Is Nigeria Ready for Low-carbon Energy Transition?

In this report, Emmanuel Addeh examines the global rush for renewable energy sources, a development that is expected to see a huge decline in the use of fossil fuels as a major energy generating source

Nigeria has the largest oil and gas reserve in Sub-Saharan Africa, with crude oil accounting for 90 per cent of its export earnings and government’s major budgetary decisions as well as annual revenue trajectories mostly revolving around the commodity. However, as the country gets pushed on all sides by the dynamics of global energy politics and policies, including the Paris Agreement on Climate Change and universal commitments to transition to low-carbon energy, the oil and gas industry now faces a bleak future.

Pressures from these global actors have now put the country’s decades-long dependence on oil on a shaky ground, leaving Nigeria in a vulnerable and increasingly unsustainable position as international finance institutions continue to withdraw their backing for fossil-fuel related projects.

The global transition to embrace renewable sources of energy impacts Nigeria in two major critical ways: fossil fuel as a source of foreign exchange earner and as a source of energy for powering homes and social investments like schools and hospitals as well as industries.
As the downturn in world’s oil and gas industry continues and countries like Nigeria weigh the likely consequences, it would appear that the country has again positioned itself as a spectator rather than a major actor in the goings-on on the global stage.
Phasing out fossil fuels

As the saying goes, whatever has a beginning must have an end. What is not in contention is that the gradual reduction of the use of fossil fuels to zero and it’s replacement with sustainable energy sources in all sectors has become a reality that any serious nation will only ignore at its own peril. For instance, in 2020 alone, it was estimated that companies, governments and households invested over $501.3 billion in decarbonisation efforts as fresh attention moved towards renewable energy, including solar, wind, electric vehicles and associated charging infrastructure, energy storage, energy-efficient heating systems, carbon capture and storage as well as hydrogen. As implementation of renewable energy sources continues to increase, the costs have inevitably declined in many countries, including those ones buying Nigeria’s oil, thereby worsening the future outlook of the commodity.

It will not be out of place to posit that the world has seen this transition, although in a smaller scale in the past. Before the last decade, the use of coal as a major source of energy was huge. But coal use peaked in 2013 and is expected to fizzle out soon.
As of 2018, many countries and many sub-national governments and businesses had become members of the Powering Past Coal Alliance, each making a declaration to advance the transition away from unabated coal power generation as more coal power is retired , rather than built.

The same transition is being largely faced by crude oil, whether refined into fuel, diesel or petrol or for use in transportation by conventional cars, trucks, trains, planes and ships.

Although , quite a handful of countries, including Nigeria, propose to use natural gas, which has an emission intensity of about 500g/kWh as a temporary “bridge fuel” to replace petroleum, even this is already being phase-out by some regions, especially in Europe and America.

In the main, anti-fossil fuel campaigners believe that halting its deployment will reduce deaths and illnesses caused by air pollution, limit climate change, reduce energy subsidies and generally mitigate its impact whether from heating and cooking, or outdoors from vehicle exhaust, from gas flaring or its use in industries, which accounts for over 70 per cent of greenhouse gas emissions.

Countries, even the least expected to comply are making commitments to a carbon-free world.

China has pledged to become carbon neutral by 2060, India has committed to a target of achieving 40 per cent of its total electricity generation from non-fossil fuel sources by 2030, the UK sees the country carbon neutral by 2050 and for the first time, in 2020, renewables overtook fossil fuels as the European Union’s main source of electricity.

Some of these alternative sources of energy are: solar energy, hydroelectricity, marine energy, wind energy, geothermal energy, biofuels, ethanol and Hydrogen.

In the same vein, Norway is phasing out internal combustion engines by 2025, several US states already have a zero-emissions vehicle mandate, incrementally requiring a certain percent of cars sold to be electric, same for Germany and many other nations.

It is estimated that as of 2020, 1200 institutions possessing $14 trillion divested or made a commitment to do so from the fossil fuel industry.

For national oil companies, NOCs like Algeria’s Sonatrach, Brazil’s Petrobras, Malaysia’s Petronas, Norway’s Equinor, and Saudi Arabia’s Saudi Aramco are already putting the transition at the centre of their business strategies; undergoing corporate governance reforms in support of their governments’ efforts at reducing carbon emissions and increasing investment and research in renewables.

Any provisions for renewables in the PIB?

Experts have argued that the Petroleum Industry Bill (PIB), currently before the national assembly, should have presented the perfect avenue for the Nigerian government to enunciate its policies and proposals to move to a more sustainable renewable energy future. But aside the usual platitudes, including proposal for environmental clean-ups, the conclusion is that these are not far-reaching enough to guarantee a wholesome trajectory.

In addition, the PIB also seeks to prohibit flaring of gas, except for emergency purposes or for safety reasons which would attract a fine and requires the installation of metering equipment.

The bill would also require gas producing licensees or lessees to submit an elimination and monetisation plan for the associated gas within one year of the effective date of the law.
Furthermore, there’s the host communities development aspect, which includes the establishment of host communities development trusts that would act as funds for environmental, social, and infrastructure projects.

But in the end, it fails to account for climate change, acknowledge the Paris Agreement, and address the need for diversification to adequately prepare Nigeria for the energy transition that is already underway.

However, as Solina Kennedy and co argue in their treatise, “Nigeria’s Petroleum Industry Bill: A Missed Opportunity to Prepare for the Zero-Carbon Future,” rather than locking more capital into projects and infrastructure that will soon be obsolete, Nigeria should be promoting the stewardship of assets that propel the energy transition forward, not those that will be left behind.

According to them, diversifying away from oil, investing in clean energy sources, and improving governance are essential steps for Nigeria to effectively break free from its oil dependence and seize the business opportunity. Put differently, they propose that the government should include climate change governance principles in the NNPC reform agenda, establish a separate strategic division within the corporation to develop clear target metrics and performance results around low-carbon energy responsibilities such as reducing carbon emissions, planning how to limit future oil and gas projects, and developing new business in renewable energy.

Little insignificant steps

As stated earlier, the transition from fossil fuels will markedly affect the petroleum sector where the country gets up to 90 per cent of its badly needed foreign exchange earnings and how and from where it generates its electricity.

Admittedly, there have been moves, although still baby steps to make renewables a part of the country’s electricity supply mix driven mainly by the Rural Electrification Agency (REA).

For instance, there’s an ongoing scheme to deliver and maintain five million new solar connections under a ‘solar power strategy’, expected to support 250,000 new jobs and impact up to 25 million beneficiaries through the installation of 5 million solar home systems and mini-grids.

The plan also supports the upstream value chain by promoting the large-scale assembly of solar components in Nigeria.

In addition, the federal government has said that it is addressing clean cooking in its plan with a commitment to implement the National Liquefied Petroleum Gas (LPG) expansion programme to support the transition from traditional fuels for cooking, such as kerosene and firewood, to cleaner LPG fuel.

But in the sense of transitioning from over-reliance on petroleum products to earn foreign exchange or for transportation and other related areas, it would appear that nothing much is being done.

Nigeria versus Africa

Last month’s climate change meeting organised by the United States President, Joe Biden, presented an opportunity for global leaders to enunciate clear policies or efforts to decarbonise the provision of energy.

In concrete terms, Uhuru Kenyatta, Kenya’s President, highlighted the appeal of geothermal power in the East African state, noting that the country also has wind potential, as highlighted by the Lake Turkana project.

In his remarks, South African President, Cyril Ramaphosa, also took the opportunity of the US summit to highlight green energy plans, mentioning the country’s Integrated Resource Plan (IRP) which has set the goal of achieving 17 GW of electricity by 2030.

Ramaphosa stated that a “just transition” involved reducing the reliance on fossil fuels and emissions. This must come, he said, with “sustaining economic growth, creating jobs and protecting those most affected by these changes”.

South Africa requires an energy shift “where the uptake of sustainable systems and technologies proceeds at a realistic pace,” he opined.

For Nigerian President, Muhammadu Buhari, who took a slightly different stance on the question of the energy transition, it is not just possible for now to totally jettison fossil fuels.

Buhari said Nigeria is working on ways to improve cooking fuel, which he said will involve shifting from the use of wood stoves to kerosene, LPG, biogas and electricity, further pushing the argument that for traditional hydrocarbon producers like Nigeria, there are major challenges ahead for any talk about energy transition.

Stakeholders’ thoughts on energy transition

For the Minister of State for Petroleum Resources, Mr Timipre Sylva, Nigeria does not have enough resources to join the race to renewable energy any time soon.

Reacting to criticisms that the PIB does not make provision for transition to a decarbonised energy ecosystem, the minister noted that Nigeria should work on its areas of comparative advantage, rather than join the call for energy transition.

“We are not really in the race to renewables as a country and even as a continent, we are not really very much in the race to renewable. Let’s look at where we have our comparative advantage.

“Our comparative advantage today as far as energy is concerned is the area of oil and gas. We have a lot of gas in this territory, unfortunately we have not focused on gas and gas is considered to be a cleaner fuel.

“In fact some people have begun to discuss gas not as a transition fuel, but as a destination fuel. So, it is also considered as a renewable fuel. What we doing in the PIB is to move the focus from oil to gas,” he posited.

He added: “That is why I always advocate internationally that they cannot pigeonhole us. That is not our area of strength. We will concentrate as a country in our area of strength which is gas. Even if they consider gas as a transition fuel, then we are going to be very strong in that.”

For the Group Managing Director of NNPC, Mele Kyari, although technology and innovation were facilitating a new global energy order aimed at decarbonising the world and safeguarding the climate, a wholesale transition may not be possible for now.

He stressed that renewable energy sources such as solar and wind which would be key components of the new energy mix were largely influenced by seasons and were non-transportable to demand centres where they are in short supply.

Kyari is of the view that natural gas as well as blue hydrogen, will play key roles in the clean energy drive even as it provides a significant proportion of the global energy mix as well as guarantee feedstock to gas-based industries.

“Nigeria has committed huge resources to ensure that domestic gas infrastructure reaches every corner of our country to deepen natural gas utilisation, spur investment in power and gas-based industries, grow the economy and generate employment for millions of our young people,” Kyari stated.

One other stakeholder in the sector who has bared his mind on the global phenomenon is the Executive Secretary of the Petroleum Trust Development Fund (PTDF), Aliyu Gusau, who also opined that the country cannot afford such an immediate transition to renewables.
“Our estimation is that we are going to have a window of let’s say at most 20 years to continue to use fossil fuel, because the whole world is transiting to a cleaner and more carbon neutral situation.

“But we cannot throw away the oil. We have to make optimal utilisation of that resource within the time that is available to us. So the drafting and the design of the bill is predicated on the fact that what can we do within this window to be able to optimally utilise the resources to provide the means of transition”.

But the African Refiners and Distribution Association (ARDA) led by Nigeria’s Anibor Kragha, believes that there is the need for the continent to quickly take visible steps as the rest of world moves towards cleaner and renewable sources of energy, even if for now it can only afford to focus on gas.

The executive secretary explained that it has even become more important for Africans to embrace modern clean energy now as over 850 million Africans still depend on solid fuels or biomass for cooking.

The petroleum expert emphasised that without strategic efforts towards energy transition, especially for cooking, solid fuels may continue to kill over 600,000 Africans yearly due to household air pollution.

He stressed that health challenges loom in Africa if steps are not urgently taken to transition into cleaner fuels in line with the United Nations Sustainable Development Goals (SDGs).

“The deployment of the planned Africa LPG sector development fund to finance national LPG ecosystems at country-level will ensure a robust, full value chain approach to drive sustainable investments and accelerate LPG adoption across the continent.

“An integrated ecosystem approach for deploying sustainable investments across the LPG value chain is essential in Africa’s drive towards world-class per capita consumption of LPG”, he stated.

As the race for a zero emission world continues to take shape up, Nigeria must be actively involved rather than being a mere bystander in the interest of all.