How Nigeria Plans to Mitigate Potential Impact of US Energy Surge

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Recently, the United States Energy Department forecasted that the country would  become a net energy exporter by 2022. The development could impact Nigeria’s energy market, but the country looks determined to weather it. Chineme Okafor writes

Ordinarily, the United States’ projection of becoming a net exporter of energy by 2022 should bother Nigeria as much as it should bother other oil producing states within the Organisation of Petroleum Exporting Countries (OPEC) cluster.

However, for Nigeria, this means that the US which was until July 2014 its traditional crude oil customer with the former becoming then the fifth largest supplier of crude oil to the North American country, would be vying significantly for market shares with it, and possibly encroaching on some of her new customer bases like India, Malaysia and China that are currently  her largest customers.

Records from the Nigerian National Petroleum Corporation (NNPC) showed that nation’s oil export to the US had from 2014 began to drop and at a point ceased because the US increased its oil output especially from shale.

Raising the alarm in its recent disclosure, the US Energy Department stated that by 2022, the country will become a net energy exporter because oil and natural gas production from its shale fields are booming while domestic energy demand are fairly tepid.

To underscore this, the Energy Information Administration (EIA) which had initially stated that the US would not become a net energy exporter until 2026, added in its Annual Energy Outlook that the country would also expand its natural gas exports beyond its traditional North American markets, and that shipments of crude oil will increase as well as outward flows of refined products such as gasoline.

EIA’s Administrator, Linda Capuano, in this regards said in a statement that, “The United States energy system continues to undergo an incredible transformation. This is most obvious when one considers that the Annual Energy Outlook shows the United States becoming a net exporter of energy during the projected period in the reference case and in most of the sensitivity cases as well- a very different set of expectations than we imagined even five or ten years ago.”

Additionally, the US was reported to have in 2017 started trading its crude at a big discount to international benchmark Brent crude after Hurricane Harvey shut down a good number of its refining capacity. And this discount now made crude from the US more attractive to overseas refiners, thus helping to push its export to an all-time high above 2 million barrels a day then.

The country’s oil export boom has also been helped by natural gas and oil production from advanced technology like hydraulic fracturing, which is the process of pumping water, sand and chemicals underground to fracture shale rocks and allow hydrocarbons to flow.

But as a net exporter, the US would still rely on importation of certain grades of heavy crude, which its refineries are reportedly configured to process, but Nigeria does not have such heavy crude.

 

Potential Response to Threat 

Perhaps realising she could run into troubles if she failed to plan on the back of the development, Nigeria also released a couple of plans it intends to pursue to diversify and gain tremendous control of its oil market share.

Disclosing one of the plans at the just-concluded inaugural Nigeria International Petroleum Summit (NIPS), which held in Abuja, with over 32 countries in attendance, the country’s Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, stated that Nigeria would be making greater efforts to secure the African energy market for itself and other African oil producers.

While not specifically stating that it would stop other countries from fishing in the continent’s energy market, Kachikwu, however gave the indication that Nigeria would seek to bring African countries into a collaboration to guard her energy market and use its hydrocarbon resources to industrialise the economies of its countries.

He explained that other continental or regional hubs like the Gulf States had created such market-based buffers, and as such, Africa would not be left out of taking such measure, which Nigeria would lead.

“Africa and African market are very key for us, as we begin to get into the way regional markets become very protected – the Gulf coming together, America begin to pursue becoming self-sufficient, the African market holds the potential for us, whether in refined petroleum products or transfer of technology and skill sets, whether it is in taking of advantages by local Nigerian companies, we need to begin to protect the African market and utilise it to its full potentials,” said Kachikwu, in his closing remarks at the NIPS.

But to make this possible, Kachikwu equally noted that certain homework in the regulatory processes, fiscal regimes, transparency practices, security of assets and human resources, as well as improved business environment for indigenous operators would have to be done by Nigeria quickly.

The minister explained that, with the shrinking of energy market opportunities across the globe and countries or regions becoming protective of their markets and Nigeria launching a forceful push to secure the continent’s market, more incentives would be provided to its indigenous oil producers to allow them grow their oil production levels from the current 10 per cent they contribute to the national production volumes, to 25 per cent within the next five years.

According to him, “Major Nigerian oil companies, I will like to see them excitedly come on board. We have about 10 per cent of the contribution in production today, we need to do more. I am targeting over that five-year period that they move to at least 25 per cent, which means that we need to see what incentives are essential for them to take some of the blocks that the IOCs are dropping and begin to bring them back into contributions in very realistic manners.”

Kachikwu also noted that such ambitious push would need Nigeria to invest an estimated $100 billion over a period of time in gas projects, petroleum pipeline replacements and other oil facilities.

The cost of producing a barrel of oil, he added would also have to be reviewed downwards to ensure that operators are competitive across board.

“We must very quickly establish regulatory and legislative certainty. Whatever it is you do with the PIB (Petroleum Industry Bill), various arms of it should be done and dusted with so that investors can have clarity in terms of where they can underpin their investments.

“Transparency is key. We continue to have the negative vibe in transparency despite all that has been done in the oil industry. What it says to us is that something must still be missing. Every average Nigerian says the oil industry is not transparent. Given the fact that the cardinal focus of this administration is anti-corruption, we must ensure that whatever we do, we must give serious attentions to transparency. We need to look at our processes, we need to look at our contractual terms, we need to review our patronage culture, we need to diversify the opportunities. When we are transparent, investors get a lot of confidence and are able to come in droves,” he stated.

Kachikwu equally explained that in terms of the domestic market, that Nigeria would place huge emphasis on gas-based industrialisation for her homes and industries, in addition to pushing for a complete exit from importation of refined petroleum products, which would have to be produced in-country.