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Does Nigeria Need 30% Frontier Exploration Or Renewable Energy Fund?

Since the passage and eventual assent by President Muhammadu Buhari to the much-talked-about PIA, there has been a huge debate as to whether Nigeria needs a frontier basins exploration fund or one that is devoted to financing renewable energy sources. This report weighs the arguments on both sides and how the decision to drop one investment for the other could affect the country’s future energy sufficiency.

Beyond the obvious politicisation of the 30 per cent frontier exploration fund as provided for in the Petroleum Industry Act (PIA), its implementation has implications, whether negative or positive for the survival of Nigeria as a country or its readiness to join the global race seeking more investment in renewables.

In the new PIA, Section 9, subsection 4, states that: “There shall be maintained, for the purpose of this section, a Frontier Exploration Fund which shall be 30 per cent of NNPC Limited’s profit oil and profit gas in the production sharing, profit sharing and risk service contracts.”

It adds that : “NNPC Limited shall transfer the 30 per cent of profit oil and profit gas under subsection (4) to the Frontier Exploration Fund escrow account dedicated for the development of frontier acreages and utilise the funds to carry out exploration and development activities in the frontier acreages subject to appropriation by the National Assembly.”

Conspiracy theories aside, the question experts and professionals are asking is whether Nigeria really needs a fund for the exploration of more crude oil or whether it should devote its energies to getting a front seat in the global funding for renewable sources of fuel as the world transits from hydrocarbons.

Although President Muhammadu Buhari has never hidden his pet dream of seeing the north become a major producer of oil and gas in the country, it should be stated that the argument should go beyond mundane politics to the substance of such resolution.

Between Politics and Facts

The almost desperate search for oil in the northern frontier basins mostly remains in the realm of politics. Many who also vehemently oppose it, especially those who compare it to the oil-producing host communities 3 per cent, mostly express the same sentiments basically on the political plane.

However, beyond the noise created by the 3 per cent versus the 30 per cent are a small, largely muffled voices, who think that it is illogical for Nigeria to keep pumping money into the exploration of a waning commodity, which it agrees will become largely irrelevant in the next two decades.

Currently, the Department of Petroleum Resources (DPR), has said that Nigeria’s crude oil stands at roughly 37 billion barrels in reserves, with the almost certain additional 18 billion.

The 18 billion barrels aside, the NNPC, in 2020 said that without the discovery of fresh hydrocarbons in some parts of the country, the current 37 billion barrels in reserves will dry up in 30 years, given a projection of 2.3 million barrels per day by 2023.

The corporation has estimated that given a historical view of its profit oil and profit gas in the aforementioned areas, the frontier exploration fund to be set up could be getting as much as $400 million on a yearly basis.
But the debate has been whether it makes sense to continue to pump scarce resources into a waning and increasingly irrelevant resource, while almost nothing goes to the financing of renewables, which unarguably is the future of energy.

Another line of argument is: Why devote so much resources in search of oil in those largely northern basins when there are vast discoveries in the Niger Delta which still lie untapped?

The Energy Transition

To be sure, oil is a global commodity. So, whatever happens on the global scene affects Nigeria in no small measure. The world over, more countries as well as powerful groups are demanding cleaner, more sustainable energy sources.

For instance, a November survey conducted by the Pew Research Centre, quoted by Forbes, found that a whopping 77 percent of Americans believe that developing “alternative energy” is a more important priority right now than producing more fossil fuels.

Corporations around the world are investing heavily in “green energy”, while as of last year, as many as 100 companies in 23 different countries had signed clean energy contracts amounting to 19.5 gigawatts (GW) of power, a 44 percent increase from 2018.

Back in Nigeria, a number of International Oil Companies (IOCs) led by Shell, has indicated interest to abandon their onshore operations for the deepwaters, which essentially is meant to make as much money for them to invest in renewables.

Europe, a major buyer of Nigeria’s crude oil is undergoing a rapid transition to clean energy, with renewables accounting for a whopping 34.6 per cent of total electricity generation in 2019, plus many households and businesses which now get their power from wind and solar than they do hydrocarbons.

The U.S. Energy Information Administration (EIA) expects electricity generation from renewable sources to surpass nuclear and coal by this year and by 2045, may even surpass natural gas.

Even the very conservative China isn’t being left behind and is now a leader in clean energy investment. While the PIA mentions investment in renewable energy almost in passing, it does not provide any framework for exploring it. Will Nigeria be left behind?

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The PwC Report

In a new report by PricewaterhouseCoopers (PwC), one of the world’s most renowned consulting firms, the organisation advocated the setting up of a ‘Future Energy Fund’ that will incorporate elements of the transition to cleaner fuel sources, rather than devoting 30 per cent to the frontier exploration fund as provided for by the PIA.

The global business advisory services and consulting firm in a document which sought to breakdown the implications of the legislation, noted that based on the World Economic Forum (WEF) data, a country’s energy transition readiness is measured by six factors.

It listed the factors as availability of investment and capital; effective regulation and political commitment; stable institutions and governance; supportive infrastructure and innovative business environment; highly skilled human capital as well as consumer participation and robust energy systems structure, saying that Nigeria scored 35 per cent in its energy transition readiness.

The report tagged: “The Petroleum Industry Act: Redefining the Nigerian Oil and Gas Landscape”, explained that the lack of enabling infrastructure, regulatory framework and governance of energy transition are the major reasons for the low score.

However, PwC, in the document, argued that the country should begin moves to join the global energy transition, stressing that as it is, Nigeria’s resources are being devoted almost solely to a commodity that is fast waning.

“Exploration is a high-risk endeavour. In addition, raising the needed finance for the development, production and evacuation from the frontier basins might be a tall order as investors are staying away from high cost emission-intensive assets.

“These basins will compete for funds with ambitious and more-environment friendly projects like gas, hydrogen, solar and wind. Rather than a frontier exploration fund, Nigeria could consider setting up a future energy fund.

“The amounts being set aside in the PIA for the frontier exploration fund can be applied towards funding the development of Nigeria’s future energy potential, which will include but not be limited to petroleum, in readiness for the energy transition.

“The fund can also be deployed for funding the development of abatement technologies that can aid carbon neutrality,” the firm, which operates in about 157 countries worldwide, maintained.

PwC noted that with the projected decline in global demand for hydrocarbons, leading oil and gas production companies are cutting back significantly on their oil and gas business and on further investment in fossil fuels.

It recalled that for example, British Petroleum (BP) has announced that it would be suspending oil and gas exploration in new countries from 2021 and aims to make a tenfold increase in its spending on low carbon energy.

In the case of Shell, based on its new strategy launched in 2021, it explained that the company aims to decrease its total oil production by 1-2 per cent per annum and make no new frontier exploration investment by 2025.
According to the firm, Shell which accounts for about 50 per cent of Nigeria’s oil and gas production, has the broad theme of its strategy for its upstream petroleum business to generate the cash to fund the growth of its low carbon business.

PENGASSAN’s Position

Interestingly, another lone voice in nudging the authorities to invest more in renewable sources of energy, rather that devoting funds to a product which is fast losing its relevance is the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN).

President of the union, Mr Festus Osifo argued that the bill does not take cognisance of the ongoing energy transition, which would require the Nigerian National Petroleum Corporation (NNPC) to focus on renewable sources of energy.

He explained that during the public hearings by the National Assembly, PENGASSAN advocated that there must be a deliberate attempt to start developing renewables, but that has been largely ignored.

He pointed out that this is because a lot of companies today are transiting from being just oil and gas companies to energy concerns, stating that as it is, the Nigerian government is not prepared for that major development.
“So, that was our advocacy, that some percentages should be set aside to start developing our renewables, so that the energy transition will not catch up with us unaware.

“This is because from the research currently ongoing, it is really difficult for us to predict the future of oil in the next 30 years. So, the time to act is now,” he added.

Oil, Renewables can Coexist?

Even the Organisation of Petroleum Exporting Countries (OPEC), has avoided the temptation to dismiss the push for greener and cleaner sources of fuel as irrelevant. Instead, the oil producers group has posited that both can exist side by side.

Commenting, OPEC Secretary General, Dr. Sanusi Barkindo lamented the widening dichotomy between opposition to fossil fuels and advocates of renewable energy sources.

He asked for a convergence, arguing that both can coexist.

Speaking at the first Ministerial Roundtable on Energy, Climate and Sustainable, Development, recently, Barkindo stated that the public discourse around the issue often seem to be reduced to the question of who is for or against hydrocarbons.

Describing it as the ultimate false dichotomy, the OPEC helmsman stated that this line of thought erroneously limits what options are available, stressing that the solutions require more comprehensiveness.

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“No one should be left behind. All voices need to heard, and listened to. We all share this planet. We need multilateralism at the centre of our energy, climate and sustainable development future,” he insisted.

He added that OPEC has continuously been a promotor of both sustainable development and efforts to combat climate change, with a focus on the need to utilise all solutions to reduce greenhouse emissions and adapt to their impact, and at the same time ensure energy access for all.

“I have witnessed energy poverty first-hand in my home continent of Africa, where more than 600 million people have little or no access to electricity and 900 million lack safe and clean cooking fuels.
“Global leaders need to be reminded that for billions, the day does not start by switching on a light, opening a refrigerator or turning the ignition on a car. Access to affordable and reliable modern energy is a must for everyone.

“There are some who believe the oil and gas industries should not be part of the energy future, that they should be consigned to the past, and that the future is one that can be dominated by renewables and electric vehicles. We need to counter this evolving narrative,” he explained.

He argued that what the science and statistics of the energy sector is saying is that the world needs to reduce emissions and use energy more efficiently through innovation in developing cleaner and more efficient technological solutions to help reduce emissions.

He stressed that for instance, Carbon Capture Utilisation and Storage (CCUS) as well as the promotion of the Circular Carbon Economy (CCE) could improve overall environmental performance, rather than the call to jettison fossil fuels all together.

In another forum, Barkindo warned that lack of investments in the oil and gas industry may eventually lead to price volatility if the decline is left uncurbed.

The Nigerian-born OPEC chief explained that due to the nature of the industry, there was a very high chance that the resilience of the market may be tested again without adequate project funding.

Barkindo noted that such a volatile situation is not something that any member of the oil producers’ group will want to encounter, insisting that crude oil will continue to remain relevant despite the push for renewable energy sources.

“Although renewables will see the largest incremental growth, oil, still is top spot in the energy mix. It is worth highlighting that soaring demand at these levels will require massive industry investment,” he maintained.

FG Defends Investment

Not to be outdone, the federal government has also been defending why it is necessary to continue search for oil, even if it means pumping $400 million into it on a yearly basis.

Although the Minister of State, Petroleum Resources, Timipre Sylva, did not disclose how much the 30 per cent fund will translate to, he maintained that it will go into an investment fund because Nigeria has to commit to finding more oil in the frontier territory.

“The ultra deep offshore is a frontier territory. You have the Anambra basin to explore and there’s already some gas finds in the Anambra basin. The Calabar basin is also a frontier basin. The Chad basin is also a frontier territory.

“So, there are a lot of other territories out there. So, these funds will be available to invest in these frontier areas so that we can find new oil especially at this time when we actually need to urgently produce the oil in Nigeria, because the oil era is almost getting to a close.

“So, we need to have this money so that we don’t look for money or don’t need to be going around looking for money when we want to invest,” he explained.

Elsewhere, Sylva stated that against the backdrop of declining global investment in the oil and gas sector, the establishment of an African energy bank to help boost business activities in the sector on the continent, had become an imperative.

Sylva said since western nations were scaling down funding for hydrocarbon exploration across the world and focusing on renewable energies, setting up an African energy bank remained a viable way to neutralise the threat.
“The PIA is a watershed moment for us in Nigeria. This is the time for us to get out of Nigeria to market this investment environment. We must not go out of Africa to attract investments. We must setup structures to fund our system.

“If we insist on the exploration of our oil and gas reserves when the world is cutting down on investments in the sector, we must set a financial institution, an African energy bank to develop the oil and gas sector, ”he emphasised.

While calling for synergy among African nations, the minister noted that no country in the world would help Africa develop aside Africans themselves and therefore called for unity among nations in the continent.

The mere thought that at a point, Nigeria’s crude oil may not find buyers is on its own quite scary. If anything, Nigerians expect their elected leaders to take the right decision to avoid this disaster in the future.

Source: Thisday

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