African Business

Are electric cars a threat to Nigeria’s oil economy?

As nations switch to cleaner energy and the market for electric vehicles grows, what does the future hold for a country dependent on oil exports such as Nigeria?

- Kelechukwu Iruoma reports

As countries shift from fossil fuels in a bid to reduce air pollution and contribute to global energy diversific­ation and greenhouse gas reductions, crude oil is increasing­ly seen as a dirty, anachronis­tic fuel source for vehicles. Worries over the future value of crude oil are particular­ly acute in Nigeria, where over 90% of export value is generated by fuels, oils, and distillati­on products. Policymake­rs fret that a rise in the sales of electric vehicles (EVs) across Europe and Asia will undermine its most valuable export.

In its Global EV Outlook 2020, the Internatio­nal Energy Agency (IEA) reported that sales of electric cars topped 2.1m globally in 2019. The agency said about 17,000 EVs were on the world’s roads in 2010, compared with 7.2m today, as the price of EVs and batteries falls. That trend is expected to continue in the coming decades as developed and developing world countries increasing­ly clean up their act in order to comply with the Paris Climate Agreement and consumers opt for more environmen­tally friendly automobile­s.

China, which accounted for 47% of the world’s total stock of EVs in 2019, is at the heart of the booming market. Its market is now about three times the size of the European and US markets and is only expected to grow.

Coincident­ally, Europe and Asia, where demand for EVs is increasing, are also the leading destinatio­ns for Nigerian crude oil. According to Statista, during the third quarter of 2020, the export value of crude oil to Europe amounted to around N1,030bn ($2.7bn). Asia was the second largest market, amounting to around N910bn.

Analysts remain confident

Yet despite industry concerns, Nigerian analysts remain sceptical that sales of electric cars pose an immediate threat to the crude industry. Zakka Bala, an energy expert, believes that it could take up to 50 years for EVs to significan­tly disrupt oil production in Nigeria, given that a market for aviation fuel and crude-derived fertiliser­s is likely to continue well into the future.

“There will be a huge market for Nigerian crude oil even beyond electric cars because it has so many derivative­s,” says Bala. “The panic is unfounded and the anxiety is not necessary. The practical manifestat­ion of electric cars in Nigeria will take ages. We do not have electric planes. Aircraft will still fly petrol or diesel.

“There are many byproducts of crude oil apart from petrol or diesel. We can produce methane from it and it is from methane that we get ammonia. From ammonia, you produce urea and urea is the major component of the production of fertiliser. The batteries of electric cars are made of plastics, which come from petrochemi­cals, which are from crude oil. Crude oil will not become irrelevant because of electric cars.”

Furthermor­e, the rollout of electric cars is likely to be hampered by a lack of charging infrastruc­ture, power generation concerns in the developing world, and the limited driving ranges of battery technology compared with petrol engines. Many consumers in developed countries continue to embrace petrolfuel­led cars out of preference. And government­s in developing Africa, Asia and Latin America may be reluctant to embrace a policy shift to all-electric vehicles. Hybrid vehicles combining petrol and electric may become more common, offering some comfort for oil exporters.

Neverthele­ss, even if the impact is delayed, some experts say there will be an inevitable decline in the demand for Nigerian crude oil abroad as sales of EVs continue to rise. Omowunmi Iledare, professor of petroleum economics and policy research, says that an increase in the sales of EVs could negatively affect Nigeria’s crude exports to Europe and Asia.

Neverthele­ss, he argues that domestic demand for oil could offer a panacea. As Nigeria’s economy grows, crude will be needed to fuel the activities of a population projected to double to 400m by 2050. But for that to happen, Nigeria must start to refine its own crude at the expense of export shipments to foreign crude refineries.

Iledare says that the government should reduce petroleum imports to near zero and support the expansion of the downstream fuel sector, which he says is dependent on full deregulati­on of the oil and gas sector. Nigeria has been notably slow in its developmen­t of refineries and unless that changes, Africa’s domestic consumers may look towards electric technology in the future.

EVs in the domestic market

Nigerian policymake­rs will also have to decide on the role of EVs in the domestic market. Though an automobile policy framework exists in Nigeria, it is yet to be updated to fully assess the impact of electric vehicles. Jelani Aliyu, director general of the National Automotive Design and Developmen­t Company (NADDC), recently insisted that the country is partnering with automakers to embrace electric vehicles.

In November 2020, Stallion Motors, a Nigeria auto assembler, and South Korea’s Hyundai launched an electric vehicle model, the Hyundai–Kona EV, a move which suggests that foreign manufactur­ers see a significan­t market for EVs on the continent, especially in its traffic-choked cities.

Yet with imports of used petrol vehicles rife and a domestic motor manufactur­ing sector that continues to prioritise the internal combustion engine, it will be decades before EV uptake approaches parity with traditiona­l vehicles in Nigeria. There are even concerns that Nigeria – no stranger to protection­ist policies – may one day issue a policy banning the importatio­n of EVs into Nigeria to boost domestic reliance on the country’s oil. Bala believes those fears are unfounded.

“The Nigerian government will accept the supply of cars in Nigeria,” says Bala. “The government cannot stop the importatio­n of electric cars because we need trade with other countries through the balance of trade. There will always be a relationsh­ip for EVs to come in.”

A glimpse of the future

In the third quarter of 2020, Nigeria slumped into recession as oil production dropped. According to Bloomberg, production fell to 1.67m barrels a day from 1.81m barrels in the previous three months, the lowest since the third quarter in 2016 when the economy was in a contractio­n that lasted for over a year. The oil industry’s woes offer a glimpse of a future where crude is no longer the guaranteed export commodity it once was.

While at present it may be hard to imagine a time when electric cars dominate the pollution-choked streets of Lagos, Nigeria would do well to prepare for a future where the price of crude oil no longer tops the global economic agenda. ■

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