IEA sees trou­ble for oil

Business a.m. - - FRONT PAGE - Sto­ries by Bukola Odufade

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

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