FUTURE OF NIGERIAN FOSSIL FUELS IN THE WORLD’S ENERGY MARKET: CHALLENGES IN THE FACE OF RENEWABLE ENERGY

FUTURE OF NIGERIAN FOSSIL FUELS IN THE WORLD’S ENERGY MARKET: CHALLENGES IN THE FACE OF RENEWABLE ENERGY

The energy mix of the world has evolved over time. Gone are the days when fossil fuels only constituted the energy mix. Amongst the various energy sources that have joined the mix, renewables are a portion that is seriously picking up momentum in becoming a significant part of the world’s energy contributors. Data from authorised bodies and organisations corroborates this claim. REN21 report of 2018 states that the renewable share of total final world energy consumption was 18.2% in 2016. This is depicted in Fig. 1. By sectors, renewables constituted 27% of heat generation (48%), 3% of transport (33%) and 25% of power generation (20%) of the world’s total final energy consumption in 2015. This is a +2.3% average growth rate of renewables in the total final energy consumption from 2005-2015.The percentage contribution of ratio of renewable energy to the amount of total primary energy supplied by fuel in the world increased from 12.4% as at 1973 to 14.1% percent in 2016 (IEA, 2018). BP (2019) predicts an increase from 11.02% in 2017 to 37.28% in 2040 in its energy outlook report. This shows how renewable energy is increasingly becoming an important part of the world’s energy mix. Therefore, renewables are gradually growing to be an indispensable source of energy in the world.

Fig. 1. Total Final Energy consumption in the world in 2016 (REN21, 2018)

The quoting of these figures is not needless but rather a reflection of the reality that is obtainable in the energy market today. Fossil fuels are facing an undeniable competition from renewables for market share presently.  BP (2019) predicts a 410.13% increase in the world consumption of renewables (renewables+ hydropower) from 1490 Mtoe in 2017 to a projected 6111 Mtoe in 2040. This represents an increase in the ratio of amount of renewables to the total primary energy consumed from11% in 2017 to 37.28% in 2040. Several countries such China, Brazil, Chile, Iceland, Honduras, Mexico, the United States, Japan, Portugal and Hungary etc. are all increasing their consumption of renewable energy while directly or indirectly cutting down on their consumption of non-renewables (fossil fuels).

In a world where there are serious steps being taken in cutting down on the amount of carbon emissions into the atmosphere through signing of policies (such as Paris Agreement of 2015), industry innovation translating to increasing efficiency and reducing cost, there  is no slowing down in the increasing consumption of renewable energy by nations of the world. Of course some will argue that with a simultaneously increasing energy demand due mainly to developing and thriving economies, fossil fuels will still remain the unbeatable and undisputed champion in the energy mix. This is a valid argument but it does not rule out the possibility of renewables challenging fossil fuels for market share in the near future. The story of the Permian basin and use of hydraulic fracturing in its exploration which has now become a source of energy security to the United States gives a hint to the unpredictability of the future as far as there continues to technological advancement. The Permian basin only presently produces over 4 million bl/day of crude oil which is recorded to exceed the total production of 14 OPEC member states. This was a resource that was hitherto regarded as economically unattractive and therefore not be regarded to change the tides of the world’s oil and gas market dynamics.

If renewables are beginning to challenge for market share, then Nigeria as a nation should be concerned about it as over 75 % of the country’s foreign exchange earnings come from the sale of fossil fuels which can be reduced as renewables consumption increase with a consequent direct or indirect decrease in the consumption of Nigerian’s fossil fuel in the world. This is coupled with the fact that most of Nigeria’s crude oil buyers (India, Netherlands, South Africa, United States, Spain, Indonesia, China, France and Canada) are looking the way of renewable energy as the cost is gradually reducing and efficiency is increasing. India who was the highest buyer of Nigerian crude in the first quarter of 2018, according to REN21 report (2018), recorded the third highest commissioning of hydropower capacity in 2017 while China recorded the highest. India also recorded the third highest amount of new thermal capacity in 2017 while China recorded the highest. The amount of new geothermal capacity generated in 2017 is exactly same as in the previous case. The report also highlights that India established 206 min-grid systems from 2016-2017 through which renewables can be integrated into the supply grid of consumers.

It is important to state at this point that China recorded the highest amount of investment in renewables, Europe recorded 18%, and United States recorded 14% while India came fourth in the hierarchy in 2017. Utilities in Africa, Australia, China, Europe, India and the United States have signalled their intention to move out of fossil fuel generation and into large scale renewables, and some are already doing so. In 2017, five countries announced their intention to ban sales of new diesel and petrol cars – by 2030 (India, the Netherlands and Slovenia) and by 2040 (France and the United Kingdom). The gradual transition to Electric Vehicles (EVs) is already picking pace as depicted in Fig. 2.
 

Fig. 2. Number of EVs in the world, significant portion is found in China (Data from REN21, 2018)

With the EV30@30 campaign, a collective goal of a 30% market share for electric vehicles (EVs) among all passenger cars, light commercial vehicles, buses and trucks by 2030 has been set. This has already translated to over 3 million passenger cars already on the world’s road. All over the world, there continuous to be increase in the amount of EV charging stations as shown in Fig.3 to ensure that EVs successfully integrate into the transportation sector. It is therefore evident that the transportation sector will be highly dependent on renewables in no distant future. This same trend is noticeable in the heat and power generation sector both in literature and the REN21 report of 2018.

Fig. 3. An Electric Vehicle charging point (source, REN21, 2018)

Data reported by BP (2019) further highlights the threat renewables pose to the Nigerian fossil fuel international market share. A look at the nations like India, China, United States and some European countries such as France, Netherlands and Spain who are buyers of the Nigerian crude oil presently shows that they are seriously going the way of renewables. Fig. 4 shows the percentage increase in the ratio of renewables (renewables + hydropower) to non-renewables (oil + gas+ coal + nuclear) consumed by some of these nations in 2017 and projected 2040. It is undoubtedly obvious from the information that if Nigeria as a nation does not begin to plan for the possible impacts renewable energy may have on its fossil fuels demand in the energy market and prepare contingency measures when crude oil proceeds begin to dwindle, the country might be in for another period of economic stress as witnessed during the shale boom era when oil prices crashed as low as $25/barrel.

Fig. 4. Percentage increase in the ratio of renewables (renewables + hydropower) to non-renewables (oil, gas, coal and nuclear) consumed in 2017 (blue) and 2040(orange) (Data from BP, 2019)

 Nigeria must as a matter of urgency start making plans, enacting and implementing policies that help develop and drive the economy when the country’s fossil fuels are no longer sort after as it is now; a time when fossil fuels will not be in high demand as it is today; a time when a large chunk of its increasing budget will not be funded by fossil fuels proceedings. Nigeria must start aggressive and extensive diversification of its economy away from the petro-dollar economy. Economic policies that would favour the development of other sectors (agriculture, manufacturing, science and technology etc.) of the economy should not only be enacted but implemented with strong political will. This of course would involve the funding of capital projects by the government in partnership with the private sector which would create value chains in these sectors for economic transformation. The efforts of already taken by the government in this regard cannot be under estimated but with the pace at which renewable energy consumption is growing in the world, a lot more has to be done.

It brings in the issue of removing all impediments to the growth of the oil and gas industry, monetising the resources and using the proceeds to develop and improve other sectors of the economy. A serious impediment to the growth of the oil and gas industry is the non-signing of the Petroleum Industry Governance Bill (PIGB) into law by the Presidency. The non-passage of this bill into law is costing the Nigerian economy an enormous amount of $15 billion dollars of investment. The impact such a cash flow can have on the economic diversification of the Nigerian economy cannot be over estimated. As such, if the Nigerian government takes a critical analysis of the obvious trends the world’s energy market is going and agrees with the argument the author, the signing into law of the PIGB will be an important right step in the right direction in preparing Nigerian for the unfavourable times to come.

REFERENCES

BP (2019). BP World Energy Outlook, 2019 edition.

IEA (2018). Key World Energy Statistics.

REN21 (2018). Renewables Global Status Report.