Sustainability of a Renewed Nigeria: European Union Energy Trade Relations

The recent visit of the European Union (EU) Energy Platform Task Force to the Nigerian Minister of State for Petroleum Resources, Timipre Sylva, is a development that should be of interest and concern to policy makers in Nigeria and around the world. EU. For Nigeria, it is the prospect of increased foreign investment in the sector, which represents more than 80% of foreign exchange earnings and more than 50% of non-debt earnings; while for the EU it is the desire for enhanced energy security, following the results of sanctions against Russian oil and gas after its invasion of Ukraine in February 2022.

To further underscore the importance of this for both parties, Nigeria has been unable to find other debt-free alternatives to oil revenues, resulting in a devaluation of over 300% of its currency against to the US dollar in seven years, and debt service consuming more resources than revenue in the first half of 2022. For the EU, the outlook for gas unavailability during cold winters and the long-term nature of gas contracts supplies are essential.

The EU visiting team led by Mathew Baldwin, Deputy Director General of the EU Energy Platform Task Force, explained that the visit was part of efforts to establish new sustainable partnerships and investments with Nigeria. The intention of sustainability is therefore what is of major interest, given the history of socio-economic events in the delta region of Nigeria, where most of Nigeria’s energy and gas fields are produced. .

At present, Nigeria is largely unable to meet new energy demands from the EU. This is partly due to the continued divestment by many international oil companies (IOCs), including some of European origin, from the Nigerian energy sector since 2012. While six major international oil companies, including Shell, ConocoPhillips, TotalEnergies, ExxonMobil, Chevron and Eni, have decided to halt new investment in Nigeria, capital expenditure in the country’s oil and gas industry has fallen dramatically by 70% year-on-year, from $20 billion to $6 billions of dollars a year. It has also caused production levels to drop from 2.6 million barrels per day (bpd) over the past 20 to 30 years to one million bpd today. As a result, Nigeria has little to no spare production capacity despite huge oil and gas reserves of over 37 billion barrels and around 209 trillion cubic feet (TCF).

With the foregoing analysis of investment trends in the energy sector in Nigeria, the desired sustainability of the EU’s desired energy supplies from Nigeria can only be achieved if the factors that led to Nigeria’s divestment by the main IOCs are assessed and possibly resolved.

One then has to ask: What are the main factors responsible for the disinvestment of the Nigerian energy sector in recent decades by IOCs?

For the Nigerian Minister of State for Petroleum Resources, as well as other stakeholders, this is largely due to the hostile operating environment occasioned by the oil theft. While oil theft and insecurity can be immediately identified, a historical assessment of the phenomena of oil theft and insecurity shows that these activities have strong relationships with the social justice agitations of oil communities. Nigerian government activities confirm this fact, as the gross theft monitoring software application launched by the government company Nigerian National Petroleum Corporation Limited (NNPCL) in August 2022 expects most reports and intelligence on the oil flights are provided by people from oil-producing communities. The government has also, during the same period, reallocated pipeline protection contracts to companies owned by individuals with a history of agitation to ensure that oil-producing communities have some level of ownership of petroleum products. Therefore, oil theft and insecurity cannot be sustainably resolved without addressing the social justice agitations of oil-producing communities.

In seeking feasible approaches that can be taken to address the underlying factors that may impede the sustainability of the proposed renewal of the energy trade relationship between Nigeria and the EU, it is important to highlight that the rationales or not Oil community unrests are not the primary focus of this article, but rather the need to support a sustainable approach to increased investment in Nigeria’s oil sector.

As the EU is pressed for new sources of energy supply, the realities of emerging new energy sources and renewables also make it more imperative for Nigeria to make the most of what is likely the last age of energy. gold from oil and gas.

Besides the 70% drop in investment year-on-year due to insecurity, Nigeria lost more than $4 billion in revenue in 2021 due to oil theft, according to the state-owned oil company. If demands for more ownership and diversion by oil-producing communities are compared to what is spent, or lost, as additional security and costs for oil production in Nigeria, the business case and sustainability will recommend a new approach to doing things. While the 2021 Petroleum Industry Act (PIA) called for 3% of oil company operating expenses to be provided to oil-producing communities, the fact that oil companies in the region are still losing over 90% of what they produce shows that the provisions of the PIA 2021 are not sustainable and should lead to new approaches to managing social unrest in the territory.

So what can be done to permanently reverse the trend of oil theft?

In addition to improving security through operations and exercises such as “Operation Dakar Da Barawo”, the EU should pay more attention to constitutional and political efforts that will give communities and state governments greater ownership of petroleum resources and greater responsibility in the management and production of petroleum products. Although in nominal terms increased local ownership makes state governments and communities wealthier, it is actually a win-win situation as increased local ownership significantly reduces the cost of doing business in the sector. Nigerian oil tanker in due time thereby increasing investment, production and ultimately creating more revenue for the federal government.

Admitted that this proposal is a sensitive issue in Nigeria, but the prevailing economic situation in several regions due to oil theft which includes loss of revenue of $4 billion in 2021 alone, currency devaluation of more by 200% in seven years, threats by international airlines to cease operations due to the inability to repatriate foreign currency earnings, the increase of more than 300% in public debt in seven years, divestment by investors , the inability to meet the demands of potential customers in the EU and rising unemployment, among others, are sufficient economic reasons or a tipping point to require a review of policies and legal operations by the government. The EU prides itself on virtues such as social justice and human rights and it can draw on this experience in its call for a more sustainable energy trading relationship with Nigeria.

The recommendation for social justice is in no way an endorsement of the social, economic and environmental damage caused by oil theft. According to some estimates, the environmental damage caused by oil theft will take more than 40 years to repair and such actions cannot be tolerated.

By adopting new approaches that give oil-producing subnational governments and communities greater ownership, projects such as the Trans-Saharan Gas Pipeline, for which a memorandum of understanding for construction was first signed in 2009 to s to complete in 2015, but was blocked for security reasons, will have a better chance of success. This 4,000 kilometer, $13 billion gas pipeline project was designed over 40 years ago and originates from Warri in Nigeria’s Niger Delta via the Ajaokuta-Kaduna-Kano gas pipeline ( AKK) which is expected to supply power to industrial activities in other parts of Nigeria, as far as the Republic of Niger, and terminates at Hassi R’Mel in Algeria. In Algeria, the gas pipeline would connect to outgoing gas pipelines to Europe and eventually supply 30 billion cubic meters of gas per year to Europe.

Addressing the social justice issues surrounding the ownership of Nigeria’s oil industry therefore becomes a matter of foreign policy, given that the activities of the country’s oil industry will affect its relations with EU member states, alongside the fact that the trans-Saharan gas pipeline project will cross West and North African countries, before supplying gas to Europe.

Also on foreign policy, the recent Cut Inflation Act of 2022 in the United States, which calls for a $369 billion investment in clean and renewable energy and is designed to reduce states’ carbon emissions. US growth of 40% in 2030 is, to a large extent, an indicator of the declining outlook for the oil industry. Given the leading role played by the United States in dictating global reforms, Nigeria should consider how best to maximize the remaining value to be gained from the oil sector. Major oil companies such as Shell, BP and TotalEnergies have now invested in competing renewable energy sources.

Furthermore, for Nigeria, hoping on Asian and Eastern countries as long-term alternative markets may not be a viable proposition, as the effects of long-term sanctions and structural economic changes on Russia, which already supplies these markets with petroleum products at discounted prices, means that these countries will only be interested in long-term oil supplies at greatly reduced prices.

Using the same approach cannot produce a different result. The time for a change in the Nigerian government’s approach to the governance of its oil sector is long overdue. A sustainable approach that has more community ownership of hydrocarbon resources, which ultimately makes Nigeria’s petroleum sector more secure and conducive to investment for greater production, is beckoning.

Uwanaka, a political analyst, writes through [email protected]

Opinions expressed by contributors are strictly personal and do not belong to TheCable.

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