It is a season of boom for energy-rich countries which are now reaping excess revenues from the spike in crude oil prices as result of the supply crunch caused by Russia’s invasion of Ukraine. However, Africa’s biggest oil producer with one of the world’s largest gas reserves, Nigeria, is yet struggling to reap optimal benefit from its vast energy resources.
The ongoing energy crisis in the country, where the President in the past seven years has doubled as the Minister of Petroleum, was triggered by the importation of off-spec petrol and then compounded by the crisis between Russia and Ukraine, has continued to take a negative toll on Africa’s largest economy.
In the past two months, the prices of petrol, diesel, aviation fuel, kerosene, cooking and industrial gas have skyrocketed and have also adversely impacted domestic prices of a broad range of commodities and services, even as acute power blackouts amid higher tariffs have worsened the situation.
The high cost of petroleum products has come with the expected ripple effect. The prices of goods and services, which were already prohibitive before now, have gone out of hand. So far, commercial, social and essential activities have been destabilized, even as the country’s economic prospects have become dimmer.
Valuechain findings indicate that from between N162 and N165 per litre, petrol prices have jumped to as high as N300 per litre in some places, and the queues have yet to abate completely two months on. In January before the energy crisis, aviation fuel price in Nigeria was $0.46 or N190, but in a telephone chat with Valuechain, the Managing Director/Chief Executive Officer of Apex Oil, Mr Ben Ayenge, said that the lowest possible price at which one could buy aviation fuel in Nigeria at the moment is N590 per liter, adding that “other marketers are selling the same product for as high as between N620 and N630 per liter.”
The Operations Controller of the Independent Petroleum Marketers Association of Nigeria, Mr Mike Osatuyi, was reported as blaming the dramatic increase in the price of aviation fuel on the ongoing Russian-Ukranian crisis.
“So the hike goes in hand with the increase in the price of crude oil. By next week, don’t be surprised we are hitting N700. The exchange rate today is N585 while the official rate is N416; and the government does not give forex allocation for the purchase of kerosene, diesel and aviation fuel,” he was quoted as saying.
The market volatility challenge persists, notwithstanding the fact that nearly two weeks ago on March 15, the Airline Operators of Nigeria (AON) and the Major Oil Marketers Association of Nigeria reached an agreement to forestall the looming shutdown of local aviation travel in the country.
The two unions had agreed to peg the price of aviation fuel at N500 per litre from the current price of N630, assuring that the agreed price will be in place for 72 hours, after which the marketers and the AON will agree on new price modalities.
There was also a push for the Nigerian to allow airline operators in Nigeria to import ATK by granting them licenses. Part of these submissions were made by the CEO of Air Peace Airline, Allen Onyema at the recent investigative hearing by the House of Representatives ad hoc committee that was investigating the circumstances resulting in the scarcity of aviation fuel in Nigeria.
Yet, the price of aviation fuel is still likely to climb up to N700 per litre, threatening to shut down airline operations in the country. Similarly, gas shortages, technical hitches and accumulated debts have led to a sharp drop in available electricity and serial collapse of the national power grid.
To make it even worse, Nigeria has failed to take advantage of the rising crude oil prices on account of the devastating war between the two former Soviet neighbours when other nations have done so. Instead of leveraging global shortages to increase crude oil production and make more money, Nigeria’s production has rather decreased.
In its crude oil and condensate production data for February 2022, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said that Nigeria’s oil production dropped in the month under review from 1.39 million the previous month to an average of 1.25 million barrels per day (bpd).
In contrast, with the Organization of Petroleum Exporting Countries (OPEC) adjusting its monthly production quota for member countries and aligned non-OPEC oil-producing nations for the month of March, allocating 1,718,000 barrels per day production quota for Nigeria, Nigeria’s production deficit stands at 460,000 barrels per day.
Big Spending, little value
Nigerians continue to endure energy scarcity despite enormous amount of tax payers’ money spent over the years to widen access to energy resources.
Despite the country’s vast oil and natural gas reserves, as well as investments in the oil, gas and power sectors, Nigerians still experience not just epileptic power supply but scarcity of petroleum products.
According to Kaduna State Governor, Nasir El-Rufai, the Federal Government pumped N1.7 trillion into Nigeria’s ‘broken’ electricity sector three years after power privatization, an expenditure which he described as unsustainable in a country where over 80 million people lack access to electricity. And this N1.7 trillion does not include other interventions by specialized government institutions.
The Central Bank of Nigeria (CBN) recently disclosed that in the last five years, it had disbursed over N1.3 trillion to support power supply to Nigerians. According to the Governor of the apex bank, Godwin Emefiele, the monies were disbursed to electricity generating and distribution companies to acquire equipment or to buy meters and improve electricity supply.
Socio-Economic Rights and Accountability Project (SERAP) in a letter dated 19 March, 2022 and signed by its Deputy Director, Kolawole Oluwadare, claimed that over N11 trillion has been frittered in the name of providing regular electricity supply since 1999. He also urged President Muhammadu Buhari to “direct the Attorney General of the Federation and Minister of Justice, Abubakar Malami, SAN, and appropriate anti-corruption agencies to promptly and thoroughly investigate how the money was spent.
The country’s electricity situation is a stark disparity from what obtains among Nigeria’s peers in Africa. Africa’s most populous country and largest economy, Nigeria is not in the list of top five countries in Africa in terms of electricity generation, even though electricity demand and consumption in Nigeria expectedly would top the African chart.
The country boasts of power generation via thermal and hydro of nearly 13,000MW of installed capacity but generates only about 4,500MW, which is far below some countries in Africa. For instance, South Africa produces about 50,000MW of electricity from all sources, the highest of any African country. By comparison, Nigeria produces an average of 3000MW to 4000MW for a population almost four times the size of its closest economic rival, South Africa.
In the oil and gas sector, Nigeria earned $418.544 billion as revenue from 2010 to 2019, according a report by the Nigeria Extractive Industries Transparency Initiative (NEITI). Despite these accruals for the past decade, the sector suffers from under investment and, as such, majority of Nigerians have benefited little from the resources.
Nigeria has four refineries with the capacity to process 445,000 barrels per day of crude oil but decades of mismanagement which have rendered the refineries obsolete make room for continuous importation of refined petroleum. For instance, the country spent $37.9 billion to import refined petrol between 2015 and 2019, according to data from the National Bureau of Statistics. With this reality, refined petroleum takes the largest chunk of the country’s import bill.
A lot of resources have been diverted to turnaround maintenance of the refineries, but the results have never been commensurate. A whopping sum of $26.5 billion, which is said to have been spent so far on the maintenance of the loss-making refineries, is capable of building three new refineries of the same size.
The absence of functional domestic refining makes local petroleum consumption to depend on the vagaries of international pricing and supply, the negative impact of which is currently being felt in the volatility in the price of petroleum products in the international market.
Missed opportunities
While some African countries are gearing up to profit from the shift in global energy markets due largely to the crisis between Russia and Ukraine, Nigeria’s hopes are dimmed, according to experts.
With oil price volatility shaking global markets amid Russia’s invasion of Ukraine, coupled with economic sanctions by the European Union, the United States and Japan on Russia, European nations are looking more closely at Africa’s abundant natural gas as a potential new energy source. That means suppliers such as the underdeveloped frontier energy markets of Africa may find new energy sector investors in Europe who can no longer rely on Russian natural gas, which has long been their dominant energy source.
European Commission President, Ursula von der Leyen, said on March 11 that the EU would outline proposals by mid-May to phase out EU’s dependency on Russian fossil fuels by 2027. That means opportunity for Africa, which has some of the world’s largest natural gas reserves. The African supply could replace some of the 155 billion cubic meters that Europe imported from Russia last year.
Tim McPhie, European Commission spokesman, confirmed meetings had started in Brussels with several African energy delegations. “When it comes to finding alternative gas suppliers, the EU is in discussion with a very wide range of potential exporters — including a number of countries in Africa,” McPhie said.
One aspect Nigeria could benefit from in this crisis is through the proposed Trans-Saharan Gas Pipeline. The pipeline, a game-changer for Africa (Nigeria, Algeria, and Niger) and for Europe, could send up to 30 billion cubic meters a year of gas from Nigeria to Algeria via Niger and on to Europe. In February, the three countries agreed to resume the 2,565-mile project that will link Warri in Nigeria to Hassi R’Mel in Algeria, transiting Niger. But the big question remains the funding line that is estimated to cost $13 billion.
Even at that, European countries have signaled they favor supporting existing energy infrastructure instead of building costly new pipelines. As attractive as the pipeline proposal seems, the flow of energy to Europe via a Nigeria-Niger-Algeria corridor remains a dream.
Nonetheless, few African countries expect long-term growth opportunities from the ongoing war in Ukraine. For example, Tanzania’s President, Samia Suluhu Hassan, in an interview on the sidelines of the European Union (EU)-African Union (AU) Summit in mid-February, said that the tensions in Ukraine are generating growing interest in the country’s gas reserves, which are the sixth-largest in Africa, estimated at 1.6 billion cubic meters.
Hassan has revamped negotiations with energy companies in the hopes of attracting $30 billion in foreign investment to revive construction of offshore liquefied natural gas projects in 2023. Several other countries could similarly benefit from Europe’s energy diversification, including Senegal, where 40 trillion cubic feet of natural gas were discovered between 2014 and 2017, and where production is expected to start later this year.
Nigeria, according to the Lagos Chamber of Commerce and Industries (LCCI), should have been a major harvester of opportunities from the war between Russia and Ukraine in areas like gas supplies to Europe but, “unfortunately, we do not have the infrastructure in place to produce enough gas for supply to Europe.” The Chamber said Nigeria would have been in a position to supply oil and gas to countries rejecting Russian oil and gas due to the sanctions imposed on the Eastern European country for invading Ukraine.
The Chairman, United Bank for Africa Plc (UBA), Tony Elumelu, shares the same perspective but regrets that while other oil-producing nations are reaping from Russia-Ukraine war, Nigeria is facing tough times. Rather than gain from the global supply shortfall, Nigeria, a major oil producer in the world, sixth largest in OPEC, and longtime number one in Africa, is losing, no thanks to its almost zero refining capacity and inability to meet OPEC quota. Nigeria’s oil production quota as approved by OPEC was pegged at about 1.8 million barrels per day but in the last few years, the country has struggled between 1.3 and 1.4 million barrels per day.
In November 2021, OPEC data said that Libya had overtaken Nigeria as Africa’s top oil producer. According to the data submitted by Nigeria to OPEC, Nigeria’s oil output fell to about 1.23 million barrels per day in October of the year under review from about 1.25 million bpd in the previous month, while Libya’s oil production rose to 1.24 million bpd in October from 1.16 million bpd in September.
Saboteurs everywhere
The impact of the activities of crude oil thieves, illegal refiners, pipeline vandalism, sabotage and theft of power installations on the Nigerian economy is now also a crisis situation.
According to industry watchdogs, criminal gangs steal between 100,000 b/d and 200,000 b/d of crude oil from wells and pipelines in the Niger Delta, reselling the crude – worth several million dollars. While violence has not returned to the levels of five years ago in the oil rich region, theft of crude has become a lucrative enterprise involving well-connected officials and, allegedly, state security personnel. The Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Engr. Gbenga Komolafe, disclosed recently in Abuja that about $3.27 billion worth of oil has been lost by Nigeria to vandalism in the past 14 months.
At the downstream level, the business class have constituted themselves into a clog in the wheels of the country’s progress, as they cash in on the energy crisis in the country to either siphon state funds, rip the poor masses at the pumps or charge exorbitant fares on energy products and services for selfish business interest.
Marketers accused of importation of off-spec fuel into the country, despite the full awareness of its devastating effect on the national economy, continue trading blames and distancing themselves from the importation of the contaminated petrol. Fuel stations have products and are doing brisk business by shutting down the majority of their pumps and dispensing with fewer pumps. The Discos, Gencos and TCN have continued to engage in blame game amid the lingering crisis in the electricity sector. While Discos see transmission as the weakest link in the electricity value chain of Nigeria, TCN argues that the state of the distribution networks hampers its wheeling capacity.
All of this goes on in the full glare of regulatory agencies, as their inaction over the crippling energy situation leaves more questions than answers. The overall impression that Nigerians have is that they are accomplices in the racketeering that is going on. However, piqued by the deteriorating situation occasioned by sabotage, President Muhammadu Buhari in a March 15 statement apologized for the energy crisis said he had received information that some people were not behaving properly at the depots and petrol stations. In this regard, he directed the Ministry of Petroleum Resources, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the NNPC and the entire security apparatus of the nation to take strong action against those responsible.
Relief on the way
The Buhari administration signed a deal with Germany’s Siemens to overhaul the power sector, but there is yet little to show for it, with the government having a year to complete its two terms of eight years. The Petroleum Industry Act, touted as having the key to overhaul the oil and gas sector is currently being implemented and, if diligently operationalized, could help facilitate Nigeria’s economic development by attracting and creating investment opportunities for local and international investors.
President Buhari in the past seven years has doubled as the Minister of Petroleum, within which period Nigerians’ hope of reform in the sector has remained more of a dream deferred, if not completely dashed.
But the Minister of State, Petroleum Resources, Timipre Sylva, while briefing newsmen on the situation mid-March, said that efforts were ongoing to resolve the energy crisis in the country.
President Buhari who has apologized to Nigerians over the total blackout and the protracted long queues at filing stations, which has caused citizens untold hardship, said his administration knows that the fuel shortage has caused a strain on Nigerian citizens and businesses, but relief was on the way. He further explained that the government was working round the clock to attend to the issue as an action plan agreed earlier in March was being implemented to address the scarcity. According to the Minister, “looking to the longer term, funds are being targeted towards keeping fuel availability affordable for the country.”
President Buhari was also quoted as saying that the blackouts seen in the country were being addressed, as the government was working tirelessly to resolve the issues to guarantee sufficient power flow into the national grid.
His words: “As part of emergency measures put in place following a meeting convened with key stakeholders to address the low power generation in the country, and to recover over 1000MW, actions were agreed upon between the players in the Nigerian Electricity Supply Industry (NESI) and also NNPC. The actions targeted the National Integrated Power Project (NIPP) plants, (Niger Delta Power Holding Company (NDPHC) and power plants run under NNPC Joint Ventures, Agip and Shell (NAOC and SPDC) and progress on the key actions have already ensured the restoration to the grid of 375MW after the pipeline from Okpai 1 was repaired.
“To also ramp up the underutilized capacity of the NDPHC capacity, a $50 Million Gas Supply agreement is being finalized to secure the sustainability of up to 800MW of underutilized NIPP assets.”
The Minister of Power, Abubakar Aliyu, said the Ministry has made some progress in addressing the recent challenges in electricity supply in the country. According to a statement signed by the minister, efforts include the restoration of gas pipelines previously destroyed by vandals and optimizing the capacity of power plants. He reassured Nigerians that all relevant agencies involved in the restoration of normalcy in power supply have been charged to act in the context of the emergency state of the industry.
Can we therefore believe and assume that President Buhari’s apologies have gone down perfectly well with Nigerians? And are we close to reprieve from current energy crisis in the country? Only time will tell.