Alaigba Daniel is an energy Consultant in the oil and gas industry. He spoke on salient issues in the sector, among them, the proposed reforms, undermining renewable energy growth and the prospect of Nigeria embracing PIA reforms.
As an energy consultant, what is your assessment of Nigeria’s oil and gas industry and the proposed reforms in the sector?
The state of the Nigerian oil and gas industry is currently in production decline phase even in this period of high oil and gas prices. The problems are perennial. From security issues such as crude oil theft and militancy in the Niger delta disrupting production to government regulatory risks which has resulted in lack of funding for new projects to replace depleting production reserves. For the past 5 – 10 years, there have been several major capital project delays or cancellations e.g Bonga Southwest Aparo, Uge, Bosi, Zabazaba-Etan and Nsiko among others, initially due to uncertainty of the Nigeria fiscal terms especially for the deepwater development. So, while the wait was on in Nigeria, the investors moved their funds elsewhere to countries such as Mozambique, Kazakhstan, and offshore Guyana which had more favorable fiscal terms and investment environment. You see, these projects are capital intensive and take a minimum of 3 – 5 years from FID to first oil or gas production. So, Nigeria is currently paying for her indecision to make timely reforms in the industry. The situation has been made worse with the global energy transition mantra where several nations in the western hemisphere are redirecting investment to clean energy projects that is lower carbon energy production aka renewable energy. Nigeria has passed the PIA into law, it looks favorable for the IOCs to move on with the stalled projects but, they are facing headwinds from shareholders and other stakeholders on plans to lower carbon emissions, will they be willing to invest in carbon sequestration projects in Nigeria, how will that impact the economics of these projects. All these needs to be analyzed.
How realistic is the global goal of achieving zero net greenhouse gas emissions by 2050?
If the recent success in technological innovation which has resulted in significant cost reductions in solar and wind energy Life cycle cost of energy per unit can be extrapolated onwards then I think achieving zero net greenhouse gas emissions by 2050 is achievable. For example, in the USA, the unit cost of solar PV installation has reduced by 64%, 69% and 82% for residential, commercial rooftop and utility scale systems, respectively. The major net energy importers e.g the eurozone, China, India and Japan, including the USA are aggressively funding research and development projects to further reduce the cost of renewable energy sources and have a long-term framework in place to transit energy consumption to electricity such as the electric vehicles, heat pump units etc. for the hard to abate industries such as steel and cement, efforts are in progress to utilize, either hydrogen, natural gas with carbon capture. So, we are really at an inflexion point where it is now economic to develop a solar farm versus a fossil fuel reserve in some parts of the world. The major issue currently is intermittency of the renewable sources, so technological breakthrough in energy storage using hydrogen or ammonia as well as further reduction in battery costs will accelerate adoption and drive the push to achieve net zero emissions by 2050. Fossil fuel will still be relevant in the energy mix but with a reduced role. Crude oil production will decline aggressively as we approach 2050 while natural gas with carbon capture will increase slightly.
How will Africa’s energy choices impact the rest of the world?
Historically Africa has contributed minimally to global emissions, because, it has been the least energy consuming region per capita. As Africa industrializes and certainly it will, the energy deficit requires a solution, if African economies are to develop. Currently there are about 1.3billion people in Africa projected to grow to about 3billion people by 2060. As the population grows the energy consumption will also grow and if Africa meets her energy demand using fossil fuels, the CO2 emissions impact will be by far higher than the carbon reduction done in the USA, Europe and China combined. Hence global climate decision making that excludes Africa and her energy choices is bound for failure.
There have been arguments that Africa contributes less emission and thus be allowed to develop its economy using fossil fuels. Vice President Yemi Osinbajo describes the push for Africa to dump fossil fuels as unjust. Do you subscribe to this school of thought?
My take on this matter is that climate science has time and gain proven that there is a relationship between CO2 emissions and devastating impact on the earth which we all share. Considering Africa’s disadvantaged economic position, I will agree with Prof Yemi Osinbajo that Africa needs the financial support of the more economically powerful countries to develop if there is an increasing constrain on the use of her fossil fuel resources, in support of the carbon reduction efforts in other parts of the world. Africa should also be supported with funding to develop, harness for local use, and even export clean energy to other energy import dependent nations of the world such as South Korea, Japan, and the Eurozone.
What is the balance of power in Africa between fossil-fuel interests and those striving to leapfrog to renewables?
“Follow the money”, “first mover”, “positioning for the long term” – all these are keywords that characterizes what is going on, not just in Africa but globally. Global investment in low-carbon energy transition projects was $755 billion in 2021, higher than $595 billion invested in 2020 and just $264 billion in 2011 so certainly even the biggest OPEC producer Saudi Arabia has joined the energy transition bandwagon and recently announced a $5 billion green hydrogen energy project for export. African countries thinking long term should start positioning themselves as major stakeholders for the production, utilization, and export of clean energy. Nigeria needs to start now creating the enabling environment for clean or grey hydrogen/ammonia production and export. Eventually receipts from crude oil liquid sales will commence an irreversible decline from 2025 onwards as soon as the electric vehicles market adoption in Europe, Asia and the USA reach the early majority stage.
Oil prices have remained bullish in the last few months thereby improving the earnings of many oil producers. Reverse has been the reality in Nigeria as a result of production challenges and subsidy. What is the way out?
Nigeria is currently paying for years of mismanagement and corruption in the upstream and downstream sectors of the oil and gas industry. If we had been increasing production and had local refineries functioning, the issue of subsidy would be non-existent. The other issue is why is a country that is rich in diverse kind of natural and human resources like Nigeria an oil dependent nation? There is no easy solution to this challenge now, especially with the current population growth rate. The painful route will be to remove the subsidy and introduce socio-economic palliatives for the poor. Short term focus should be on optimizing production from existing producing assets. For the long term, I will recommend that going forward Nigeria should focus on aggressive natural gas and LNG/hydrogen/Ammonia development.
Due to the increase in the price of Russian gas, Germany is the first in a series of European countries to announce the reactivation of closed coal-fired power plants, a random announcement came from Romania, while Italy announced higher electricity production from active coal-fired plants. To what extent can the new situation disrupt the planned rate of coal abandonment in Europe and would you describe the moves as hypocrisy considering the push for Africa to end fossil fuel use?
Energy security is now a major theme since the Russia Ukraine war commenced in February 2022, so sustainable energy transition is challenged in the short term. I consider the startup of coal fired plants by some eurozone countries as an emergency short term measure to manage the shortfall resulting from either Russia shorting off gas supply to these countries or to offset current high gas prices or both. The long-term plan for energy transition in Europe continues to be on an accelerated path. In May 2022 the EU has adopted the RepowerEU plan which calls for massive investments in renewables and increase to 45% by 2030. Europe is also aggressively working on energy diversification for natural gas and hydrogen supply, this is where Nigeria should focus on for long term forex earnings as we historically proven to be a reliable LNG supplier. We can also invest in pipeline infrastructure across the Sahara to Algeria or Morocco.
What could be undermining renewable energy growth in Nigeria as data indicate that South Africa has outpaced Nigeria in the last ten years?
I would say lack of government incentives and support. Historically the cost of renewables has been higher than that of fossil fuels and countries that have made great progress had to incentivize clean energy development through systems such as tax rebates, grants, etc. Also, south Africa had predominantly generated its energy from burning coal, which is very dirty, so as the global pressure to move away from coal intensified over the last ten years, South Africa has embraced renewables more aggressively compared to Nigeria.
There have been talks about the prospects that green hydrogen offer. How feasible is this solution in Nigeria, considering that natural gas is still being flared?
Let me start by making some important definitions. While there are several colors of Hydrogen gas, there are two major types. Green hydrogen refers to Hydrogen gas produced from renewable energy sources such as the electrolytic conversion of water into hydrogen gas using electricity generated from solar or wind energy. Grey hydrogen on the other hand is that produced from natural gas by a chemical process caked reforming or pyrolysis. Hydrogen is being touted as a solution to end emissions since its combustions produces water with zero emissions. To meet the 2050 net zero emissions target, the electricity produced from clean sources will required massive storage infrastructure and the technology currently exists to store this energy in the form of Hydrogen which can be burnt as fuel in engines or converted to liquid ammonia for use in marine vessels or used in electric fuel cell vehicles. Also, from the 2030s and beyond, the carbon dioxide associated with natural gas combustion will require sequestration otherwise the penalties for emissions will be huge. To solve this challenge big oil companies are now looking at converting natural gas at the point of production into hydrogen and exporting the hydrogen to the point of use, while a plan is in place to inject the associated carbon dioxide into underground reservoirs. With Nigeria’s huge gas reserves and experience in the industry, I see Nigeria playing a significant role in this in future to satisfy global energy demand and my recommendation is that the government should create the enabling policies and framework to support both green and grey hydrogen development projects in Nigeria.
The PIA has been described as one that offers a lot of opportunities for Nigeria’s oil and gas sector. Despite its suspension till next year, do you see the government embracing the reforms?
Well, if Nigeria is to attract foreign investments required to develop her oil and gas reserves, the reforms as captured in the PIA needs to be implemented, otherwise the worst is yet to come.
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