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Energy Production without Adequate Consumption is Stunting Nigeria’s Economy

Apart from the production decline suffered by Nigeria in May this year, which made Angola to overtake the West African nation and become Africa’s largest oil producer, Nigeria has always been the leading oil producer in Africa. As of 2020, oil production amounted to 86.9 million metric tons in the country.

The Organization of Petroleum Exporting Countries (OPEC) in its monthly report for May showed that Nigeria’s oil production reduced by 195,000 barrels per day (bpd) to 1.02 million from 1.22 million in April, based on direct official communication from member-nations.

In its latest report, the cartel indicated that Angola’s oil production stood at 1.16 million bpd in May, down from 1.18 million bpd in April, based on direct communication. OPEC, which depends on secondary sources to monitor oil output in member-countries, also publishes a table of figures that are posted by the member-countries in order to revalidate its findings.

However, some experts in the oil and gas sector, who commented on the ironic energy reality in Nigeria noted that although the country ranks at the top levels of Africa’s energy production volumes, its national consumption or usage seems too small to support it in achieving the kind of economic development that befits the nation’s population, market size, and industrial capacity.

Their position is hinged on their conclusion that energy production by any nation without adequate consumption in-country for the purpose of powering industrial activities will end up stunting economic growth, even as they insist that Nigeria is suffering from this imbalance in production to consumption ratio.

Prior to the decade of gas pronouncement by the Nigerian government, there was the gas masterplan, the seven big wins, which monetizing gas was a key aspect, with about a 100 projects at various locations.

However, according to Dr. Timothy Okon, the Managing Director of Teno Energy, “if you don’t back these slogans with actual activities that yield results, then we will still be back to where we were. In 2008, 700 million SCF of gas a day was being used by our power plants and there is no incremental gas going to power.

“The other commercial sector had about 60 million SCF of gas, which has increased to 100 million SCF of gas a day, and the dominant amount of gas went for export, about 3.6 BCF of gas a day went for export and the domestic consumption has never exceeded 1.2 BCF of gas a day in Nigeria.”

In consonance with the above standpoint, Prof. Wunmi Iledare, who is Professorial Chair of the Oil and Gas Institute at Cape Coast University in Ghana, said “go and look under the map of the United States and you will see the network of energy pipelines; energy consumption develops an economy, not energy production, and we in Nigeria are not mindful of that.”

He further argued that requisite manpower development and deployment are all that are needed to undo this imbalance and fall back in line onto the path of development.

By this, he means that “the midstream of oil and gas needs a developed and deployed manpower that is effective, efficient, equitable and ethical, and that those people being appointed into management positions in Nigeria’s new energy regulatory agencies must ensure that human capacity development achieves a lot of improvement.”

However, boosting oil and gas utilization in the energy transition era will depend largely on technology and competent human resources. This means that if the midstream oil and gas industry is to add that type of significant value that is needed, not only is accelerated development of competent manpower is key, but public education through advocacy as well.

As Prof. Iledare put it, “there must also be the awareness that their appointment is just for a period and must focus on transformational leadership, which is characterized by shared vision, so that when the present leadership leaves, the vision still continues….and that is what has been going on from Natural Gas Masterplan to Natural Gas Policy (2017) and to this Decade of Gas.

“I am afraid that in 2023, when another minister comes in, if we don’t go along what ought to be, another new thing will take over and it may not be the Decade of Gas. And that is why, to me, the PIA must be implemented effectively.”

As opposed to the situation in Nigeria, the US is one of the highest consumers of energy on the planet and it is also the world’s largest economy, with the local consumption helping sustain energy firms financially and also helping build infrastructure in the real sector of the economy.

This means that without the expansion of domestic or local market for energy consumption in Nigeria, the national economy may suffer fluctuations based on high or low demands from countries that buy and use Nigerian energy resources for their own economic advancement.

For instance, the discovery of shale gas in the US further changed the dynamics, as all the SPE contracts that the Nigerian Liquefied Natural Gas (NLNG) had for the US had to be diverted to local producers in the US, and those contracts that were already signed with NLNG but have been put on hold are now due to expire in the next couple of years.

However, gas as a transition fuel is fully available to Nigeria and the approach to its widespread adoption needs to be perfected before the nation can take full advantage of it for economic prosperity. A forecast by the International Energy Agency (IEA) says that from 2020 to 2030, gas as part of the energy mix will increase by 23 to 24 per cent.

The challenge for Nigeria, however, is that when you are talking about the infrastructure to convey gas from production to consumption sites, there is a huge deficit and the available facilities are often hugely compromised due to vandalism. Yet, there are certain drivers for a gas-based economy, and there is a wide agreement in Nigeria that if the country is to do better than it has done in the last 60 years, then, it would be through gas.

India, for instance, is not a particularly resource-rich country; it is resource-poor, but when you look at the growth of domestic gas consumption in India, it is better than Nigeria and its economy is also larger than that of Nigeria. It has an average consumption of 1.75 BCF of gas per day which is far higher than Nigeria’s consumption.

But the factors that are important to a gas-driven economy are the same everywhere; you need to generate power, you need households gas distribution network systems, you need gas-based industrialization because it is essential for the food value chain itself, then you also need to have transportation systems. Yet, you still need an environment that focuses on basic industries like in the case of Saudi Arabia.

If you take a look at the MENA countries, or the Middle East and North African countries, Egypt has a large population and it made one of the biggest discoveries recently, the Zohr Field, which has over 30TCF of gas and is believed to be the largest ever gas field to be discovered in Egypt. 

But what is different with this new find in Egypt as compared to Nigeria’s rich gas reserves is that although the Zohr Field is located in the Mediterranean Basin and is strategic for export to Europe, the actual plans are that Egypt is going to use most of that gas at home to power its own industrial growth.

The amount of gas that is exported in Egypt is quite small and will remain quite small, going by previous practice and current plans, as the country utilizes most of the gas it produces.

Also, “Egypt is heading toward overtaking South Africa as the number two economy in Africa, and if it uses its gas well, it probably will overtake Nigeria soon if Nigeria does not get its acts together,” said Dr. Okon.

If you link GDP per capita with gas and see what gas does whether you are an exporter of gas or you are a country that uses gas at home, you will notice that large gas consumers have better-developed economies. The only exceptions are countries with small populations that can export most of their energy but still meet domestic needs with relatively little energy supplies.

A good example in this regard is Algeria, which has a low population and exports a lot of gas to Europe and its GDP per capita is still as high as $3,310, while Nigeria’s GDP per capita is $2,400.

Another exceptional case is Qatar, which due to its small population, exports most of the gas it produces but commands a high GDP per capita of $50,805.

In other words, Qatar, like Australia and the United States, ranks among the highest exporters of LNG, but Qatar has a small population and it optimally meets its domestic energy needs, despite its huge energy export volumes.

With $20,110 of GDP per capita, Saudi Arabia has about 260TCF in reserves, most of which is associated gas, just like Nigeria, which has 50 percent of its gas reserves as associated gas. “But the key thing is to understand the potential that gas has and the drivers are infrastructure, the resource itself, as well as pricing, and this is what the PIA actually seeks to address,” Dr. Okon maintained.

In order to improve the consumption of gas in-country by making it adequately available and affordable, he further argued that bid rounds for marginal oil and gas fields onshore should be subjected to open, transparent and competitive bid process as an incentive to develop gas by smaller companies that would otherwise have no access to significant fields.

According to him, these marginal fields can produce for the domestic market and change the story for the better in Nigeria.

His words: “This is what the PIA is seeking to address because it does not provide chance for any discretional award any longer, so the offer cannot come from someone’s locker but it will have to be on the website and there must be a programme that will lead to the monetization of these resources by improving access to them.

“It also provides that gas must be made available to utility companies, such as energy and water or waste treatment companies, which are very essential to national life. There is also a provision for NNPC to supply petroleum products at a set price during emergency situations.

“Domestic delivery obligations must be enforced because I know a certain company that operates close to shore and has the needed facilities to deliver gas in-country but has bluntly refused to do so and those who should enforce compliance are still reluctant or hesitant to do their work. We must enforce our laws because it is important.”

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