Nigeria to suffer revenue impact of global climate policies

[By Sopuruchi Onwuka]

Nigeria is listed among the 12 dependent economies that would fall under the direct economic and social impact of energy transition as the global environmental policies accelerate crash in oil demand and prices.

Acute revenue drop in poor countries, according to a report by environmental advocates, could trigger economic, social and humanitarian crises in the developing countries.

The analysis by an environmental think tank, Carbon Trackers, poor countries like Nigeria and peer producers in the Organization of Petroleum Exporting Countries (OPEC) could collectively face drop of over $.9.0 trillion or some 40 percent in revenue by 2040 when demand shift to renewable energy sources takes toll on oil revenues.

For richer OPEC members with better diversified economy, revenue drop could be as low as 20 percent while poor resource producers with high dependence on oil revenue could lose nearly half of their current revenues.

The Oracle Today reports that the global petroleum demand is projected to peak ahead of 2040 when most members of the industrialized Organization of Economic Cooperation and Development (OECD) which consumes over 70 percent oil and gas in the market plan to switch from hydrocarbon to renewable energy sources.

These countries, comprising European, Korean and Japanese economies have fixed deadlines for total switch from petroleum fired plants and vehicles to plants and vehicles powered with electric energy generated from wind and solar farms.

The international automobile industry has since adjusted to manufacturing of electric vehicles with major global automobile producers competing with American Tesla in the production of battery powered electric vehicles.

Several aircraft manufacturers have also introduced all solar powered airplanes for short trips while development of long haul flight aircraft undergoes test flights.

However, the Organization of Petroleum Exporting Countries (OPEC) whose members rely on revenue receipts from oil and gas sales insist in its latest long-term forecast that oil would remain a dominant energy source in the decades to come; maintaining that oil demand would peak at a plateau of 109.3 million barrels per day over a relatively long period.

However, Carbon Tracker said that as the world commits to meeting climate targets, demand will fall much more quickly, calling its report a “wake-up call” to oil and gas producing countries.

Beyond peak oil, the federal government’s adjusted petroleum outlook envisages demand to shift from the industrialized OECD states to rapidly urbanizing developing countries where energy need of growing youthful population.

Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, had stated at several industry events that Nigeria’s energy policy would continue to envisage growing supply needs in the developing countries while taking advantage of the prevailing global market in the interim.

He argued that developing countries would continue to utilize internal combustion engine vehicles long after the industrialized and developed economies might have switched to electric cars. He pointed out that most developing countries would have to first develop infrastructure and facilities for transition into battery propelled mode of transportation.

But the Chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Mr Tunji Oyebanji, pointed out in media briefing last Thursday that global transition to electric vehicles would phase out production of internal combustion engines and their spare parts, forcing even developing countries switch from petroleum fired transportation systems.

He called for urgent derivation of value from Nigeria’s petroleum resources through evolution of polices that incentivize investments in domestic refining in order to capture commercial opportunities that still exist in global, regional and domestic markets.

The Oracle Today reports that global price projections suggest that Nigeria and most petroleum resource producers have just 25 year to optimize revenue from their oil and gas reserves.

The crude oil price projection for the period to 2045 is estimated at a range between $40 per barrel to $70 per barrel, but Carbon Trackers insist that demand could crash sooner than expected and pull prices along.

In its report, Carbon Trackers called on poor oil dependent countries to urgently restructure their economies and re-examine their planned investments in oil and gas projects that could become stranded.

Bigger economies that thrive on mix of resource revenue and industrial productivity are expected to lose between 10 percent and 20 percent of their revenue to oil demand fall.

“Saudi Arabia, the world’s largest crude exporter, along with Iraq, Kuwait, Nigeria and Algeria are among 12 countries that could lose 20-40% of their revenues, while Russia, Mexico and Iran are among 10 countries that could lose 10-20%,” Carbon Tracker stated in the report.

A crash in revenues could lead to humanitarian crises and geopolitical instability in the most vulnerable world’s poorest countries, including several OPEC member countries like Nigeria and Angola, which have history of resource scramble and civil war.

The London-based Carbon Trackers said producers should coordinate “an orderly wind down of production, with global supply falling in line with decreasing demand and falling oil prices” in order to minimize their financial losses.

It warned that any scramble among producers to monetize their reserves through massive production would yield contrary results, pointing out that falling prices would outweigh the benefit of increased production.

It said that oil producing countries globally could lose a collective $13 trillion by 2040 compared with industry expectations, a 51% drop, of which the 40 petrostates that are most heavily dependent on hydrocarbon revenues face a $9 trillion shortfall, or a 46% drop.

It identified Angola and Azerbaijan among seven countries that could lose 40% or more of their government revenues from declining oil and gas demand.

Saudi Arabia, the world’s largest crude exporter, along with Iraq, Kuwait, Nigeria and Algeria are among 12 countries that could lose 20-40% of their revenues, while Russia, Mexico and Iran are among 10 countries that could lose 10-20%.

“Low production costs in some countries mean that the Middle East and North Africa will be one of the least affected regions in a low-carbon world, but oil and gas revenues to 2040 are still over 40% lower than industry expectations,” the report said. “Wealthy Gulf states are investing in industries like renewable energy and tourism. However, the scale of the challenge is huge, and the pace of transition accelerating.”

Carbon Tracker said the international community could help vulnerable petrostates by providing financial support for emissions reductions technologies, as well as technical assistance for regulatory and tax reform.

“It is in the international community’s interest to help petrostates successfully navigate the energy transition,” it said. “Reducing their dependence on fossil fuel production will make it easier for the world to meet global climate targets, and also help these countries avoid instability and social unrest as the global economy is decarbonized.” 

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