Dollar crunch: Electric car technology threatens Nigeria’s oil export, economy

From Uche Usim, Abuja

Oil and gas stakeholders were taken aback recently when Mr. Ben Van Beurden, the Chief Executive Officer (CEO) of Royal Dutch Shell, said his next car, a Mercedes-Benz S500e, which will be delivered to him in September, will be an electric car. His declaration was an affirmation of the impending threat Nigeria’s oil and gas industry and the economy as a whole will face in the years ahead.

According to the Shell boss, “the whole move to electrify the economy, electrify mobility in places like northwest Europe, in the US, even in China, is a good thing. We need to be at a much higher degree of electric vehicle penetration – or hydrogen vehicles or gas vehicles – if we want to stay within the 2-degrees Celsius outcome,” he said.

His remarks came less than 72 hours after the United Kingdom said it will ban sale of diesel and gasoline-fuelled cars by 2040. Earlier, France had announced a similar plan to reduce air pollution and meet targets to keep global warming below 2 degrees Celsius or 3.6 degrees Fahrenheit.

This was even as a leading auto manufacturer, Volvo AB, said in July that it will manufacture only electric or hybrid vehicles from 2019, leading the drive for a cleaner global environment.

What perhaps is of great concern to most stakeholders remains the preparedness of the government to prepare the country for a life after oil given that Nigeria’s days with hydrocarbon founded economy are numbered.

It is against this background that the declaration recently by the Minister of State for Petroleum Resources, Ibe Kachikwu, that Nigeria lost a whopping $300 billion to global shocks in crude oil supply chain and its attendant poor investment in the last three years, left keen followers of the oil and gas industry wondering what the government is actually doing to avoid being caught unawares. These were investment opportunities that would improved the countries revenue stream in the future.

For Nigeria, the challenges arising from widespread use of electric car technology appear more severe considering that oil still accounts for more than 70 per cent of the country’s foreign exchange earnings even as efforts to diversify the economy are yet to gather stream.

To avert the looming danger, Kachikwu had advised the country would need consistent policies that will deal with inefficiencies in the system to survive the trend.

According to him, some countries are already planning switching fully to electric cars in four years’ time warning that  if Nigeria fails to transform rapidly, it would have wasted valuable time. 

Apart from its current security challenges, one other area that left the Minister stunned is Nigeria’s cost of producing oil, which is considered quite high compared to other regions.

The Minister said, “Our cost per barrel today is about $27 per barrel for joint venture fields. In Saudi Arabia, it is about $9. We need to drive down cost. There is no way this country can continue producing oil at this sort of swelling prices. There will be no margins left for this country.

“So, Nigeria will be forced to stop the production of crude oil if the cost of doing that remains high. For me, you rather leave the oil in the ground than produce at a cost that doesn’t make sense. So that is certainly one area we are focusing on.”

Commenting on the effect of Nigeria’s dependency on oil on the economy and how to deliver the country from it, an Associate Professor and Head of Department, Business Administration, Nasarawa State University, Dr. Uche Uwaleke, said: “It is unfortunate that our dear country, endowed with human and material resources, is dependent on a single commodity for economic survival. The sudden collapse of crude oil price is the major reason Nigeria was thrown into economic recession. That the government is spending huge sums of money in search of crude oil in the Chad Basin at a time many oil producing nations, including Saudi Arabia, are committing funds to diversification efforts seems to suggest that the lesson from the economic recession is lost.

“Like other mono-product economies, our government should read the hand writing on the wall regarding alternative energy in the years ahead and re-channel current spending on oil prospecting into critical infrastructure that will facilitate the diversification of the country’s export base,” he said.

For his part, an economic analyst and former Managing Director of Unity Bank, Rislanudeen Muhammad, expressed worry that almost  90 per cent of Nigeria’s foreign exchange comes from crude oil sales.

He said, “70 per cent of our export earnings comes from sale of crude oil with volatility in price and long term risk of reduced demand due to improvement in alternative, environmentally friendly and more cost-effective technology.

“Both the 2016 and 2017 national budgets as well as the recently launched Economic Recovery and Growth Plan (ERGP) talk passionately about export diversification as well as import substitution strategies through massive investment in local production to save the country from the effects of imported inflation, among others.

“What is important is for Nigeria to begin to passionately prepare for life after oil and truly fast track the diversification of the economy into agriculture and backward integration to agribusiness, manufacturing and mining while investing heavily in education. There is also need for regional cooperation at sub-national levels to enable collective harnessing and exploitation of other mineral resources across the sub-regions,” Muhammad advised.

Although Nigeria is working with the Oil Producing and Exporting Countries (OPEC) to stabilise oil price, many believe however that this is the time to prepare for further loss in the near future as many countries in Europe and Asia who buy more of the country’s crude, have signalled their intention to switch from powering their vehicles and machinery with petrol and diesel (products of fossil fuel) to electricity from 2030.

But while Nigerians had expected that the Federal Government will put in motion the economic diversification machinery, they were rather shocked that billions of naira are still being spent annually in search of elusive oil deposits in the Chad Basin. They saw such investment on a commodity that will be of very low value in 20 years’ time as very unwise of the administration.

The latest of such oil expedition was scuttled by Boko Haram insurgents recently when they killed some geologists from the University of Maiduguri, officials the Nigerian National Petroleum Corporation (NNPC) and military personnel that were involved in oil prospecting in the area.

As a way of tackling the the dark years ahead, Acting President, Prof. Yemi Osinbajo, recently charged African leaders, especially members of the African Petroleum Producers’ Organisation (APPO), to urgently seek ways of diversifying their economies from over-dependence on crude oil in line with global trend.

He also said the continent needs to invest in infrastructure and modern technologies to ensure global competitiveness while creating robust non-oil revenue generating arteries for the continent. 

He urged the various African Ministers of Petroleum to invest more in agriculture, mining, renewable energy, transport and technology, pointing out that in the nearest future, vehicles and other heavy equipment will no longer be powered by petroleum products but electricity and other cleaner sources of energy.

According to him, the volatility in crude oil prices and the full embrace of other energy sources by developed nations remain a loud reminder that African crude may not be needed in few decades ahead.

“We have to create jobs and leverage on oil while it is still relevant to fund and support other ambitions. In Nigeria, we are evolving reforms that will ensure more transparency in the oil sector. Our Local Content policy is being fine-tuned. APPO is to support, build and export local capacity.

“We also know some countries are funding terrorism from oil sales and we must ensure that does not happen here. We need to ensure we always track where our funds are channelled. So fiscal transparency is key here,” the Acting President stated.

The Executive Secretary, APPO, Mahaman Laouna Gaya, had at a forum in Abuja expressed worry over the dwindling fortunes from crude oil which, he said, has affected budgets and economic planning across member nations.

“Our economies cannot develop at any such level of energy consumption. Today, biomass energy accounts for more than 60 per cent of the energy balances of our countries and you will agree with me that we cannot develop any economy with wood energy, let alone talk about economic emergence,” he lamented.

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