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Introduction
The world depends significantly on the energy sector to survive. That explains the lucrative nature of the energy industry both globally and nationally. Generally, economies producing oil and natural gas worldwide exhibit significant stability due to the monetary gains associated with the highly demanded energy products. A substantially small number of natural gas and oil producers exist internationally, with many confirmed deposits draining rapidly. Nigeria is one of the natural gas and oil producers in the world. The republic occupies a top ten position among the international players with confirmed crude oil deposits. Nigeria is also the largest natural gas and oil prodder in Africa, with the rate of new deposits identification exceeding that of many OPEC members.
Consequently, about ninety percent of the Nigerian governments money and ninety-five percent of the countrys foreign exchange comes from this sector. Nigerias prominence in the global natural gas and oil segment derives from several factors, including the products cleanness, friendly climate, and exploration cost-effectiveness. Scholars continuously view the country as a crucial natural gas hub due to its more than two hundred percent potential to replace past approved deposits. Despite the significant benefits and economic strength associated with natural energy products, Nigeria portrays several obstacles that challenge the realization of such paybacks. For example, the countrys wanting infrastructure, unsatisfactory regulatory and fiscal policies, funding challenges, and insecurity resulting from ethnicity-based clashes threaten the nations ability in the industry. The present work covers Nigerias oil and gas industry by depicting its prospects, challenges, opportunities, and gains for possible policy transformation.
Definition of Terms
SSA-Sub-Saharan Africa, R&D-Research and development, NNPC- Nigerian National Petroleum Corporation, JV-Joint venture, RLI-Reserve life index, OPEC-Organization of Petroleum, IOC-International oil companies, NOC-National oil companies, PSC-production sharing contract
Prospects
Nigeria is a leading crude oil and natural gas producer in Africa and the world. The nation exhibits a substantially robust economy courtesy of its natural endowment, according to (Akrofi and Antwi, 2020). Akrofi and Antwi (2020) report that both natural gas and crude oil provide about two-thirds of the global energy, thus the meaningful focus on their trends. Unlike the other renewable energy sources, crude oil and natural gas are non-renewable, meaning that their deposits are never replenish-able after exploitation. The continued exploration of natural energy sources risks outrunning the supply, primarily due to the bulging demand over the years. The absence of reliable alternatives to crude oil and natural gas, coupled with the facing out of coal and other environmentally dangerous energy bases, gradually push the world to demand more of these exhaustible resources.
A majority of the global population uses natural gas for cooking and heating due to its cleanness, while over eighty percent of the machines worldwide use crude oil extracts. Nwosa (2021) purports that Nigerias power generation system depends on the nations natural gas to work, similar to many other countries worldwide. Crude oil and natural gas come at a significantly low cost and are highly reliable, making them an excellent energy option for commercial machines and operations. Technological developments leading to safe handling and usage of the flammable material and the identification of more deposits promise the world a continued energy supply. However, the rise in environmental concerns caused by the exploration, drilling, transportation, and burning of fossil fuels leads to considerable challenges affecting the sector. Nonetheless, the world currently lacks something reliable to replace fossil fuels, thus investigating their sustainability thoroughly.
Nigerias Oil and Gas Industrys Predictions
Nigerias upstream petroleum division portrays a bright stance based on the large deposit volumes. According to Akrofi and Antwi (2020), the country occupies a top ten position internationally among the states with proven natural gas and oil reserves. Nigerias estimated reserves contained over thirty-five billion barrels of crude oil and one hundred and eighty trillion cubic feet of natural gas as of January 2020 (Nwosa, 2021). Nseobot et al. (2020) purport that the nation planned to realize about forty billion barrels of oil and attain a daily production capacity of four million barrels by 2010. As such, Nwosa (2021) says that Nigerias average investment in the oil and natural gas sector between 2007 and 2016 is about nine and ten billion dollars annually to push the growth mission. The high outlay depicts the governments determination to improve the sectors potential and the states place in the global natural gas and crude oil market.
Similarly, Nigeria exhibits a significantly high replacement rate for the verified reserves exploited in the past. Ozili (2020) maintains that about two hundred percent of the crude oil and natural gas deposits exhausted between the 1980s and 2000s have replacement currently. The realization of new reserves in the country promises a continued extraction of these essential components, giving Nigeria increased hope for a better future. Accordingly, Akrofi and Antwi (2020) contend that Nigerias petroleum trade relates auspiciously with the international environment based on its high viability. The scholars further note that many deposits in the republic have projected a reserve life index (RLI) higher than that of many OPEC and non-OPEC states. Subsequently, the high RLI and reserve replacement rate show Nigeria as a long-term player in the global oil and gas business.
Nigeria currently sustains a substantially high daily mean crude oil production and can grow it even further. A contrast between Nigerias daily oil production of 2.5 million barrels to its current reserve size shows the nation can sustain such productivity for over eleven years under standard operations and economic settings (Ozili, 2020). The findings make the state a superior player compared to numerous non-OPEC partners who can only support their current daily output of about forty million barrels for three to five years (Ozili, 2020). Therefore, Nigeria is a giant in the global oil and gas division but requires continuous growth to maintain and propagate its current place.
Oil and gas extraction activities in Nigeria mainly occur within the Niger Delta section. The region supports about eighty percent of the past and the present mining endeavours, according to Ozili (2020). However, the country parades numerous other sections with high potential reserves. For example, Graham and Ovadia (2019) report that about seventy percent of Nigerias offshore oil and gas reserves are untapped. The suggestion implies a high growth potential for the federation and its continued importance in the global energy division. Technological invention and utilization in the sector promise better exploration and production capabilities. The innovation also supports more exemplary upstream and downstream operations that can transform Nigerias energy segment. For example, adopting ICTs will help the country identify the anticipated offshore reserves for exploration. Other possible benefits of using technology include real-time deposits management, advanced collaboration, increased expertise, and augmented production activities (Sam and Zabbey, 2018). Despite Nigerias various challenges, the nation can transform and strengthen its oil and gas business for continued economic growth and international relevance.
Challenges
Challenges and obstacles are real issues in many oil and gas-producing countries worldwide. Nigeria is not an exception from matters concerning the so-called black-gold as a developing economy. Concerns such as resources depletion, environmental pollution, supply chain constraints, domestic wars, poverty, poor infrastructure, the desire to transition to clean energy, and now COVID-19 are some of the challenges affecting the nations mining sector. About fifty percent of the current oil and natural gas producers will not sustain their current daily outputs in the next ten years, according to Graham and Ovadia (2019). Furthermore, Akrofi and Antwi (2020) anticipate that Nigeria will only operate for the next eleven years under the two million barrels of oil production a day if more efforts to locate and drill more reserves are not put in place. The aspect pronounces substantial doom for the country and many other energy products dependent economies in the world.
As noted earlier, the Nigerian government acquires a high percentage of its revenue from oil and gas operations. The sector generates over eighty percent foreign income to the state, allowing the government to support its operations and undertake developmental projects. Therefore, the suggested decline in reserves means that a time will come when Nigeria will lack the ability to sustain its current economic capacity. The situation further implies increased social conflicts, economic wars, and even political destabilization, resulting from the present-days over-reliance on the new-renewable sector. Consequently, there exist significant need for the Nigerian government to diversify the nations economy to avert the obstacle, which is not easy based on the prevailing conditions.
Crude oil and natural gas extraction also cause a severe impact to the environment. Zabbey, Sam, and Onyebuchi (2017) note that all the five basic processes involved in converting natural gas and crude oil in usable products impact the surroundings adversely. For example, exploration activities involve clearing bushes and destabilizing ecosystems. Locating a viable oil and gas well is never a direct endeavour, as per Zabbey et al. (2021). The process involves focusing and refocus, with the explorer affecting areas larger than a football pitch during this initial activity. Deep forest reserves thus lead to immeasurable woodland obliteration and may even cause wildlife deaths or relocation (Zabbey et al., 2021). A majority of Nigerias oil and gas mines occur along river banks and the Niger Delta, causing excessive water pollution ecology destruction.
Offshore explorations and oil or gas production activities also pose a great danger to the oceanic biota such as the coral reefs. Erhinyoja and Marcella (2019) argue that Nigerias upstream oil and gas extraction activities cause environmental damages worth billions each year. Wild and water animal deaths due to crude oil spillages and physical harm account the most significant harm cause by the upstream endeavours. The downstream processes such as transportation and refining further leads to immense air and noise pollution whose cost almost exceeds the financial gains acquired from the sector (Sam and Zabbey, 2018). Pollution concerns cause substantial conflicts between Nigerias national oil companies (NOCs), international oil companies (IOCs), and the public, with the latter often affecting the former groups operations.
Supply chain disruptions by the local and international factor pose a great danger to Nigerias oil and gas profitability. Ogbuigwe (2018) provides the 1970s civil war in the country as a serious local force with the potential to stop Nigerias lucrative business in oil and natural gas. Idemudia (2017) says that a repeat of a civil war in the nation is very easy based on the existing ethnicity-based tension between the north and the south groups. The southern teams concerns relate to the governments failure to distribute earnings from the Niger Delta to the locals for social development.
Ethnicity-related wars in Nigeria results from poor leadership and corruption, where the government blindly re-invests money from gas and oils proceedings to projects with minimal or no direct social impact. Similarly, supply quotas enacted by the global oil and gas boards impact Nigerias supply chain immensely. For instance, the requirement to reduce the commoditys supply by over half during the COVOD-19 pandemic to regulate excessive stock affects the countrys economy massively (Akrofi and Antwi, 2020). Other factors such as poor infrastructure lack of capital among local investors also affect the oil and gas sector in the state, making its significantly instable to support the economy as anticipated by the government.
The growing focus on clean energy and foreign players shift to other African states too hurt Nigerias oil and gas industry. According to Ogunmodimu and Okoroigwe (2019), about half of the world population now leads an environment-conscious life. The group thus prefers renewable energy, while shunning the dirty sources such as crude oil extracts. The automobile sector is one of the largest consumer of the worlds crude oil (Ogunmodimu and Okoroigwe, 2019). However, the sector now undertakes intensive investigations to produce electric or hydrogen-propelled cars, threatening the future on oil industry. Innovations in solar energy harnessing and utilization globally also pose a threat to the crude oil sector. The trend communicates a meaningfully crucial message to governments such as Nigeria; that their black-gold is gradually falling out of demand. Though the trend is only developing, Nigeria should watch the space with more concerns due to the already existing migration of IOCs to other Africa states.
Gains and Opportunities
Nigeria still has a chance to survive despite the many challenges facing its primary economic sector. Such is possible through the adoption of improvements and utilization of opportunities to delay or terminate the possible adversities identified earlier. Ozili (2020) suggests the enactment of new policies as one of the ways that states such as Nigeria can utilize to survive. Already, the federation passed the Petroleum Industry Act (PIA) in 2021 as a new law meant to end some of sectors long-standing problems and promote viability (Nwuke, 2021). Some of the PIAs primary intentions include unifying the north and south sections to end the wars in oil and gas mining zones. Moreover, the policy establishes a trust fund where all organizations in the industry will contribute three percent of their profits to programs meant for the locals socioeconomic development (Nwuke, 2021). Other issues covered by the PIA touches on environmental conservation, where organizations found to cause such will bear fines that will go to help the local communities grow socioeconomically.
Notwithstanding, the PIA seeks to end oil and gas mining plats vandalism by the locals by stipulating fines chargeable to the neighbourhood where the destruction occurs. Nwuke (2021) state that the law is generally good but features several issues requiring immediate solution for it to deliver the intended meaning. For instance, many Nigerians living in areas affected by oil and gas mining activities required ten percent profit share, only for the government to grant three percent. Similarly, the PIA errs significantly by vesting excessive power regarding oil and gas mining and business to the president and the government, thus exposing it to further politics, unlike many locals wish (Nwuke, 2021). Other than making changes to the PIA, Nigeria can utilize petroleum money to boost training and innovation in renewable energy and adopting ICT to reap higher from the sector before it dies.
Conclusion
In conclusion, Nigeria is still a potent player in the global oil and gas sector. The nation exhibits some of the largest fossil fuel reserves in Africa that it can use for economic stability. Moreover, Nigeria matches favourably with the global oil and gas competitors, with the federations deposits exhibiting RLI higher than many non-OPEC producers. Additionally, technological inventions promise to promote the discovery of new oil and gas reserves in the nation. However, there is a need for Nigeria to refocus its economy from fossil fuels over-dependence.
Nigeria faces noteworthy challenges that may expose it to more hurting situations lest the government fails to act quickly. For example, PIAs enactment in 2021 seems not to deliver the intended outcomes due to the inability to address all the issues comprehensively. Furthermore, IOCs are also moving out of Nigeria due to the unfriendly business environment, heading to other African destination. COVID-19 too is affecting the nation adversely due to the enactment of quotas by the international players. Nigeria needs to develop effective policies to support the economy transformation into a more reliable condition. Implementing the following recommendations can help the nation significantly to avoid the looming danger.
Recommendations
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Revision of the PIA to encompass all the conflicting groups interests for peace purposes.
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Using the money from fossil fuel deals to boost training and research in renewable sources of energy.
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Adoption of technological innovations to discover more reserves and maximize output
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Adoption of technology to control pollution.
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Repealing of the unfriendly taxes that burden local petroleum firms while letting free IOCs.
Reference List
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Erhinyoja, E.F. and Marcella, E.C. (2019) Corporate social sustainability reporting and financial performance of oil and gas industry in Nigeria, International Journal of Accounting, Finance and Risk Management, 4(2), p.44-76.
Graham, E. and Ovadia, J.S. (2019) Oil exploration and production in Sub-Saharan Africa, 1990-present: Trends and developments, The Extractive Industries and Society, 6(2), pp.593-609.
Idemudia, U. (2017) Environmental businessNGO partnerships in Nigeria: issues and prospects, Business Strategy and the Environment, 26(2), pp.265-276.
Nseobot, I.R. et al. (2020) COVID-19: a situation analysis of Nigerias economy, Abere, OJ, Survival Analysis of Novel Corona Virus (2019-Ncov) Using Nelson Aalen Survival Estimate. International Journal 0f Business Education and Management Studies, 3(1), pp.P30-40.
Nwosa, P.I. (2021) Oil price, exchange rate and stock market performance during the COVID-19 pandemic: Implications for TNCs and FDI inflow in Nigeria, Transnational Corporations Review, 13(1), pp.125-137.
Nwuke, K. (2021) Nigerias Petroleum Industry Act: Addressing old problems, creating new ones. Web.
Ogbuigwe, A. (2018) Refining in Nigeria: history, challenges and prospects, Applied Petrochemical Research, 8(4), pp.181-192.
Ogunmodimu, O. and Okoroigwe, E.C. (2019) Solar thermal electricity in Nigeria: Prospects and challenges. Energy Policy, 128, pp.440-448.
Ozili, P.K. (2020) Covid-19 pandemic and economic crisis: The Nigerian experience and structural causes, Journal of Economic and Administrative Sciences, 1(1). PP. 97-123.
Sam, K. and Zabbey, N. (2018) Contaminated land and wetland remediation in Nigeria: opportunities for sustainable livelihood creation, Science of the Total Environment, 639, pp.1560-1573.
Zabbey, N. et al. (2021) Could community science drive environmental management in Nigerias degrading coastal Niger delta? Prospects and challenges, Environmental Development, 37, p.100571.
Zabbey, N., Sam, K. and Onyebuchi, A.T. (2017) Remediation of contaminated lands in the Niger Delta, Nigeria: Prospects and challenges, Science of the Total Environment, 586, pp.952-965.
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