For more than a century, fossil fuels have accounted for a larger proportion of global energy supply sources. However, with increasing global environmental challenges, arising from increasing concentration of greenhouse gases (GHGs) associated with fossil fuels combustion, there has been a renewed emphasis on low-carbon intensive and environmentally- friendly energy sources, e.g. natural gas, renewable sources, nuclear, and now hydrogen.
Consequently, several technologies are being developed for production of renewable energy resources as well as natural gas, which are considered low-carbon emitting sources. A new technology for extracting hydrogen from natural gas has been developed.
These technologies are also becoming economically competitive with conventional energy sources (crude oil, coal, etc).
Major energy consuming economies, which constitute major markets for petroleum products (China, India, Europe, USA, etc) are realigning their energy policies and economies in favour of low- carbon intensive sources. These countries are also Nigeria’s key crude oil buyers.
These technologically-driven changes in the global energy landscape provide inherent opportunities and implications for developing economies like Nigeria.
It is vital to realize that these global developments are going to impact countries, great and small. For most OPEC member states, it is time for economic structural adjustment and diversification.
Diversification should aim at boosting their respective power sectors, and investment of upstream petroleum profits in downstream industries (e.g. mega-refineries, petrochemicals, methanol, urea and fertilizer plants, Liquefied Natural Gas, LNG & Gas to Liquid, GTL plants, etc). Basically, the aim should be to domesticate their oil and gas resources to drive domestic industrialization and economic growth.
Examining Nigeria’s case, annual subsidy payments, running into trillions of naira, are a huge drain on crude oil export revenue. Products’ importation equally represents a huge drain on scarce foreign reserves. Current import landing cost estimates for gasoline (PMS) is N180 per liter.
According to PPPRA (Petroleum Products Pricing & Regulatory Agency), we import 56 million litres of PMS daily. Current pump price for PMS at the retail outlets is N145 per litre, which represents a price ceiling of N35 per litre (N180 – N145).
Therefore, daily subsidy payment for importation of 56 million litres of PMS daily should be N1.96 billion (N35 X 56m). Annually, the size of this subsidy should be N23.52 trillion (N1.96bn x 12 months). Don’t cry for me, Argentina!
Another dilemma also presents itself, should the subsidy payment scheme be reversed. With such a policy change, the only way to ‘stop the bleeding’ would be to eliminate the price ceiling by increasing PMS pump price from N145 to N180 per litre, and the ripple effects of that action would be as follows.
High PMS Price = High Inflation Rate = High Bank Interest Rate = High Foreign Exchange Rate.
But GDP = Consumer Expenditure + Investment Expenditure + Government Expenditure.
With high bank interest rate, consumer and investment borrowing and expenditure will be drastically reduced. Therefore, fewer goods would be produced, consumer spending will be reduced and imports would increase.
Consequently, GDP growth would be significantly dependent on government expenditure. To hold up the national economy, the federal government would have no choice but to go into deeper borrowing, as well as additional consideration of sale of government assets.
Should there be a delay or inadequate government spending, the economy will be thrown into a tailspin, and depression will occur (i.e. GDP growth rate slightly greater than zero). Further delay will throw the economy into recession (i.e. GDP growth rate below zero).
Depression or Recession = High Unemployment Rate + High Poverty Level + High Social Insecurity Level.
High Poverty Level + High Insecurity Level = High Corruption Level + High Crime Rate + High Social Restiveness + High Disease Rate + High Outmigration Rate. Grandma, please help!
However, there is an additional dilemma! Federal government budgets are based on oil revenues. Nigeria’s major crude oil importers are the USA, China, and India. USA is currently a net exporter of crude oil.
China plans to electrify all vehicles by 2040. India plans to electrify vehicular fleet by 2030. In a couple of decades, the big buyers of Nigeria crude oil would have developed alternative energy sources for transport.
With reduced or insignificant revenues from crude oil exports, how will the federal government fund the federal ministries, agencies, departments, universities, polytechnics, medical centres, embassies, state governments, local governments, etc.
