But, due mainly to the discovery of oil and the sustained campaign by environmentalists against it as a major polluter of the environment, coal began to lose its place in the global energy mix. The coal cities around the world which were once the hub of commercial and business activities have since lost their glory with many having gone into oblivion. The coal era was effectively over and the product has become a relic of a glorious past.
The same fate is about to befall crude oil, Nigeria’s chief revenue earner, driven mainly by environmental issues, especially the need to rein in global warming and curtail climate change. Global concern over global warming and climate change have seen a resurgence of electric cars. Major economies, the usual destination for the Nigerian crude, are talking tough against fossil fuel vehicles and many have gone ahead to set dates for an outright ban on vehicles running on petrol, diesel and other fossil fuels.
Currently, the transportation sector dominates the world’s oil demand, accounting for an outstanding 45 percent of the demand. According to data by World Oil Outlook, WOO, most of the oil consumed today and in the future will be by the road transportation sector.
In 2015, the sector’s demand totalled 41.6 million barrels per day, mb/d, which represented 45% of the overall demand. Demand is expected to continue increasing and reach over 47.8 mb/d in 2040.
With the transportation section of the market threatened by fossil fuel ban, Nigeria, which is dependent on crude oil for over 80 per cent of its earnings, together with the rest oil exporting countries, is in big trouble.
Germany, Britain, France set deadlines for fossil fuel vehicles
Britain two weeks ago issued a notice to ban the sale of new cars and vans using diesel and gasoline starting in 2040 as part of a sweeping plan to tackle air pollution. The UK aspiration of all new cars being electric or having ultra low emission by 2040 has, however, been criticised by campaigners and politicians for being slow to act on air pollution.
France announced a similar initiative earlier this month, saying the move is part of an ambitious plan to meet its targets under the Paris climate accord. Nicolas Hulot, the country’s ecology minister, said: “We are announcing an end to the sale of petrol and diesel cars by 2040,” describing the decision as a “veritable revolution”.
He said it would be a “tough” objective for carmakers but France’s industry was well equipped to make the switch. “Our (car) makers have enough ideas in the drawer to nurture and bring about this promise … which is also a public health issue.” Hulot insisted that the decision was a question of public health policy and “a way to fight against air pollution”.
Ahead of Britain and France, some federal states in Germany target a 2030 phase-out.
Norway, which has the highest penetration of electric cars in the world, has set a target of only allowing sales of 100% electric or plug-in hybrid cars by 2025.
Other countries have floated the idea of banning cars powered by an internal combustion engine to meet air quality and climate change goals, but have not yet passed concrete targets.
The Netherlands is working on a 2025 ban on diesel and petrol cars. India, where various cities face serious air pollution threat, is considering not selling fossil powered cars by 2030.
Among auto makers, Volvo is moving in the direction of electric cars. Volvo says that by 2019 all of its cars will be powered by electricity or hybrid engines. This decision has been hailed as the beginning of the end for the internal combustion engine’s dominance of motor transport after more than a century.
Petrol cars to vanish in 8 years – US Report
In a futuristic forecast, a Stanford University economist, Tony Seba, said no more petrol or diesel cars, buses, or trucks will be sold anywhere in the world within eight years. The entire market for land transport will switch to electrification, leading to a collapse of oil prices and the demise of the petroleum industry as we have known it for a century, he said.
Seba’s report, titled ‘Rethinking Transportation 2020-2030’ went viral recently and is causing anxiety in the oil and gas, and associated industries.
Shell prepares for a shift from oil
The Royal Dutch Shell is already planning for the day major economies will turn to electric-powered cars. The company welcomed the plan by France and Britain to phase-out vehicles powered by fossil fuels.
According to Shells Chief Executive Ben van Beurden, the new move is needed to combat global warming. Shell is looking at “very aggressive scenarios” as it makes plans to remain competitive in a world that gets more of its energy from renewable sources and less from crude oil, or “liquids,” he said.
“The most aggressive scenario – much more aggressive than what we are seeing at the moment, by the way – with maximum policy effect, with maximum innovation effect, can see us peaking in liquids consumption somewhere in the early thirties,” he said.
All these portend a grim prospect for Nigeria and its fellow oil exporting countries. But while other oil exporting countries may have by now swung into action in response to the development, Nigeria, sadly, appears oblivious to the looming danger.
The government is rather concerned with plans to cut oil exploration costs. A national petroleum policy approved by the Federal Executive Council early this month hinted of moving the country away from reliance on crude for export revenues but did not include any concrete plan to address the issue of the threat of electric cars.
Africa’s largest oil exporter said it expects oil prices to stay near $45 per barrel “for the foreseeable future” and that it must diversify its economy and develop its own refining and petrochemical sectors.
“The most realistic line of action for any nation with oil as the backbone of its economy is to diversify because the indices strongly point to the possibility that the era of oil boom may be over for good,” the policy said.
The policy said Nigeria would aim to reduce the cost of extracting its oil, which at $29 per barrel is “one of the highest” in the world.
Oil “demand growth will markedly soften, except for the petrochemicals sector which is likely to be the main market for oil”, the 211-page policy document stated. “Nigeria has to move downstream into the value-added sectors of refining and petrochemicals,” it added.
Minister of State for Petroleum Resources, Dr Ibe Kachikwu’s own panacea to the electric car threat: “The country needs a consistent policy and to deal with inefficiencies in our system to survive the trend,’’ he said at the recent 2017 Nigerian Annual International Conference and Exhibition of the Society of Petroleum Engineers in Lagos.
‘Development overtake agitations over oil’
Industry observers are worried that Nigeria may not be able to make adequate preparations to contain the problem at hand. Others say the switch to electric cars exposes the lack of understanding in current agitations over oil. “Here we are still fighting over oil when the entire world has left us behind. The days of the oil and gas we are fighting for is over but we don’t seem to realise that. Just like coal, crude oil is on its way to becoming a relic of a glorious past,” said one industry observer. “The development will expose Nigeria’s inability to plan,” another source noted.
NEITI exposes Nigeria’s inability to plan
The danger presented by the resurgence of electric cars is coming at a time Nigeria’s failure to plan was exposed in a report by the Nigerian Extractive Industries Transparency Initiative, NEITI.
The report entitled, ‘The Case for a robust oil savings fund for Nigeria’ obtained by SweetcrudeReport shows that Nigeria has one of lowest natural resource revenue savings in the world, with the balance in the three funds – Stabilisation fund, Excess Crude Account, ECA; and Nigeria Sovereign Investment Authority, NSIA, now below $3.9 billion and incapable of funding 20% of the 2017 national budget.
According to a document, despite current efforts to pull Nigeria out of recession, the economy remains vulnerable to one of the conditions that created the problem in the first place: lack of adequate and prudently managed savings in a period of plenty.
As at June 2017, there was less than $3.9 billion dollars in all of the country’s oil revenue funds. This is only enough to finance 16% of the current (2017) budget of N7.44 trillion, according to the document.
“Given this scenario, it can hardly be said that Nigeria currently has a serious future generation’s policy in the management of its oil revenue. Yet a review of more than fifty sovereign wealth funds around the world shows that almost all of them were established with an overriding future generations’ objective.
“The prospect of a looming depletion of Nigeria’s oil resource raises the urgency of the need for accelerated savings for the benefit of future generations,” NEITI said.
Nigeria did not save enough oil revenues to sustain economic activities when oil prices began to fall in June 2014, as the document showed that when oil prices began to tumble from June 2014, Nigeria had just $2 billion in the ECA, despite having remitted a total of about $200 billion in excess crude oil proceeds into the account between 2004 and 2014.
The report said Nigeria’s $1.5 billion Sovereign Wealth Fund is one of the lowest in the world, Nigeria has one of the worst ratios to annual budget (10%), and one of the lowest SWF per capital ($8), better only than war-torn Iraq and crisis-hit Venezuela, but not by much. In contrast, Norway, a country of 5.2 million people (2.8% of Nigeria’s 186 million people) has a Sovereign Wealth Fund worth $922 billion (which is 23,641% of the $3.9 billion balance in Nigeria’s three oil revenue funds), the document added.
Meanwhile, in the last forty years of oil production at less than current levels, Nigeria extracted about 31 billion barrels of its oil reserves. From 1980 to 2015, Nigeria exported crude oil worth about $1.09 trillion.
Between 2005 and 2015, $201.2 billion accrued to Nigeria’s ECA but $204.7 billion was withdrawn from the Account during the same period, indicating that withdrawal was 102% of deposit, according to the document from NEITI.
The establishment of a Sovereign Wealth Fund, SWF, by the government in 2012 was intended to address the governance issues associated with the ECA, and while the SWF is a vast improvement over the ECA, it has inherited the same constitutional hurdle that dogged the ECA.
Until recently when $500 million was paid into the SWF, little savings had been made beyond the $1 billion seed capital transferred from the ECA in 2012.
Litigation between the federal and state governments over the constitutionality of the ECA and the SWF has lingered at the Supreme Court.
Nigeria typically responds to high oil prices with equally high, but manifestly unsustainable, level of consumption, the report showed.
The absence of sufficient savings left Nigeria severely exposed when the price of oil, Nigeria’s main source of government revenues and foreign exchange, started to plunge in 2014.
It was a sad turn, but not totally unpredicted. Countries that depend on revenues from natural resources to finance their budgets are characteristically prone to the boom-and-bust cycle.
One major way in which resource-rich countries have sought to insulate themselves from such volatility is by setting up stabilisation funds. The objective is to set aside money, especially during periods of high prices, which would be used to “smoothen” expenditure when prices fall. This insulates the economy from the effects of price volatility, ensuring the country would not necessarily go bust when the price falls.
Stabilisation funds also protect these countries against the Dutch Disease, which itself is a consequence of how countries choose to spend natural resource revenue.
Nigeria established the Excess Crude Account in 2004 based on a fiscal rule where crude oil earnings in excess of a budgeted price and production volume are transferred into the account. However, very little saving was accumulated during a period of consistently high prices, as the basic fiscal rules were not observed, according to the document.