NIEEE HOST A WEBINAR SERIES – Exposes Opportunities in the Energy and Oil & Gas Sector in Nigeria in Midst of Covid-19
BY Festus OSEJI
The Nigerian Institute of Electrical and Electronic Engineers (NIEEE), recently hosted a virtual meeting with the title: “Impact of Covid-19 on Nigerian Energy Industry: Challenges, Opportunities & the Way Forward”.
The webinar meeting which according to the national chairman of the NIEEE Engr. Kings Adeyemi, a fellow of NIEEE, described the covid-19 global pandemic as “the worst way to begin a decade” in his word “You may recall that on March 11, 2020, the World Health Organization (WHO) declared the novel corona virus (COVID-19) a global pandemic. COVID-19 pandemic is the worst way to begin a new decade. The corona virus outbreak has disrupted our normal social-economic activities. The pandemic has affected every industry in one way or the other.”
He further said that “the energy sector of the economy, including the electricity industry is not immune to the adverse effects of Covid- 19 pandemic.Though energy is a critical enabler of economic growth, but the shock waves of Covid-19 pandemic have pierced through the nerves of the economy and bringing global economy to the state of coma. It is a fact that the stability of global energy markets is critical to economic sustainability.”
Engr. Adeyemi, also in his speech reminded the participants to look out for the huge opportunities that are available in the midst of the pandemic, most especially in the energy sector. He further said “We need to explore unprecedented global collaboration to stabilize the energy market. It is also important to consider unorthodox intervention in the energy markets & global collaboration to support the recovery phase once the acute crisis subsides.”
The virtual meeting with the tittle “Impact of Covid-19 on Nigerian Energy Industry: Challenges, Opportunities & the Way Forward” was presented by an erudite scholar, a world recognized consultant on energy matters, a recipient of the prestigious Distinguished Inventor Award and a fellow of the Nigerian Academy of Engineering (FAEng), in person of Engr. Prof. Toyin Ashiru, FNSE, vice chairman of tricontinental Oil Services Limited. In his paper described the Covid-19 pandemic era as a ‘strange time indeed and that before now we were talking of all types of disruption, like tech, robotics and automation’ that the world here is faced with the real disruptions.
Engr. Ashiru in his lecture while reviewing the state of the world economy said “Over the past few months the Covid-19 pandemic has caused countless lives loss and significant macroeconomic turbulence, many questioning not if we are on the brink of global recession, but when. The world has completely changed due to Covid-19. Now, companies must start thinking strategically about how they will adapt or survive. Electricity demand is down significantly in many territories. Market for transport fuel has shrunk dramatically as aircraft are grounded and movement restricted. Even for those who feel able to predict the passing of the storm, counting on a quick return to business as usual is not a viable strategy.”
He further stated thus “the shock of the pandemic on previous assumptions and future behaviour can’t be ignored even if there is a sharp V-shaped recovery. A slower U-shaped recovery or a longer L-shaped recession will have even more profound implications. Whatever the path forward, the world will be different and companies and people need to “plan for a new normal”, for companies in all parts of the energy, utilities and resources sectors, it will be vital to combine effectively.”
“United Nations’ Trade & Development Agency projected that the virus will cost the global economy $1.1 trillion in 2020, UNCTAD forecast global growth to slow to less than 2%, Biggest negative factor is the drop in manufacturing activities, Oil prices have collapsed, World experienced highest debt levels of the past 150 years, International Monetary Fund (IMF) reported that investors have removed $83 billion from emerging markets, being the largest capital flight ever recorded. Investors on the Nigerian stock exchange (NSE) lost $1.8 billion (N656 billion) as market capitalization declined to N12.7 trillion.”
On the challenges facing the energy sector in Nigeria Professor Ashiru, stated how the covid-19 has disrupted the electricity master plan, and some of the areas identified includes; Reduction in purchasing power VS case for cost reflective tariffs, Impact on the cost of delivery of electricity VS the revenues of the complete value-chain and Discos need for more contact less operations”
Emphasizing on the purchasing power and cost reflective tariffs complexities; he said “Adversely impacted the wages and earning ability of practically all Nigerians – greatest impact on daily wage earners – largest sub-segment of the adult working population. Due to closures or scale down, there is reduced energy consumption by commercial and industrial customers resulting in reducing revenues customers with highest ability to pay; Non-utilized power from commercial and industrial customers given to residential with increase in non-payment which results in electricity theft – meter bypass and illegal connections.”
“And ensuring that financiers and investors continue to be interested in producing, distributing and selling power. No business can be sustained if its cost is higher than its sales price- this is the business anomaly that we are facing now in the power sector due to the covid-19 pandemic.”
On the issues of the challenges facing the Discos, Engr. Toyin Ashiru, stated some of the measures to adopt and he said “more contact less operations by Discos; Discos are now needs to rearrange the commercial part of their operations to be more contact less with focus on efficiency Telemarketing, Payments through contact less channels- E-payments i.e. online electronic transfers, ATMs, POS, Innovative billing process- self-reading of postpaid meter. Distribution of bills through SMS, WhatsApp, emails, etc. More active call center for customer complaints and service issues. Escalate Metering under MAP, Innovative and strategic contact less enforcement activities for chronic debtors”
He encouraged the government to come with viable policies to mitigate the effect of covid-19 pandemic on business, he said “Covid-19 pandemic and global economic recession necessitate sound government policies and enhanced investment are more important and necessary than ever to enhance the economic transformation; ensure sufficient, affordable, reliable energy for all citizens; and drive inclusive, just and sustainable energy transitions.”
The year 2020 started with a lot of optimism in Nigeria’s energy sector. But continued energy progress is now uncertain, as Nigeria like the rest of the world faces the wide-ranging impacts of the Covid-19 crisis.
According to him the impact of covid-19 pandemic on the the oil and gas sector is enormous as “Global and local crude oil production cuts; the country has to cut its production to 1.412mb/d, 1.495mb/d and 1.579mb/d for the respective periods of May-June 2020, July-December 2020 and January 2021-April 2022”
“Reduced crude oil demand and unsold cargoes was reported that there were about 15 to 20 million barrels of unsold Nigerian crude in April 2020, which was about 25% of the country’s total oil exports. Nigeria has recently had to slash its official selling price for its crude oil, offering discounts of up to $5/bbl in order to remain competitive in the crude oil market.”
Further is the “disruption of proposed oil licensing and marginal field bid round; according to him the last oil licensing bid round was held in 2007, about 13 years ago. However, as a result of the current instability of oil prices and collapse in global demand due to the Covid-19 pandemic, the government announced, on 5 May 2020, that it would not hold oil bidding rounds for the country’s major oilfields until crude oil prices recover.”
On the issue of clean energy challenges and opportunities in the sector, Professor Ashiru stated that “clean energy projects face uncertainty as global recession looms, but stimulus packages could help keep a low-carbon future on track. While the clean energy and environment focused sectors have so far fared slightly better than their resources driven counterparts, cracks are starting to emerge.”
“Investment in the clean energy sector has been slow for a few years now, after peaking in 2017. This is a situation that is only set to worsen as the impact of Covid-19 continues to squeeze liquidity conditions.”
“Downturn in the oil market is likely to drive more liquidity to the clean energy sectors, the fact remains: liquidity has become more scarce since Covid-19 hit. We are increasingly seeing investors moving away from riskier opportunities. Smaller developers with projects not yet off the ground could also be hit hard, as their financing becomes scarce.”
The covid-19 impact on project financing he said “Stranded projects likely to be seen in the sector. For instance greenfield projects are already experiencing disruption as a direct impact of Covid-19, large wind manufacturers GE, Vestas and Siemens Gaemsa have all reported plant closures.”
“In solar, a shortage of installation components including inverters and modules is pushing prices up by as much as 15 per cent rare opportunity. The pandemic has led to a shortage of solar installation components. Given the risks around executing new projects at this time, we would also expect to see energy procurement contract prices increase in the near future to mid-term. This is a situation that would have been unthinkable, even just 6 months ago.”
According to professor “another clean energy opportunity while the negative impact of COVID-19 on the clean energy sector is clear, some opportunities are emerging. Industry insiders have long complained of short-term build and flip investors bringing returns down to unsustainable levels. The current crisis offers an opportunity for long term capital providers to enter into or expand their presence in the clean energy sector.”
“Accelerate new ways of working, automation and digitalization; Covid-19 will almost certainly accelerate momentum towards new ways of working; reducing dependence on human resources, greater investments in these areas will equip companies to maintain better business continuity in their supply chains, operations and customer management reducing the load on their workforce.
“Technological transformation will also have been given a boost by the experience of virtualization and new ways of working by staff during the pandemic lockdown. It is likely to accelerate the move to a more mobile remote workforce, able to work virtually and at distance. Companies will want to consider what worked well during the crisis and look at the opportunities for future workforce productivity and flexibility.”
Speaking on the way forward Engr. Ashiru encouraged the nation to learn from other countries that have succeeded in managing their resources to the benefit of their citizens in particular and the economy in general. Such country like Saudi Arabia where he work for over 18 years as expert in the oil and gas sector.
He said “Until 2019, NNPC has run at a loss to the Nigerian federation with a low-resourced environment, Nigeria cannot afford NNPC to bleed the nation. It needs to capture the benefits of NNPC subsidiaries such as NPDC (upstream), Duke Oil, Nigeria Gas Company and Integrated Data Services Limited. This is the time to privatize the refineries and also apply organizational review of NNPC
As part of the solution to the challenges facing the nation, he called for permanent removal of oil subsidy and under a managed framework. In his word “It is high time the federal government provided a policy guide on how subsidy under-recovery will be managed on an ongoing basis. Subsidy has gulped over N10tn in the last thirteen years. This is the time to build civic trust by removing subsidy and applying reform mechanisms such as the unbundling of NNPC and passage of the Petroleum Industry Bill.”
Other areas that will benefit the nation and the citizenry is the rapid development of the natural gas which is in abundance in the country. According to him “Nigeria has more gas than crude and Nigerian gas is one of the best in the world, as it is free of sulphur “it is referred to as sweet gas”. So urgent revitalization of the Gas Master Plan, Review and implementation of the National Gas Policy, and set up expert team to evaluate the complete natural gas value chain.”
“Attend to constraining gas development issues: absence of a clear monitoring system for the legal and regulatory frameworks, lack of a negotiated agreement with the oil majors on a mutually acceptable, pricing regime for domestic gas consumption, better incentives for natural gas storage, processing and distribution, execution of the ambitious West African Gas Pipeline Project (launched by NNPC, in 2004) to supply Nigerians with more gas for domestic consumption and to several neighboring countries.”
Other things that should be attended to according to Professor Ashiru is the quick passage of the Petroleum Industry Fiscal Bill to remove the uncertainties and encourage investments in the sector. Companies should deploy technological solutions to support remote and digitized management of operations; to ensure that business continues beyond the period of lockdown and the pandemic, and support the optimization of operational costs.
The federal government should enter into strategic relationships with leading institutions to ensure the steady off take of the nation’s hydrocarbons produced for sale. Should sell its interest in the current joint venture operations and/or convert them to International Joint Venture model with federal government holding minority shareholding interest.
The highlight of the meeting was the presentation of the certificate to professor Ashiru for the wonderful presentation, the webinar was overwhelming attended by members of NIEEE, students members and energy and oil and gas related professionals.