CURRENTS OF CHANGE?

While COVID-19 has wrought havoc on Nigeria’s oil and gas industry, it may also pave the way for a brighter, more diversified future in Nigeria.

local producers struggle with. Even for larger players, security was still an issue at many oil production sites. So even before COVID-19, Nigeria’s oil and gas industry was living from oil shock to oil shock.

Like many other oil producers, Nigeria’s government found itself in dire straits when COVID-19 decimated global demand. As of early May 2020, Nigerian government’s oil revenues have dropped by 80%. The government budget has since dropped by 15%, to USD33.8 billion. IMF has estimated that the country’s GDP will contract by 3.4% in 2020. Nigeria has since requested USD6.9 billion in funding from international lenders; The IMF has pledged USD3.4 billion in assistance thus far. Even banks risk loan default from exposure to oil-related lending, according to Deputy Governor of the Central Bank’s Financial Systems Stability Directorate, Aishah Ahmad. The global industry’s tanking has also led to less investment by international companies, especially in upstream operations. Exxon Mobile has terminated jack-up contracts with Borr Drillin Ltd for Gerd and Groa offshore in Nigeria, which had contracts originally committed until April 2021 and May 2021, respectively.

As Nigeria starts easing its lock-down, it is unclear what remains in store for the country’s oil and gas industry, but it seems as though COVID-19 has uncovered already existing vulnerabilities inherent in a shaky system. While better oil prices in later months could help the country in the short-term, any future shocks could bring about the same outcome as today, with Nigeria looking to international creditors for bailouts to meet its budgetary needs. The current distress the system is experiencing on a global scale shows that the imbalance between supply and demand is not only there, but hugely problematic for even the largest economies. COVID-19 could be the real push that oil-reliant countries need to diversify into greener pastures, bringing about change not only for the planet but for national economies as well. According to a recent Oxford University study co-written by economist Joseph Stiglitz, projects on clean energy infrastructure are expected to create twice as many jobs as fossil fuel projects, while driving down costs of the clean energy transition. For Nigeria, this could mean exploiting the country’s solar resources in its north, 5% of which, according to estimates, could generate 42,700MW. Infrastructure for hydropower generation, another green energy the country is already using, could also be increased.

While it is clear that COVID-19 has brought hardship, it has also brought about greater solidarity in Nigeria’s business community, even with those hit worst by the crisis. Aliko Dangote, founder and chairman of Dangote Group, backed by Access Bank, Zenith Bank, Guaranty Trust Bank, and others, have come together to form the Coalition Against COVID-19, which will mobilize private sector resources to support public health facilities. Even the NNPC and other oil players has pledged USD30 million to the Nigerian Centre for Disease Control in the health battle against the virus. And who knows? Perhaps this increased cooperation between local private sector players may be just what Nigeria needs to build a more stable and diversified economy that is not reliant on the whims of the global marketplace. ✖