IEA sees trouble for oil
AS AN OIL DEPENDENT NATION, the Nigerian economy is no stranger to shocks and fluctuation caused by the commodity’s price volatility. Revenue earnings from crude oil sales accounted for almost 75 percent of the budget and 90 percent
AS AN OIL DEPEN DENT NATION, the Nigerian economy is no stranger to shocks and fluctuation caused by the commodity’s price volatility. Revenue earnings from crude oil sales accounted for almost 75 percent of the budget and 90 percent of foreign exchange for the country.
This over reliance was one of the crucial reasons for the recession the country found itself in 2016 after oil prices crashed from a high of $115 to below $50. The country has tried numerous times to wean itself off this crippling dependence by formulating policies, the most recent one being the Economic Recovery and Growth Plan (ERGP); but sadly none seems to have achieved the main goal yet which is, diversification of the economy.
The Paris-based International Energy Agency (IEA) in its recent report attempts to raise awareness for the economic diversification in large oil producing economies, like Nigeria because of certain emerging trends, the organization has noticed and these are the shale revolution in the United States; technological advancements and changes and; energy efficiency Others include the long-term response to climate change and air pollution challenges “are all raising questions about the future trajectory of hydrocarbon demand and prices,” the report said. It also described the effects of these changes as “unavoidable” to the future of resource rich countries who, but would face increased risks if necessary steps are not taken to mitigate against the risks.
The report in its sustainable development scenario said that revenue from hydrocarbons, also known as crude oil and natural gas, which oil producers like Nigeria live on, would not reach 2014 levels anytime soon, and “the lower oil price environment where net income from oil and gas never recovers to its 2010-15 levels, leading to a cumulative $7 trillion reduction over the period to 2040 compared with the New Policies Scenario,” it explained.
This represents a huge loss for large oil economies including Nigeria who without far-reaching reform, this would translate into huge current account deficits, downward pressure on currencies and reduced government spending, the report warned.
The report also noted Nigeria’s inability to bring sufficient investment to its upstream sector as a result of the delay of necessary policy changes and despite access to vast amounts of funds from the sales of this liquid gold, most oil producing economies have not performed significantly better in economic terms than non-producers in recent years, which the report attributed to three major reasons, revenue volatility introduced by commodity price cycles; relatively low labour productivity; and wasteful use of energy.
The report also predicted that producing economies like Nigeria and Saudi Arabia would see a fall in total revenue from hydrocarbons between 25 percent and 40 percent to 2040.
It, however, offered recommendations to Nigeria and a host of other oil dependent economies to adopt, in order to ensure that they “best position their energy sectors to provide long-term advantage and to increase their resilience to a range of future market and policy outcomes,”
The recommendations include encouraging a more dynamic upstream by keeping costs down and investment flowing to their upstream industry; reducing wasteful consumption of energy through proper energy pricing and energy efficiency; natural gas as a stimulant for economic growth and diversification.”
The report also predicted that producing economies like Nigeria and Saudi Arabia would see a fall in total revenue from hydrocarbons between 25 percent and 40 percent to 2040