of usable fuel was a major drawback. So, the US began to recalibrate.

Now that a post COVID-19 world is staring us in the face, after years of declining market value for our oil, it seems safe to say that events have now come full circle for Nigeria. It is no longer news that the US, which had hitherto been Nigeria’s biggest oil customer, backpedalled from our oil. As at 2014 the US authorities, and official sources in Nigeria, put the total volume of oil bought from Nigeria by the US at zero litres. Since then we have neither re-strategized nor modified our ‘Almajiri’ national income management policy, which is hand-out based and which is heavy on consumption and expenditure on unproductive ventures and sectors. We are now up against the wall. What the states and local governments get at regular intervals, when they present their empty plates, has declined precipitously. But their spending habits, priorities and appetites are unchanged.

The federal government was told to go to hell by a Rotimi Amaechi led Nigerian Governors Forum, when it proposed savings. “Share it, let us eat today and be merry” was the mantra. Like typical epicureans, the then leaders focused on their takings from the national sharing formula. They said nothing about a national production formula. Today, as back then, nearly all the states are in debt. The situation of the federal government is worse. But it is still borrowing. No one dares think, or talk, about savings. The driving disposition of all ‘stakeholders’ in matters pertaining to the national treasury today is “distribution and consumption.” Not investment and/or production. We still think that it is a simple matter of digging out the oil from the ground and sharing its value. No, not even that. What actually happens is that foreign companies, whose alleged output we accept in good faith, dig out the oil and give us whatever they declare. Till date, we know little about the actual daily output of Nigeria’s oil fields.

The world’s New demand for, and focus on, alternative energy sources has sounded the death knell for the large quantities of oil that we used to ship all over the world. Continued, and continuous, loss of market, as well as loss of revenue, are here with us. Lo and behold, we are face to face with the diminishing profile of a nation whose presumed greatness rested for too long on a wasting asset. As oil imports from Nigeria has dropped practically to zero for some countries, and with clear indications that the situation is now irreversible, we are still far from re-strategizing. Amidst the declining revenue, disappearing foreign reserves and colossal pressures on the exchange rate, some allegedly knowledgeable experts are saying that the Nigerian economy is more than robust enough to withstand the shock waves all manner and economic counter currents may bring to bear on it.

Brilliant, is it not? A man it is told that a trailer has just run over someone and replies with: “Don’t sound so tragic, a toe is still twitching in the dead man’s crushed right leg!
That Nigeria in now one of the countries from which the US, the world’s largest oil producer and consumer, has almost completely stopped buying oil is because of the growing sourcing of very high quality oil from shale. The shale revolution has led to dramatic increase in its domestic production, following the use of such new technologies as horizontal drilling and hydraulic fracturing, or fracking, to maximize oil yields. As I write, international oil firms like the Royal Dutch Shell, ExxonMobil, Total and Chevron, which operate most of Nigeria’s major oil fields, are still on the divesting curve. What is going on today among these oil companies is a portfolio rotation of their assets, as they divert more resources into shale oil production. Does Nigeria have shale in the right quantities and is working towards its commercial exploitation? Shale is more ‘democratized’ in the world than petroleum. Nigeria shares the same fate with countries like Algeria, Libya and Angola, whose high quality crude is similar to the one pumped in the new oil fields of North Dakota. See how our ‘sweet crude’ has now become a curse?

It is interesting that the Middle East nations, like Saudi Arabia and Kuwait, are less affected by this development, because their lower quality crude oil is still very much in demand by US refineries. The 2013 warning of the then Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, about the threat posed to oil producers by energy from shale, did not elicit the right national response or a strategic position document from her ministry. The nation’s switching of more of its oil exports to Asia, and the replacing of US with India as the largest importer of Nigerian oil at the time, was an ostrich move. It has got us nowhere, till date. The truth is that we have a lousy product in a demand-switching world.

The solution is diversification of the national economy. But we all know that “Diversification of the Nigerian economy” is now a threadbare expression. It has been the subject of many seminars, international trips and presidential speeches. Yet, it is what will raise, or restore, Nigeria’s global relevance and economic viability in the medium and long term. Truth is: just as slaves became unwelcome commodity in international trade when mechanisation came on the scene, and coal gave way to petroleum over time, we must face up to the hard fuel-facts of today. Such ‘energy sources’ as slaves and coal, as well as well as the national economies that depended on them in a mobile world, collapsed because they were overtaken by the march of events. This need not be our fate.

Other nations facing the same problem as Nigeria today are also in search of new markets in the same Asia. The possibilities of price crashes and all manner of undercutting by marketers are out there and thriving. The giant of Africa must now find other ways of measuring its greatness, besides talking about its large population and landmass. A large, not too educated, population that is not enjoying wonderful health facilities is no asset. Massive landmass, part of which is prime arable land that is not properly cultivated for maximum yield, is also no asset. Poor governance structures, unfocused leadership and insecurity, working together with divisive leadership ethos promise little of good cheer. So, or “greatness” is now open to question on all counts

Almost every country in the world today can produce fuel from shale. In addition, countries like Ghana, Cote d’Ivoire, South Sudan, Equatorial Guinea, Ethiopia and Kenya, which have discovered oil in commercial quantities, will not tremble before Nigeria because it once wielded a big purse that it did not manage strategically. It’s back to our agricultural products of the thirties, forties and fifties, Afterall. But not the subsistence farming we have always known. As for those whose idea of how to survive the current global trends is to cover our eyes, or bury our heads in the sand like an ostrich, a rude awakening is around the corner.