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Energy

Nigeria, other African oil-producing countries will lose $1tn oil revenue in 20 years – PWC

PwC has predicted that oil-producing African countries will lose an estimated $1 trillion in oil export revenues over the next 20 years.

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FG risks backlash as oil price crash encourages deregulation policy , Crude oil prices drop as investors assess demand recovery amid supply glut, Oil falls, approaches weekly decline as Covid-19 cases hit record

PriceWaterhouseCoopers (PwC) has predicted that Nigeria and other oil-producing African countries will lose an estimated $1 trillion in oil export revenues over the next 20 years, as a result of likely low prices.

This is contained in its Africa Oil and Gas Review 2020, themed energising a new tomorrow.

The review notes that Covid-19 delivered a value destruction of the oil market in Africa; adding that African countries, of which many are dependent on oil and gas revenues, have had to divert fiscal resources to supporting healthcare and welfare responses to the pandemic, leading to greater economic distress.

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Key highlights from the review

  • Oil production in Africa saw a slight increase of 0.5% from 2019 amounting to 8.3 mmbbl/d. This accounts for 8.82% of global production.
  • In 2020, production saw a decline of 10% relative to the previous year driven by the Covid-19 demand slowdown for exports.
  • Oil reserves: Africa’s proven oil reserves have remained static at 125.7 Bbo from the end of 2019 to 2020. 41% of these reserves are located offshore while 59% are onshore.
  • Exports remained static at 7.1 mmbbl/d between 2018 and 2019. However, due to Covid-19 in 2020, exports saw a decline of more than 10%.
  • Consumption at 4 mmbbl/d remained unchanged from 2018 to 2019. Consumption fell by less than 10% in 2020. Africa’s domestic market consumes around 50% of its total oil production. Africa has very limited refinery capacity and imports circa 48% of its finished product fuel demand.
  • Africa’s proven gas reserves have remained at 527 tcf between 2019 and 2020 — 34% of these reserves are situated offshore.
  • Gas production saw a slight increase of 0.36% from 2018 to 238 bcm in 2019. However, production declined by 9% in 2020 due to COVID-19.
  • Gas consumption slightly increased by 0.4% from 2018 to 150 bcm in 2019 while it declined by more than 10% in 2020 relative to the previous year.
  • Africa consumes 63% of its total gas production, predominantly for power generation.
  • African gas exporting countries saw a total decline of more than 6% in 2020 from 39.7 mtpa in 2019 to 37.3 mtpa in 2020.

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The review indicates that oil demand globally shows a curbed recovery over the next few years following the Covid-19 induced demand slump, with prices predicted to reach a ceiling of around $54 per barrel, compared to a pre-Covid-19 estimate of long-term pricing ranging between $60 and $70 per barrel.

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According to the review, “It is estimated that this lower price forecast will cost Africa a potential $1 trillion in export revenues from oil over the next 20 years.”

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What they are advising

  • In the wake of this development, PwC has advised in the review that the adoption of the energy transition can provide a ‘lifeline’ in light of declining oil demand.
  • The review suggested that the energy transition does in fact create significant positive economic impact and opportunities, and Africa can benefit tremendously from the technology foundations and learning curves largely paid for by the developed world.
  • By considering the African energy policy environment one can infer as to whether countries are creating a dynamic or static policy environment in relation to capturing the benefits and economic growth that can be leveraged from the energy transition.

The review also pointed that as export revenues and domestic demand change, energy transition readiness will be an important sustainability factor for many countries that have relied on their oil and gas endowments.

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What you should know

  • Energy transition refers to the global energy sector’s shift from fossil-based systems of energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries.
  • The increasing penetration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy storage are all key drivers of the energy transition.

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Adeyemi holds a PhD in Accounting Sciences. He has worked in the Educational Sector and as an Independent Consultant.

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Business

NNPC says NO to petrol pump price hike in May

There would be no increase in the ex-depot price of Premium Motor Spirit in the month of May 2021.

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Crude oil market remains unpredictable- NNPC Boss

The Nigerian National Petroleum Corporation (NNPC) has assured Nigerians that there would be no increase in the ex-depot price of Premium Motor Spirit, popularly known as Petrol in May.

This was disclosed by the Group Managing Director of NNPC, Mele Kyari, on Monday via the Corporation’s Twitter handle.

It tweeted, “There would be no increase in the ex-depot price of Premium Motor Spirit in the month of May 2021.”

Ex-depot price is the cost of petrol at depots, from where filling stations purchase the commodity before dispensing to final consumers.

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Kyari also added that Petroleum Tanker Drivers had suspended their proposed strike after the intervention of NNPC in the impasse between the PTD and the National Association of Road Transport Owners.

“We have given our commitment to both NARTO and PTD that we will resolve the underlining issue between them and come back to the table within a week so that we’ll have a total closure of the dispute,” he added.

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What you should know

  • NNPC has maintained an ex-depot price of N148/litre since February despite the hike in the actual cost of the commodity, hence incurring subsidy of over N120bn monthly.
  • Also in March, the NNPC said it would maintain its ex-depot price for petrol until the conclusion of ongoing engagement with the organised labour and other stakeholders.

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Energy

NCDMB’s Oil and Gas Parks and their many adversaries

New businesses within the NOGAPS will face intense competition from foreign OEMs that do not have to battle with tariffs, a harsh business terrain and different tax treatment.

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In 2018 the Nigerian Content Development and Monitoring Board (NCDMB), the body saddled with driving the development of Nigerian content in the Nigerian oil and gas sector, did a groundbreaking of the Nigerian Oil and Gas Park Scheme (NOGAPS), a scheme that involves the construction of sprawling oil and gas parks in Bayelsa, Imo and Cross Rivers State.

In a visit last week to one of the parks currently under construction in Emeya 1, Ogbia, Bayelsa State, the Minister of Petroleum for State, Chief Timipre Sylva, expressed delight at how the project was quickly progressing and was now at 70% completion. Mr Simbi Wabote, Executive Secretary of the NCDMB, during the visit also noted that the Oil and Gas Park project “is in line with the Federal Government’s mandate to develop indigenous capacities for the oil and gas industry.”

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While this is highly commendable, as the project will indeed reduce Nigeria’s dependence on import of oil and gas equipment and provide jobs for local indigenes -which would likely reduce restiveness in the area-, there exist significant challenges to this project achieving its goals.

Perhaps one of the biggest of them is the African Continental Free Trade Area (AfCFTA) regime which is expected to open Nigeria’s borders to an influx of imports from other countries within Africa. Beyond opening the borders, however, the tax treatment given to domestically produced items will be no different from similar products imported, and the typical tariffs for imported items will be removed.

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This essentially means that large and established original equipment manufacturers (OEMs) from other African countries may on the basis of their economies of scale be able to supply the same products produced in the oil and gas parks at lower rates. A report by Dun & Bradstreet reveals that in Africa, countries like Guinea, Gabon, Burkina Faso and Ghana that flank Nigeria play host to various oil and gas OEMs.

With the large oil and gas market Nigeria has, these companies will seek to make inroads into Nigeria under the AfCFTA regime. This will mean that the new businesses within the NOGAPS will face intense competition from foreign players that do not have to battle with tariffs and different tax treatment. Additionally, the Nigerian culture of preferring imported products over domestically manufactured ones might play a role in this, particularly if the prices of the imported ones even up with domestically produced ones or only have a slim margin.

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If the patronage for Innoson vehicles is anything to go by, in a market where there is no real difference in price between that and the domestically produced ones, we will see a preference for imported products.

All of this will be further aggravated by Nigeria’s doing business difficulties. Things like delays in obtaining permits, approvals and licenses, the corruption that accompanies these processes, weak currency and dual exchange rates, poor infrastructure and lack of power supply abound. While the Nigerian businesses struggle with this, their foreign counterparts get to produce under more convenient conditions and are thus able to deliver within time and without the additional costs passed to consumers through these poor doing business practices.

While Mr Wabote has promised that the park in Ogbia will have dedicated power supply, it is hard to imagine that this power will not significantly cost the businesses if they are served at maximum capacity. At number 131 on the World Bank’s Ease of Doing Business Ranking, a park would not solve Nigeria’s problems, only a positive commitment to fix these doing business issues will.

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Stanbic 728 x 90

The christening of a park as an “oil and gas park” in the 21st century, where countries of the world –and indeed private companies- are working towards achieving increased use of cleaner energy sources, is counterintuitive. The park should be an energy park that integrates significant research and development in its function as well as innovation and production of renewable energy equipment, both adapted to benefit from local conditions and standardized for export purposes.

It seems too, that not much consideration has been given to export of these equipment, as the parks earmarked so far are in landlocked Imo, port-less Bayelsa and Cross River that feeds into Cameroon, which is not a very prime market, although the DRC on the other end could attempt to compensate for this. It might be worth considering, the setting up of a park in Lagos – perhaps in the same vicinity as the Dangote refinery.

The park would benefit from being able to supply equipment to the refinery (especially as the refinery starts production in early 2023). It will also be able to tap into the global market through export via the Lekki port. This might also be a good time for the Agge deep sea port mulled by the Bayelsa State government to come onstream to open up the Ogbia park to a global market.

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