By Ogheneganre Eyankware
“The world is transiting, there will be no buyers for Nigeria’s oil and gas in the recent future because renewables are taking the world by storm, if we nor act now, Nigeria own done finish” are statements that have become cliché in Nigeria’s public discuss sphere, leading advocacy conversations for diversification of the nation’s economy.
These assertions indicate the strong narrative existing amongst stakeholders that the world’s energy mix would rapidly transit to a renewable energy dominated one in the near future in which hydrocarbon would lose relevance. However, does this actually reflect the reality considering market dynamics, technological advancements and global demand for hydrocarbon? This question would be critically evaluated in this article so as to inform stakeholders of the realities on ground for effective strategic advocacy and engagement as regards diversification of the nation’s economy from a petrol-dollar driven one.
The hydrocarbon market is strongly controlled by forces of demand and supply; these market forces have continuously influenced international hydrocarbon prices, oil and gas geopolitics and even development of renewable energy sector that is perceived as a rival to hydrocarbons. Most importantly, hydrocarbon demand and supply trend is a strong indicator of the relevance of oil and gas as an energy source in the world into the coming years. Herein, an assessment of global oil and gas demand trend using data published by British Petroleum through 2010 – 2020 shows an increasing trajectory as against popular opinion in public discuss; this is shown in Fig. 1. This increase in hydrocarbon demand is more evident in crude oil as compared to natural gas; a trend that can be attributed to prevalence of internal combustion engines fuelled by petrol as compared to those powered by natural gas. This is corroborated by the fact that the continuous emergence of developing economies all over the world would create sustained demand for cheap hydrocarbon sources in place of “expensive” renewables; the classical example of China that used “dirty” coal to power its economy comes to bear.
Another critical factor to the relevance of hydrocarbon in global economy is the rate of integration of renewable energy into the world’s energy mix; a process that is strongly influenced by the cost of renewables and ease of deployment into global systems of production and consumption. In this case, the higher the cost of renewables, the harder it is for it to penetrate global energy market and vice versa. Herein, the ability of global economy to commit the sum of USD 73 trillion as an estimated upfront cost for deployment of renewable energy solutions in a post-COVID era (where economies of nations are predicted to experience the negative impact of the pandemic on a long term basis) seems limited on the backdrop of lack of funding. Although the advantages of committing such monies for clean energy projects are attractive (a strong reason why international development agencies are advocating for green recovery for the global economy in the post-COVID era), the realities on ground do not subscribe to it; most nations are doing whatever it takes to revive their economies resulting in consequent investment in heavy industries that are hydrocarbon energy intensive. In this regard, cheap hydrocarbon would continue to be energy source of demand into coming years.
Furthermore, the emergence of clean energy solutions with capacity to ensure that hydrocarbon utilization produce less greenhouse gases and reduced climate change impact elongates the shelf life of hydrocarbon in global economy especially in energy intensive sections such as power generation, petrochemicals, cement and iron & steel production and fuel transformation. Technologies such as carbon capture and storage (CCS), clean coal technologies, energy efficient utilization systems amongst others have shown capacity to facilitate clean utilization and consumption of hydrocarbon as the world seeks a green global economy for climate change mitigation; this is reiterated in the speech of the President of USA, Joe Biden during the Climate Summit hosted in April 22nd and 23rd, 2021. With 26 CCS plants operational with capacity to capture 40 mtCO2/year, advances in energy efficient systems recorded and continual progress in deployment of environmentally friendly processes for hydrocarbon production and utilization witnessed, utilization of hydrocarbon in the global community would be a continuous phenomenon into the coming years.
Finally, it is important to highlight that as renewable energy sources are getting cheaper, hydrocarbons would also get cheaper as a response to a competitive energy market. This would be facilitated by optimization of production processes for cost reduction, continuous discoveries of large acreages of hydrocarbon for improved economies of scale and development of cheaper technologies for overall drop in cost of production. These proposed occurrences would consequently ensure that hydrocarbons stay competitive in the global energy market for increased and sustainable demand.
Despite this antecedent points raised, it would be biased not to highlight the increased number of nations that have recently discovered hydrocarbon resource within their geographic locations with capacity to create supply glut, commitment shown by world dominating economies to commit to renewable energy deployment, enactment of hydrocarbon utilization prohibiting legislations by several governments and increased advocacy against hydrocarbon consumption by civil society organisations, all with an intent to reduce relevance of hydrocarbon in the world’s energy mix. However, the realities are all pointing towards energy addition and not energy transition to a global renewable energy dominated mix.
In this regard, it is evident that the Nigeria’s hydrocarbon resource would remain in demand into coming years (within the period of 30 – 50 years) as against the present perception. However, this does not call for reduced advocacy for diversification rather; it affords time to constructively engage the government on clear cut pathways to diversify the Nigerian economy with the resources that would be made from the oil and gas sector. Indeed, there is no time to waste but there is still time to engage for national growth and development.
Eyankware is extractives policy analyst with OrderPaper Nigeria