FT Report: Nigeria’s Gas Ambition May Collide with Global Banks’ Plan to Cut Hydrocarbon Financing

Dike Onwuamaezze

The Financial Times (FT) of London has reported that Nigeria has remained firmly wedded to oil and gas and far from weaning itself off hydrocarbon as the country plans to double its daily crude oil production to four million barrels at a time of global energy transition to greener energy initiatives.

The newspaper also stated that Nigeria’s gas ambitions could rub against the changing priorities of western banks and donors, which are being pressured by shareholders and governments to abandon lending to hydrocarbons projects.

These were contained in a latest FT report on Nigeria titled: “Investing in Nigeria,” which stated that Nigeria looks more like “a failing state than a superpower,” in spite of its standing as Africa’s biggest economy and most populous country.

The London-based newspaper observed that, “successive administrations, both military and civilian, failed to translate the country’s enormous oil wealth and diverse talents into sustained economic development.”

It added: “Instead of investing in comprehensive basic health and education, and the infrastructure, both physical and institutional, necessary for economic take-off, decades of oil money have been squandered on badly maintained white elephants, consumption and outright theft.”

The FT report quoted the Managing Director of Nigerian National Petroleum Corporation, Mr. Mele Kyari, as saying that Nigeria intended to increase its crude oil production to four million barrels per day (mbpd), up from the present volume of 1.8mbpd.

Kyari said: “We do not think the world does not want oil anymore; it’s just the use of oil will change. The best companies producing the cheapest oil will still have a market.

“With a competitive fiscal environment and the right regulatory framework, we know for sure investment will come in.”

Speaking in the same vein, the Head of Corporate Funding at Africa Finance Corporation, Ms. Modupe Famakinwa, was quoted to have said it would be, “shortsighted to boycott gas projects when the alternative might well be worse: charcoal for cooking, diesel for home generators or coal for power stations. Everybody is keen on renewable energy but there are so many other valuable projects. You can’t just turn gas off.”

But Vice President, Prof. Yemi Osinbajo, according to the FT, argued forcefully in an article in the journal Foreign Affairs for a halt on the ban on financing fossil projects.

“After decades of profiting from oil and gas, a growing number of wealthy nations have banned or restricted public investment in fossil fuels, including natural gas,” Osinbajo complained, adding that, “the transition must not come at the expense of affordable and reliable energy for people, cities, and industries.”

The report also argued that the Nigerian Exchange Limited was becoming moribund and seeing a reduction in the number of quoted companies on its platform, adding that the bourse had been struggling to attract new listings. The report stated that reduction in the number of quoted companies has remained despite the fact Nigeria’s main share index shot to a 13-year high in January 2022, to a level not seen since the 2008-09 global financial crisis.

The Head of Macro Strategy at Renaissance Capital, Mr. Charles Robertson, was quoted to have said: “With oil prices recovering, it should be a good environment for Nigerian equities. But it’s hard to have a dynamic local equity market when there aren’t professional foreign investors coming in.”

Similarly, the Head of Equity Research at Tellimer, Mr. Hasnain Malik, noted that the growth of Nigeria’s equity market has remained slow despite the recovery in the oil price to above $90 a barrel.

Malik explained: “It’s simply not growing that fast. When you look at the composition of what’s listed and what’s traded, it’s a market that’s dominated by banks and consumer companies, none of which are growing out of kilter with the economy as a whole.”

He attributed the low trading activities on the exchange to the fact that Nigeria’s all-share index contained few large companies, such as Dangote Cement and MTN Nigeria, a big mobile telecoms company, whose majority shares are still owned by their parent companies, implying that their “shares are not nearly as heavily traded as their size would suggest.”

Even the Chief Executive of the Nigerian Exchange, Mr. Femi Popoola, acknowledged that listings in the exchange, “have been few and far between.”

Popoola, however, said the exchange was drawing up plans to lure a new generation of companies from the country’s tech scene to public markets, which might entail relaxing market rules that required companies to have been profitable for three years for this segment of the exchange.

He said: “There is news of a capital raise or a seed round almost every week in Nigeria. We need to capture some of that capital formation on the exchange.”

A Portfolio Manager at Aberdeen Standard Investments, Mr. Kevin Daly, said the inability of investors to get their money out of Nigeria due to FX shortages and accompany currency control regime of the Central Bank of Nigeria has led to a plunge in overseas participation in the country’s equity market.

Daly said: “When you impose capital controls twice over the course of five years, that’s going to burn a lot of bridges. Nigeria has promised so much, but disappointed way too many times for equity investors.”

Data published by the Nigerian Exchange Limited showed that foreigners accounted for just 23 per cent of Nigerian equity trading in 2021 compared to 50 per cent in 2015.

“They still trade, but these are the foreigners that are trapped in Nigeria. It’s been moribund since 2019.

“Fund managers argue that relaxation of currency controls is needed before many will return. But potential buyers are likely to remain wary of what could happen in the next downturn for oil markets,” Malik said.