NIGERIA AND THE FOSSIL FUEL CONVERSATION

The death of oil and gas is not yet in sight in Nigeria, argues Godswill Ihetu

The s world has recently intensified the conversation on climate change and the contributions of fossil fuels to global warming. In recent months and at various fora, this subject has dominated discussions in international conferences around the world. Perhaps the one that captured global attention more than the others is COP26. Last October, COP26 held in Glasgow, Scotland, closely followed by the Russian Oil Week a month later, and World Petroleum Congress held in Houston, Texas, last December.

The United Nations Framework Convention on Climate Change (UNFCCC) came into effect on 21 March 1994. This United Nations initiative came about as a result of global concerns regarding the impact of human behavior on climate, and an attempt to stave off the danger that climate change poses. The first Conference of Parties COP1 was held in Berlin in 1995. COP21 was held in Paris in 2015 and was significant because it led to a new international climate agreement, applicable and legally binding on all 197countries including Nigeria, and aimed at keeping global warming at between 1.5 and 2 degrees Celsius.

The outcome of COP 26 was regarded as a contentious climate compromise. Of the many resolutions adopted, I have chosen to highlight the following as I believe they are most relevant to Nigeria.
One, in recognizing that coal is the single biggest contributor to climate change, Conference agreed to reduce or “phase down” the use of coal for power generation. However, only about 40 countries pledged to “phase out” coal. Oil and gas was spared.

Two, over 100 countries pledged to reverse deforestation by 2030.
Three, governments of 24 developed countries and some major car manufactures committed to “work towards all sales of new cars and vans being zero emissions globally by 2035, in leading markets. Major car manufacturing countries like the US, Germany, China, Japan and South Korea and some car makers had not signed to the pledge.

Four, new pledges were made for financial assistance to less developed countries.
The above resolutions mirror the words of COP26 Conference President, Alok Sharma, a United Kingdom Member of Parliament, who said that the “deal made progress on coal, cars, cash and trees”.
Much to the delight of the oil and gas industry, there were no decisions on halting new investments in the industry in spite of pressure from some shareholder and environmental activists. The focus seemed to be on coal, which survived even though most delegates had decided it should go. Although, Nigeria is neither a producer nor an exporter of coal, Nigeria must feel a sense of relief that oil and gas was separated from the focus on fossil fuels. Most of the oil giants think that it would be a mistake to halt oil and gas investments. They admit that fossil fuels, especially oil and gas, will remain the main source of global energy mix for decades to come. For Nigeria, perhaps the biggest outcome from COP26 is the fact that oil and gas did not suffer the moratorium on new investment that had been feared.

At the World Petroleum Congress, it was clearly recognized that, despite the global energy transition, and the desire to move away from fossil fuels, the demand for oil and gas will be around for decades to come. Many CEOs at the event emphasized that more oil and gas investment, rather than less, is required. The OPEC Secretary General, Mohammad Barkindo, warned that “a halt in investment in oil and gas is misguided.” At the Russian Oil Week, the CEOs of BP, Total Energies and ExxonMobil called for urgent investments in natural gas projects to help meet global demands even as the world moves towards cleaner sources of energy.

With the much-touted energy transition from fossil fuels to renewables, major petroleum companies are naming themselves ‘energy companies’ in order to incorporate alternative and renewable energies into their portfolios. They intend to ensure that their current legacy businesses would generate enough cash to invest in the new energy sources in the transition process. Should oil and gas companies agree to keep their oil and gas in the ground, as some climate activist demand, they say that energy transition will experience energy shortages. Demand, they say, will continue to increase with increasing global population and enhanced quality of life. The current European or global gas shortages seems to have vindicated their position, just a few months after COP26. Suddenly, the United States is selling LNG to Europe and even to China. Remarkably, the US is set to beat Qatar to become the world’s largest LNG exporter in 2022, due to new LNG projects coming on stream in 2022. Even US shale oil drilling activity is reported to be picking up in recent months. With global high gas prices, at least three US LNG companies, whose projects have been stalled for years, plan to start construction this year. Nigeria needs to be vigilant, and note the mixed messages and contradictions coming from the US administration, which has urged OPEC to increase production just months after enacting some anti-oil policies at home.

According to OPEC World Oil Outlook 2021, oil demand will plateau between 2035 and 2045, although “renewables, other than hydropower and natural gas, are set to grow the most in that period. OPEC thinks that renewables and natural gas will continue to play a significant role in the evolving energy mix. Despite the plateau of oil demand after 2035, oil will still be the number one energy source in 2045.” Even Faith Birol, Executive Director, International Energy Agency (IEA) was quoted recently as saying that there is “the need for additional investment to meet future demand,” explaining that “the demand for oil and natural gas will not drastically decrease even through our path towards transition to renewable energy.”

In the last few days, in a lecture in Minna, the Group Managing Director of the Nigerian National Petroleum Company Limited (NNPC) has urged the industrialized nations not to put Africa in the same energy transition speed. He said that “putting every country in the same energy transition speed could result in unanticipated collateral damage that can spark energy crisis and deny developing countries access to available and cheaper energy for growth”. This is well said, and in consonance with President Buhari’s announcement at COP26, that Nigeria aims to achieve net zero emissions by 2060 not 2050 as most countries agreed at COP26. Justifiably, the government of Nigeria is committed to focusing on what pathways work for Nigeria. India announced a target of 2070 to achieve net zero emissions; again in recognition that each country determines not only what is in its own interest but also what is achievable. The wealthy countries expect developing countries such as Nigeria, to reduce emissions while at the same time bringing electric power and economic development to growing populations. Nations will still decide how much and how quickly they would achieve net zero emissions; each with their own economic interest and domestic politics.

It is important that Nigeria should go on developing its oil and gas business as supported by the Petroleum Industry Act (PIA) and the recently promulgated Climate Change Act. Nigeria will be in good company. Abu Dhabi National Oil Company (ADNOC) of UAE, an OPEC member, is set to announce the award of a $20 billion gas development project. US oil majors ExxonMobil and Chevron were among the top buyers at a US federal auction of oil leases in the US Gulf of Mexico on 17th November, 2021. Shell in a statement says it is currently committed to exploring hydrocarbons in Africa, and “doing so fits the company’s purpose,” according to Benjamin Mee, its exploration manager for deepwater Africa.
Although Nigeria appears to be making the right noises, implementation remains a problem.

In the long term, the government aims to achieve 40 billion barrels of crude oil reserves and production of three million barrels of crude oil per day target. These targets were set more than a decade ago, and have been recently reconfirmed. Unfortunately, we are struggling to meet our current OPEC quota of 1.66 million barrels per day, for so many reasons, including insufficient investment, poor asset integrity, oil theft and sabotage. Gas development will continue to play a major role in Nigeria’s energy transition agenda. The Decade of Gas adopted by the government certainly will be key strategy in driving and delivering this transition. We have hardly exploited our Non Associated Gas (NAG) reserves, which is much more than our Associated Gas potential. As we continue to use gas for domestic needs, the main opportunity for growth is in export through Liquefied Natural Gas (LNG). We currently have limited LNG capacity to export to a world that would have “phased down” coal significantly, and hungry for gas. The scenario that followed the rejection of nuclear, in preference for gas, following Chernobyl and Fukushima disasters might just repeat itself. Indeed it is already happening as the world now scrambles to purchase more not less gas. Nigeria LNG needs to pursue its Train 7 project vigorously, and begin to eye Train 8 in near future. It is quite a pity that the Olokola LNG and Brass LNG projects have gone nowhere. However, recently there was news of the signature of an MOU by UTM Offshore, a Nigerian company and Afrexim Bank to develop a $2billion Floating LNG project to be located in Mobil’s area of operations offshore. This gives hope. On the other hand, I hope Nigeria will discontinue its long discussed plans to export gas to Europe by the Trans-Sahara Pipeline. At one time, transit for the pipeline was to be through Algeria, now we have shifted to Morocco. There are enormous geopolitical risks involved in transiting through unstable territories. Algeria gas exports to Europe through Morocco have ceased because of a diplomatic spat between the two countries. The recent difficulties being experienced between Ukraine and Russia in the GASPROM gas pipeline to Germany and Europe, is another object lesson.

In the same statement credited to the GMD of NNPC, speaking in Minna, he went to say that “NNPC was ready to shift to renewable energy”. Although the intent is laudable, steps towards implementation are not stated. Because the move towards renewables cannot be halted, Nigeria must set up the structures to enable it join the rest of the world in that direction. We cannot afford to be left behind. Exxon has just unveiled sweeping restructuring moves, putting its energy transition business on the same footing as its other operations. NNPC should take note. Also Nigeria will need investments in installing the unique infrastructure that renewables require. Renewables require resources, both human and financial. Nigeria should tap into the $100 billion pledged for developing and poor countries, which was again reinforced at COP26. Other sources of funding could be from the Frontier Exploration Fund allocated to NNPC by the PIA. It can channel into renewables for both research and project implementation. NNPC, like some majors, is now an ENERGY company and in today’s world most energy companies are not investing in high risk exploration in frontier basins. Perhaps the Nigerian Content Research Fund can also be tapped in financing renewable; in addition to the traditional financing sources, such as the African Finance Corporation (AFC), Afrexim Bank and the World Bank.

Returning to the words of COP26 Conference President, Alok Sharma, the Conference “deal made progress on coal, cars, cash and trees,” I have only addressed coal and cash. There will be an opportunity in future to discuss cars and trees in more detail. For now, suffice it to say that in, oil has its potential also in chemicals and petrochemicals. Even electric vehicles and some of their components, such as tyres, are made from oil derivatives.

COP26 also addressed the issue of deforestation and Nigeria must key into this. In order to tackle de-forestation and increase the ability of our forests to absorb CO2 emissions, Nigeria must take tree- planting more seriously, now than ever before. Oil companies, communities and NGOs must get involved; and not leave it to governments to award tree-planting contracts. Just days ago the Minister of Environment announced that her Ministry had forested more than six million hectares of land through the Forest Research Institute. While the numbers sound impressive, it is hoped that the targets are being met.

Finally, Nigeria must have the ability to reap the benefits of fossil fuels in the way the industrialized economies did as they were growing, with coal firing their Industrial Revolution.

Dr. Ihetu, a former MD of NLNG and NGC, wrote from Lagos