A Review of the Nigerian Energy Industry

Fuel scarcity as a consequence of faulty energy policies

30 December 2017, Sweetcrude, London — At a time when the world is moving away from fossil fuels towards renewable sources of energy in response to the challenges posed by the reduction in petroleum reserves, the perspective of supply disruptions seen within the prism of the blackmail of oil producing countries, price volatility and environmental concerns, industry watchers learnt with horror that the NNPC recently injected funds in excess of $USD2B into the exploration for crude oil in Northern Nigeria! The investment by the Nigerian government which has produced no viable results so far is essentially an investment in a resource that is fast losing ground to renewable sources of energy such as solar energy, wind and bio-fuels; an investment that is bereft of common sense and sound economic reasoning. Although the people of the Niger Delta have forever contested the federal government’s pretence to the control and management of fossil fuel deposits in the Niger Delta and the resources that accrue from them, a sound investment decision even within the context of the contest of the ownership and control of the resource could benefit everyone.

Northern Nigeria is known for aggressive farming and productive farm yields in wheat, sugar beet, corn, millet and other grains, the very agricultural produce that Brazil, the USA and other countries are investing billions in for the production of ethanol also known as ethyl alcohol, grain spirit or simply alcohol. Ethanol can be used in cars alone (as E100) in its anhydrous form or as a blend (E85) with petrol or diesel in its hydrous and heavier manifestation. Since 1977, Brazil established an Ethanol Use Mandate law which required every litre of gasoline sold to consumers to have at least 4.5% ethanol blend or content. The current mandate is 27%. In the United States, the current ethanol mandate across the federation is at least 10% although some states have higher mandates. The point is that ethanol is the future of the energy market alongside solar energy, wind and electricity. Ethanol is produced from the fermentation and distillation of biomass produced from farm products that are known to have recorded high yields in Northern Nigeria like sugar cane, wheat and millet. If the NNPC wants Nigeria to continue to play a role in the energy market, why did it not invest the billions of dollars wasted in prospecting for crude in Northern Nigeria in establishing and boosting the efforts of farms and farmers in Northern Nigeria for the production of ethanol? It is not late; a failed policy is not totally useless to mankind as it can form the basis for re-strategising for a better, more reasonable, more profitable and more environmentally friendly investment decision such as the investment in the production of ethanol in Northern Nigeria.

This contribution was inspired by the fuel scarcity mess that Nigerians found themselves in few weeks to the Christmas holidays, 2017. Although there are unpatriotic elements that hoard products during this period to benefit from the spike in prices that follow scarcity, it is a howling incongruity that the NNPC, the sole importer of petroleum products into Nigeria, still maintains as business ventures, refineries that are producing far below capacity, getting mired in a pricing dilemma as the cost of local production and the pump price of imported products are never at par. Apart from denying the economy of the gains in earnings that would accrue to the private sector, the savings that are bound to filter from careful private investments and the availability of the products to a ravenous demand pool, the NNPC runs a secret budgeting apparatus for its refineries, the details of which, if revealed to the Nigerian public could cause social reverberations of epic proportions. With the entry of Dangote’s refinery into the fray, the federal government, no expert in running profitable business ventures of any kind, should have divested its holdings in the refineries in order for private owners, faced with the competition from a known profitable brand and the incentive to pay off financing and make profits, to apply the diligence characteristic of private equity to give Nigerian consumers their due. And while the refineries are finding their rhythm the importation of products to bridge the reconstruction process of the refineries, should not be done by the NNPC, notorious for an unwieldy bureaucracy that is primarily responsible for the scarcity of petroleum products in the country but a corps of marketing firms, licensed through a transparent process and regulated closely by government or the NNPC.

If Nigeria makes wise decisions for a robust investment in ethanol in Northern Nigeria and divests of its interests in the publicly owned refineries, perhaps the time would come when the Federal Government would see the wisdom in regulating and taxing the Oil and Gas Industry, leaving the concessions to the states as it is done in other civilised countries with diverse populations and interests.

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