–Professor Omowumi O. Iledare
1.0. PREAMBLE
The structure of the economy of Nigeria has changed since the dawn of crude oil production in 1958 after the first commercial petroleum discovery in the early 1950s, more so since the 1970s. It is certainly not conjectural to suggest that the petroleum industry in Nigeria has, so far, provided significant government access to huge revenues and provided suboptimal support for its economy, over the last sixty years of petroleum production. Unfortunately, continuous petroleum dependency in Nigeria is worrisome. Further the contribution of oil and gas to economic growth and sustainable economic development has not met expectations. Perhaps this is so because of transactional leadership mindset, especially, in the last decade, with unsustainable petroleum policy practices and amorphous institutional, regulatory, and the governance of the sector.
There is also an overarching and emerging backstop fuel, characterized as green energy, that is in direct competition for funding with petroleum as a dominant primary energy source. Certainly, the global longing to switch from fossil fuels to renewable energy sources present great a challenge for oil and gas with significant implications on petroleum dependent economies in the long run. Nigeria, therefore, needs appropriate strategic planning to use its oil and gas as a vital component of its industrialization strategy even as the global energy decarbonization era emerges. Thus, managing, optimally, the future of oil and gas in Nigeria is critical to minimize the unintended consequences of the glamor, worldwide, for a rapid decarbonization of energy sources in the quest to minimize the global warming effects of carbon emissions.
The aim of this op – ed is to provide a pedagogical assessment of the contemporaneous issues of and concerns about the oil and gas sector in Nigeria within the context of not only the emerging energy transition era, but the implementation of PIA 2021. The specific objective of the op-ed is to leverage on activities since the implementation of PIA 2021 began in August 2021. The op-ed aims to provide a narrative of the key issues, constraints and prospects arising from the Act, the drivers and determinants of the issues and constraints, and proffers plausible resolutions to observable PIA 2021 implementations breaches, which can affect the enlargement of posterity blessings of oil and gas in Nigeria.
2.0. CONTEMPORANEOUS ISSUES AND CONSTRAINTS IN MANAGING INTO THE FUTURE OIL AND GAS IN NIGERIA
Although, crude oil thieving, insecurity of assets, increasing cost of petroleum production, declining production capacity, and petroleum subsidy at the pump tend to dominate the news cycle in Nigeria. However, the contemporaneous issues, and constraints in managing optimally into the future of oil and gas are complicated, dynamic, and stochastic with domestic and international dimensions. While not diminishing oil thieving and others mentioned earlier, the contemporaneous issues facing the oil and gas sector in the context of enlarging oil and gas posterity blessings as intentionally anticipated in the PIA era the relatively more complex and expansive than thieving and vandalism. Apart from funding petroleum resources development before petroleum becomes socially and economically unappealing, finding the optimal pathway to net-carbon-zero emissions without jeopardizing economic growth and sustainable development is significantly crucial for the oil and gas future in Nigeria.
Further, there are challenges of concerns under the emerging circumstances that anchor on governance, PIA implementation, and macroeconomic instability from oil and gas market shocks. One of such challenges is balancing political expediency with economic efficiency, resource allocation effectiveness, equitable wealth distribution in an heterogenous society, without compromising ethics and the rules of law. There are also resource nationalism and provincialism issues affecting effective implementation of the PIA. Crude oil market failures, manpower development and deployment, and social, ideological, and geopolitical landscape in Nigeria have great implications on enlarging oil and gas posterity, as well.
I have always argued that until Nigeria begins to uphold meritocracy for service above political expediency for rewards and mediocrity, managing oil and gas future optimally will continue to be a tall order. Of course, that is exactly what is playing out flowing the enactment of the PIA 2021. Oil and gas in Nigeria is hanging on PIA life-support just gasping to stay afloat because of transactional leadership mindset with authoritarian tendency to promote economically unviable projects, politically motivated projects, industry practices that focus more on individual or regional prosperity enhancement than posterity blessings that oil and gas developments have bestowed on other resource-rich countries in a national sense. There seems to be a propensity to think more on provincial development than national economic development perpetuated by centralized planning.
The constraints in enlarging oil and gas posterity blessings are obvious from experiences of the last 60 years and more so since 2010 in Nigeria. These constraints include but are not limited to the emerging global environmental sustainability desire, enabling optimal business environment through local content, and unintended consequences of globalization– such as debt servicing, forex instability, crude oil market price volatility, market failures, and trade deficits. Like I have instructively alluded to in many fora, the oil and gas sector cannot operate in isolation. Its macroeconomic impact on the society can be easily compromised when any of the four macroeconomic markets—goods market, money market, labor market, and resources market, are in disequilibrium. The unintended consequences include social welfare loss, intractable misery index, and criminality.
Interestingly, however, in a petroleum dependent economy, like Nigeria, the resources market, the crude oil market to be specific, is the wheel that propels the four markets to equilibrium with no inappropriate government interventions. Thus, PIA implementation is strategically important beyond the business-as-usual approach so far, in my opinion. The observable mindset of the key players driving the implementation so far seems selective and this is a big constraint to attaining PIA stated objectives. In a maximization of any net benefit objective function, in the Nigeria case, posterity blessings from oil and gas, the optimal solution lies in defining the constraints, appropriately.
Remembering that this is a pedagogical review of contemporaneous issues and constraints arising from PIA implementation, permit me to be categorical on what I see as a misconception of the Commission in perceiving its mandate from the scrapped DPR rear-view mirror. Similarly, the Authority seems quite comfortable as the old PPPRA incarnation with pronouncement that cannot be supported by any PIA provisions. It is even quite troubling when regulators begin to fashion regulations with revenue generating intentions and this is observably playing out publicly with territorial protectionism and fighting for jurisdiction, perhaps, for rent seeking. Of course, NNPC Limited seems unwilling too, to let go of the agency role with the “alpha and omega” mentality in petroleum policy advocacy on behalf of the central government, like its predecessor, the old NNPC. Perhaps, many people do not see things the way I perceive things, and that is understandable, I do not “eat” these days because I am hungry, I eat because I want to eat. I observed that the Commission and the Authority are seemly deferential to NNPC Limited, and this is not as envisioned in the PIA 2021. A big challenge indeed.
Furthermore, that the key actors in the global oil and gas industry have changed significantly is not conjectural. It is a constraint that needed to be managed. To the extent that OPEC is now more of an incremental producer of the last resort for the stability of crude oil market dynamics than the OPEC we know at its high point in the 1970s, 1980s and 1990s. Then, OPEC stabilized the price of crude oil by simply influencing the supply side of the market as it wished because the market dynamics were supply determined. But, in the emerging green energy era, the supposedly incremental supply role of OPEC has implications on managing the oil and gas future in Nigeria. Thus, some may legitimately begin to ask if Nigeria’s membership of OPEC is still relevant in the PIA 2021 era.
Thus, a big constraint or challenge to manage oil and gas in Nigeria is keeping abreast, global influences and the influences of other oil producers apart from OPEC. Let me, however, throw an important caveat even as some people debate the relevance of Nigeria’s membership in OPEC. It is important to acknowledge, that OPEC has given Nigeria a cover over the years even as people ask the legitimate question on OPEC membership. I am not aware of any policy institutions in Nigeria that can categorically swear an affidavit that it has a long-term forecast of oil and gas production to 2035! Yet Nigeria seems fixed on 2060 with its energy transition plan.
Another constraint is the changing structure and conduct of the domestic oil and gas industry in Nigeria. From a significantly high barrier to entry structure, dominated by international oil companies, there is now lower barrier to entry due to the NOGIC Act 2010 and the precipitous divestments of onshore and shallow water assets by the International Oil Companies. Unfortunately, and I stand corrected, the PIA fiscal framework looks less favorable to the unlocking of the stranded onshore and shallow offshore reserves by the emerging indigenous operators in partnership, most often with NNPC Limited than it is for deep offshore investments. NNPC Limited joint venturing propensity is an issue of concerns as well to enlarging oil and gas posterity blessings. In as much as joint venturing allows for the spreading of upstream risk and enabling more participation of smaller firms, the propensity to have a stake in nearly every upstream project in Nigeria enhances the likelihood of failure for NNPC Limited.
I hasten to state again that the Board of Directors of NNPC Limited as envisioned in the crafting of the PIA is not for maximizing institutional captures for personal enrichment and economic rent seeking for the sake of it but to limit NNPC Limited vulnerability because of agency theory. Thus, though non-executive and non-advisory either, the essence of the Board is to approved portfolio of investments through independent assessments and review, to promote the commerciality objectives of NNPC Limited and enhance the stakeholder value. The role of the Federal Executive Council within the context of NNPC Limited joint venturing project approval is also not conjectural in the PIA. These are big constraints in managing into the oil and gas future as envisaged in the PIA 2021. Indeed, the Petroleum Industry Act (PIA) 2021 was intentionally created to enlarge the posterity blessings of oil and gas; the implementation of the Act must be intentional to accomplish the objectives set forth in the Act, subject to contemporaneous issues, constraints and challenges discussed in this op-ed.
TO BE CONTINUED: PIA 2021 AND THE PROSPECTS AT ENLARGING POSTERITY BLESSINGS FROM OIL AND GAS IN NIGERIA
Omowumi O. Iledare, Ph.D is a Professor Emeritus, LSU Energy Studies, USA, GNPC Petroleum Commerce Chair, UCC Institute for Oil and Gas Studies, GH, and Executive Director, Emmanuel Egbogah Foundation, Abuja, NG.