It was a reality check for oil and gas industry bigwigs as they analyse the implications of the decarbonisation drive or energy transition for resource-rich Nigeria, in response to concerns on increasing global warming in a bid to limit temperature rise to 1.5°C by 2050.
While speakers at the ongoing 44th Nigeria Annual International Conference and Exhibition (NAICE) 2021 of the Society of Petroleum Engineers (SPE), in Lagos, agreed on the need for the transition, they were however divided on how to approach the challenge.
Indeed, based on the theme for this year’s conference, “The Future of Energy: A Trilogy of Determinants; Climate Change, Public Health and the Global Oil Market,” it was a time to face up to the reality of shifting to cleaner and renewable energy no matter how bitter a pill it is to swallow.
The major concern on the part of the Federal Government is the impact on its revenue and foreign exchange earnings since oil and gas are the dominant sources on both counts, and efforts to attract increased foreign direct investment (FDIs) across all sectors of the Nigerian economy.
Accepting the situation
Nigeria’s Minister of State for Petroleum Resources, Timipre Sylva, at the conference disagrees that the decarbonisation process has to happen by way of a simultaneous global effort of transitioning national economies to the use of low carbon energy solutions.
He believes that this strategy is based on “an assumption that all national economies are driven by the same parameters and does not take into account the different socio-economic, political and developmental peculiarities of individual nations,” which he insists is not the case.
Against this backdrop, he said: “Let me state categorically that our approach towards the climate-change-net-zero-emission debate is to optimize the use of our abundant gas resource domestically as a transition fuel option towards meeting our Nationally Determined Contributions on climate change.
“As a Government, we are determined to encourage more penetration of natural gas and its derivatives for domestic utilization, power generation, gas-based industries and propulsion in all aspects of the national economy. This would in a fundamental manner address the great challenge posed by the volatile oil market, the environmental issues and public health concerns.”
Despite the decarbonisation efforts, Director, Department of Petroleum Resources (DPR), Sarki Auwalu, said: “For the foreseeable Future, we would continue to see a mix of all energy sources – Coal, Oil, Gas, Nuclear, Renewables – in the supply equation. Whereas renewable sources will make steady in-roads in the global mix, oil and gas will be relevant in decades to come.”
This conclusion, he said, is informed by the outcomes of market analysis and forecasts based on demand-supply equilibrium, socio-economic fundamentals, climate change and environmental considerations as well as technology and innovation that are shaping the dynamics of global outlook.
But the Nigerian National Petroleum Corporation (NNPC), which is the majority stakeholder in all the joint venture (JV) oil and gas operations, and in full realisation of the gradual and imminent divestment from fossil fuel by its partners, seeks better understanding of the Nigerian situation.
The Group Managing Director, NNPC, Mele Kyari, who painted a picture of being left standing alone by his partners, blamed the acceleration to renewables on the influence of activists and international financiers.
The reality for Kyari is the fact that “As an oil-dependent economy, the global transition to non-fossil sources of energy will mean declining revenue, foreign exchange and funding of projects particularly in the context of Green Finance and Activist Investors’ action on the Boards of Major Oil Companies and Global Finance Institutions.”
Specifically he says: “Although the world is yet to reach consensus on the focus of energy transition, we are seeing new investment patterns toward low-carbon energy sources and technologies, such as wind, solar, hydrogen, natural gas and biofuels with obvious wider business implications on the oil and gas industry.”
He also admits that the imperatives of energy transition and the influence of Activist Investors are changing global energy investment appetite, making oil and gas companies diversify their portfolio to low carbon investments. Industry conversations are dominated by the shift to renewable energy as a source of cleaner and climate-friendly fuel.
To underscore his point, Shell, Nigeria’s first JV partner recently announced a major divestment of its shallow-water and onshore subsidiary assets, because it no longer views its activities in the Niger Delta as core to its ongoing strategy, which is driven by the environment, social and governance (ESG) pressure from its investors. It is also investing heavily in renewables as well as sustainable aviation fuel (SAF) in other climes.
Similarly, other oil majors including ExxonMobil, Total, Chevron and Eni are making public declarations on their decarbonisation efforts and transition to renewable energies. ExxonMobil harps on innovating energy solutions; Total is now TotalEnergies to reflect its portfolios in cleaner fuels; Chevron is investing in renewables and biofuels in its drive to developing affordable and reliable energy with less environmental impact; and Eni says the evolution of the energy company has renewables at the centre of its strategy.
To underscore the governance challenges, Washington-based Brookings Institution, notes that because many resource-rich countries like Nigeria struggle with effective governance, the natural resource governance field should support them with initiatives that build on past efforts and pivot to respond to current challenges.
The Institution also urges “Fostering informed public debate about the effects that the global energy transition is having, and will likely continue to have, on geopolitics, national development, and the country’s economic health (including a focus on realistic fiscal revenues),” which is the point the Petroleum Minister Sylva is focusing on.
This is even as he assures that “The Government of Nigeria in collaboration with global partners is exploring policies, technologies and investments to address the current global challenge that will support migration from our reliance on carbon dependent fuels to meeting our commitment to the Paris Agreement.”
Brookings Institution also stresses mitigating wind-down costs for vulnerable populations reliant on commodities that will decline in the energy transition.
A United Nations (UN) Intergovernmental Panel on Climate Change (IPCC) report in 2018, reiterated that ambitious mitigation actions are indispensable to limit warming to 1.5°C while achieving sustainable development and poverty eradication.
It equally admitted that “Ill-designed responses, however, could pose challenges especially – but not exclusively – for countries and regions contending with poverty and those requiring significant transformation of their energy systems.”
Despite the passage of the controversial Petroleum Industry Bill (PIB), NNPC’s Kyari said the current wave of divestment by oil majors operating in Nigeria “creates a challenge for us in ensuring that we get right and competent investors to take position and add value to assets.
While admitting that NNPC as a National Oil Company cannot stop partners from divesting their interest, it will however, “make clear distinctions between divestment of shares and Operatorship Agreements, while leveraging its right of pre-emption as well as evaluating the operational competence and track records of new partners.”
Country Chair, Total in Nigeria/Managing Director, Total E&P Nigeria Ltd., Mike Sangster, was explicit when he declared that given the relationship between climate change and public health “our industry must address the concerns over our contribution to climate change.”
He agrees that the production and use of energy contribute to greenhouse gas emissions. “Therefore, meeting the climate challenge will mean embarking on energy transition, i.e. transforming the way we produce and use energy.”
As far as the French oil major is concerned, he said: “TotalEnergies believes that climate change is a reality and requires the collective mobilisation of society. The 2015 Paris Agreement generated a groundswell of awareness of the climate emergency. The target recommended by the experts is a carbon-neutral society by 2050. This is a demanding goal that we must all, collectively, commit to.
As an oil-dependent economy, the global transition to non-fossil sources of energy will mean declining revenue, foreign exchange and funding of projects particularly in the context of Green Finance and Activist Investors’ action on the Boards of Major Oil Companies and Global Finance Institutions.
“Since 2015, TotalEnergies has steered a determined course to new energies, in line with our ambition to provide energy that is reliable, affordable, and clean.
“This means that the future of energy is changing and, if we must remain relevant in the energy market of the future, then we must continue to adapt. Together with society, we are adapting to a world-class player in the energy transition with a target of net-zero carbon emissions by 2050.”
Aside from acknowledging the impact of the COVID-19 pandemic global economy, all the speakers accepted that the Oil and gas industry has a role to play in protecting the health and safety of the people under the new normal.
SPE Nigerian Council Chairman, Olatunji Akinwunmi, argues that given the increasing share of non-petroleum sources in the new energy solutions mix, it is clearly in the best interest of the oil and gas industry to be in phase with the rest of the world.
Based on the conference theme, he says: “significant reduction of the carbon intensity of our operations can be achieved by making our operations more efficient, reducing waste and disenabling fugitive emissions, with more focus on transition to gas exploration and development to replace coal in electricity generation, by improving technologies for capture and subsurface storage of carbon dioxide.”