By Godwin Osaka
The quest to gradually move from consumption of fossil fuel to cleaner energy is now topping discussions at different global oil and gas fora, and Nigeria is not left behind in the discussion.
Thus, a new report has suggested that there will be huge gains and that a gradual transition to a much cleaner energy will revolutionise the country’s oil and gas sector, as the sector is gradually experiencing a huge divestment of assets by the international oil companies (IOCs) that are operating in the country.
Earlier this year, three IOCs concluded the sale of their combined 45 per cent interest in Oil Mining Lease (OML) 17 and related assets in the Eastern Niger Delta to TNOG Oil and Gas Limited, an indigenous integrated energy firm.
“The energy transition will push more assets onto the market, but sellers may be stuck with unwanted assets,” Africa Oil Week and Wood Mackenzie said in the report titled ‘Sub-Saharan Africa M&A: What could be sold?’
The report noted that COVID-19 pandemic and the oil price crash led to a significant slowdown in merger and acquisition deals in the sub-region last year.
“Deal spend was only $ 1.1 billion, compared with $ 5.7 billion in 2019, and $1.7 billion in 2018,” it said.
It added that pre-production assets accounted for 80 per cent of volumes traded.
“Portfolio resilience is key: the majors’ combined value falls 145 per cent under a $30 per barrel long-term oil price – Leaner portfolios needed to withstand future downturns,” the report said.
On de-carbonisation, it said that by 2030, average SSA emissions intensity would be 38 versus a global average of 28.
“Investment will focus on key strategic or advantaged assets, leaving mature or non-core assets prime candidates for divestment. But there are multiple barriers to M&A in the region. As oil prices recover in the short term, bid-ask spreads may widen as sellers try to extract maximum value,” it said.
It said above-ground risks, oil price risks and access to finance on reasonable terms would continue to shrink the pool of buyers.
According to the report, private equity-backed exploration and production companies, African-focused E&Ps, as well as Asian and African national oil companies are likely acquirers.
“The energy transition: ambitious emissions reduction targets will drive divestments. Shell has the highest SSA average emissions of the majors due to its legacy assets in Nigeria.
“Carbon emission is increasingly key when screening assets for divestment. Low-value, high-emissions assets will be prioritised for sale.”
IMF, ARDA make case for clean energy
To lend their voices to the global advocacy, the International Monetary Fund (IMF) and the African Refiners and Distributors Association (ARDA) said it was high time the country started thinking towards energy transition.
First, the IMF affirmed that it is time for Nigeria to solve its power problem which has made the cost of doing business very high.
“In the case of Nigeria, ensuring that the country enjoys or unleashes its tremendous potential requires reforms in three areas, in our view. I think first and foremost is that more fiscal space needs to be created through domestic revenue mobilisation to pay for investments in health, in education, in infrastructure, which Nigeria swiftly needs.
“Second, I think reforms in the energy sector are going to be paramount. The cost of doing business is very high on account of the inefficiencies in the energy sector, power supply interruptions, and the famous recourse to the use of highly inefficient and harmful generators up and down the country.
“Again, getting power supply, getting policies to make sure that Nigeria resolves this problem once and for all, I think, is also paramount. And thirdly, macroeconomic policy calibration, things like creating deep and liquid foreign exchange markets will be important,” the Director, African Department, IMF, Abebe Selassie, said.
Selassie said the IMF was seeing quite a lot of countries going through a recovery in 2021, after the negative impacts of the 2020 lockdown introduced to curtail COVID-19 spread.
“And so, that will give strong growth outcomes this year in many cases. This is very different from saying that the fundamental drivers of growth, over the medium to long term, have been improved in a dramatic way, allowing stronger growth. So, that’s a point I would stress,” he said.
In the same vein, inadequate storage and distribution infrastructure are said to be limiting the efforts of Nigeria and other African nations to transition to cleaner energy sources, the ARDA has said.
ARDA and other industry players said these limitations could hinder attempts by nations on the continent to meet the United Nations Sustainable Development Goals (SDGs) that are geared at mitigating deforestation in Africa.
The experts and operators disclosed this during an online workshop organised by ARDA, which aimed at delivering strategies for coordinating storage and distribution investments to support the increase in the continent’s future petroleum products demand.
Industry players in the African downstream sector, including Kenya Pipeline Company, Rainoil Limited (Nigeria), SENSTOCK (Senegal) and SONABHY (Burkina Faso), discussed oil and LPG terminal investments in Burkina Faso and Nigeria.
They spoke on the digitalisation of storage tanks and loading trucks in Senegal, as well as KPC’s strategy for expanding its assets and operations across the Great Lakes area of Burundi, DRC, Kenya, Rwanda, South Sudan and Uganda among other relevant topics.
The Executive Secretary, ARDA, Anibor Kragha, said that African leaders must develop a coordinated energy transition roadmap that would result in investments in critical infrastructure such as terminals, pipelines, rail and ports.
He noted that these facilities were needed to deliver petroleum products across Africa over the next two decades.
“It is imperative that key decision-makers across the continent develop a robust energy transition roadmap that fully incorporates storage and distribution requirements needed to support Africa’s projected increased demand for petroleum products,” Kragha said.
He said that the African Union Commission and ARDA recently assessed investments needed to upgrade African refineries to produce cleaner fuels.
He noted that a similar study should be conducted to determine the corresponding storage and distribution investments needed to transport the cleaner fuels efficiently and safely across Africa.