Oil geopolitics and resource maximization for social good

Economies dependent on a single resource like oil for revenue are currently being challenged by new discoveries and innovative exploration practices. While the realities are heightening the volatility in the market, oil-producing countries that fail to manage proceeds of mineral resources for social welfare may be the worst hit by emerging realities. FEMI ADEKOYA and KINGSLEY JEREMIAH write on the many implications for Nigeria
Oil and gas have over the years remained a leading determinant of global economic realities. This is because of the significant roles petroleum products play in everyday life. From electricity generation to everyday household use, petroleum products cannot be easily dismissed.

For the sub-Saharan African region, new natural gas finds off the coast of East Africa, deep-water oil discoveries off of upper West Africa, and promising geology along the East African Rift from Somalia to Madagascar—all make Africa one of the most promising continents for energy development in the world.

The possibility of significant new revenues has raised hopes that these new discoveries will accelerate poverty reduction and enhance Africa’s status as a destination for much broader industrial investment capable of facilitating economic development beyond the energy sector.

Yet the risk that these newfound resources will fail to live up to their full production potential, create rentier states, deepen corruption, and distort nonenergy sectors within producer economies—risks that have dogged many of Africa’s more established producers—remains.

The question that African governments, citizens, and international partners confront is whether this time will, or can, be different. Will the harsh lessons offered by Africa’s more established producers like Nigeria and the continent’s previous energy booms be absorbed?

The need for petroleum products possibly accounts for the reasons why the natural resources command the interest of countries across the world. It also tells why the price is critical to economic indexes and why the product is linked to a number of trade wars.

But emerging development across the world is fast changing this narrative. New inventions are creating alternatives to oil and gas. More countries are rapidly discovering oil and gas and threatening market shares. The volatile nature of the commodity also creates serious uncertainties for the global economy with petroleum-dependent economies facing the biggest shock. The use of oil is also facing criticism over climate change challenges.

The World Energy Investment 2018 report of the International Energy Agency showed that global energy investment declined for the third consecutive year in 2017 to $1.8 trillion, a shortfall of 2 per cent in real terms from the previous year.

Indeed, the development could be more devastating for countries that fail to recognize that the best way to use oil proceeds is to address social development. This further reinforces the need to encourage investments in the country to address social gaps that are widening in a nation with a huge youth population.

The Federal Government is believed to be losing over $1.5 billion (about N540 billion) yearly to the delay in taking final investment decisions (FIDs) on major oil projects that can produce 875,000 barrels of oil per day ( bpd ).Kaptepia Capital Principal/Executive Director Tosan Omatsola, who dropped the hint, listed such projects as Bonga South-West and Aparo; Bonga North and Bosi, among others.

Omatsola, who had worked in various oil majors, including BP, Texaco, Ivanhoe Capital and Westbridge Energy, spoke at a workshop organised in Lagos by the Nigerian Association of Petroleum Explorationists (NAPE).He stressed the need for the Federal Government to increase its investments in major upstream oil projects as the country is seriously lagging behind its contemporaries in the world.

According to him, these investments can help to address Nigeria’s poverty gap and the rising rate of youth employment, all of which will translate to improved GDP numbers.In his presentation titled: “Exploration and Production (E&P), Major Capital Projects (MCPs) and global portfolio ranking the E&P industry,” Omatsola noted that a couple of major oil projects have been on the table over the years waiting for FIDs.

According to him, such projects awaiting FID/Sanction included Bonga South-West and Aparo with 225,000 barrels per day (bpd) of oil, Bonga North (100,000bpd),Bosi (140,000bpd),Bosi Satellite Field Development Phase 2 (80,000bpd), Uge (110,000bpd), Zabazaba-Etan (120,000bpd) and Nsiko (100,000bpd). This gives a cumulative of 875,000 barrels of oil per day (bopd), which can earn at least $1.5 billion yearly for the government, he added.

To him, Nigeria has lost a lot of ground in terms of tapping its hydrocarbon resources. He advised that Nigeria should not be eyeing only big investments and capital but start with little, adding that it is the way other countries such China started. “Let’s start with little things. Currently, we are only scratching the surface of the Niger Delta province, let alone exploring other six sedimentary basins.

“Like other oil-producing countries, we need high-temperature high pressure (HTHP) technology to go deeper in a maturing basin such as the Niger Delta,’ he said.Quoting McKinsey, Omatsola said: “The challenge of large oil and gas projects is that, as activity ramps up and more oil and gas production moves to frontier and unconventional resource areas, projects are becoming larger and more complex.

“Such projects involve many stakeholders, including shareholders, local authorities and regulators, and environmental and community advocates. Therefore, Nigeria has optimally tapped its low hanging fruits such as the Niger Delta basin.”Speaking at the 8th Emmanuel Egbogah Legacy Lectures series at the Emerald Energy Institute, Port Harcourt, Commissioner and Justice and Attorney General for Edo State, who doubles as the President, Nigeria Association for Energy Economics, Prof Yinka Omorogbe noted the emerging dynamics in geopolitics petroleum resources.Omorogbe stated that most of the world’s superpowers, especially the United States, Russia, China and other countries are now Petro -powers.

Though oil at some point was seen as scare resources with discoveries in limited countries, Omorogbe, in lecture titled “Geopolitics of Petroleum Resources & Supply: Understanding the Emerging Dynamics in Petroleum Business Sustainability,” pointed out that most countries across the world are now discovering the resources thereby indicating that the commodity may no longer be scarce resources.

Indeed, the development becomes alarming for countries like Nigeria that mainly depends on the resources for economic projection considering that countries like the US that was a net importer is no an exporter.Adding that new technologies, would continue to disrupt trend-making petroleum products more vulnerable, Omorogbe noted that it was high time for countries like Nigeria to take strategic decisions of diversifying from oil.

On his part, Co-Founder, Pillar Oil Ltd and EMR Ltd, Seye Fadahunsi urged that the sedimentary basins be explored for maximum benefits, adding that new technology like fracking is being deployed to enhance oil discoveries at cheap costs. Chair in Petroleum Economics and Management at the University of Cape Coast, Prof. Wunmi Iledare urged the government to use resources from petroleum products rightly, especially in developing human capacity.

To him, the best way to use oil money is social maximization, stressing that projected economic development would remain elusive if earnings from natural resources mainly used in transfer payment or in the making of few millionaires. Asking the country to learn from the example of Venezuela, Iledare said: “Prosperity from oil money without posterity is dangerous.”

A fellow at the Emerald Energy Institute, Dr Joseph Ellah, insisted that without finding a lasting solution to the menace of corruption, current global realities in the energy sector may leave damaging effects on the country.Ellah, a former management staff of the Nigerian National Petroleum Corporation also stated that there was a need to address the issues surrounding payment of subsidy.He equally decried the inability of the federal government to reform the sector, especially the passage of the Petroleum Industry Governance Bill.

Chief Executive Officer of Teno Energy Resources Limit, Tim Okon, who noted that the global realities could take the country unaware unless urgent steps were taken, said there was a need to create a framework that would allow market realities drive oil and gas businesses in the country.

Okon stressed the need for resources management, especially cutting down on what it takes to sustain the country’s bureaucracy.
Although Nigeria and other Africa’s traditional producers remain important to global oil and gas supply, new investment flows have varied over time largely because of aboveground challenges. The challenge remains retaining those investments in the face of new discoveries in environments that present fewer challenges for investors.