The Centre for Petroleum Information (CPI) recently had its Energy Finance Forum (EFF-XIV) on the Theme: Financing Energy in a Changing Landscape to deliberate on energy transformation with current global trend.
…Nigeria must simultaneously pursue energy transition and expansion.
-Felix Douglas
Changing Landscape
The land and shallow water companies in conjunction with Nigerian National Petroleum Company Limited (NNPC) have been operating for several years, but the landscape has changed significantly.
A changing landscape is an important source of energy. Lot of homes in Nigeria is adopting the home solar technology. This is ubiquitous across the streets with quite a number of electric vehicles (EVs). As an alternate fuel, the market is already moving towards EVs.
In his Welcome Address, Eng. Afolabi Oladele, Chairman CPI Board of Governors explained that key things are coalescing at the same time in the industry, transfer of oil and gas, producing assets from majors to local independence. This is a critical situation and 1.6 million barrels a day close to 1.4 million crude oil which is the output of the country. The Deep offshore accounts for only 26% of the entire nation’s production that is dropping into shallow, swamp and land.
Speaking further Engr. Oladele said production actually comes from local independence and Renaissance alone provides 25% the statistic shows criticality of the players in the industry.
What’s more crucial is current development in tinkling with the Petroleum Industry Act (PIA); the issues that are being traded presently will likely affect the industry.
Energy Transition
The second key part relates to the move in energy transition which shows that 14% of the scenarios projector demand will increase through to 2050 and 51% of gas will increase significantly.
Since Iran has shut the Strait of Hormuz which is critical to Asian countries like Japan, China and others that depend on it. It is going to be a signal to these countries to move away from fossil fuels.
The landscape is characterized by push on low carbon technologies, rising interest rates and need for innovation that cost $4 trillion.
He added that realization of Nigerian banks are enough base to provide the kind of drive needed because those major countries affected by what is happening in Iran war will find a way out.
However, there are regional disparities in Africa despite having 1/5 of the global population but it attracts only 3% while fossil fuel investment despite the transition has continued to rise annually since 2020 and reaches $1.1 trillion in 2023. Macro pressures, surging interest and inflation put significant risk to capital.
Engr. Oladele pointed out that the emphasis should be on intensive gas with renewable.
Presenting her own perspectives, former Chief Finance Officer (CFO) and Executive Director of Finance of TotalEnergies, E&P Nigeria, Tai Oshisanya, said the forum showed current reality confronting the Nigerian energy industry.
Oshisanya added that across the world, energy sector is undergoing profound change. Climate policies, energy transition evolving and shaping how capital flows into energy projects. Traditional sources of financing for hydrocarbons is becoming selective and in some cases more constrained.
Yet for countries like Nigeria, the situation is somewhat more complex. Nigeria remains a hybrid hydrocarbon country with substantial share of government’s revenue; foreign exchange earnings and export income depend on oil. At the same time, the country’s population and economy are growing rapidly creating increasing demand for reliable and affordable energy.
According to the former TotalEnergies CFO, global energy transition is underway; Nigeria must simultaneously pursue energy transition and expansion.
However, changes in global investment patterns have affected Nigeria’s oil and gas sector; many tightened their lending policies for upstream projects.
Meanwhile, global investments are demanding stronger governance with every challenge there are also opportunities.
An important development in the Nigerian energy industry has been the rise of indigenous oil and gas companies.
Nigerian content initiative many years have acquired major products, producing assets, built techno technical capacity and increasingly taken on leadership roles in the development of its resources.
However, the structure requires innovative and reliable financing structures.
Under the PIA framework, ability of operators to assess capital for exploration and production will be critical.
Continuing, Oshisanya was of the view that innovation in energy is not only about renewable, but also electric and CNG, integrating new technologies to existing systems and developing infrastructure that supports a more diverse energy mix.
Another key issue is the future of reserve base tools for upstream oil and gas companies, while various structures have served the industry well, lenders, risk appetites are evolving, and new models may be required to complement or replace traditional funding structures.
Many Nigerian companies aspire to tap global capital markets.
There are significant implications on project financing particularly where revenues are partly in naira, whereas debit or debt obligation is denominated in foreign currency.
Examining the growing pattern of cross holdings, for instance Aradel facilities expansion into ND Western as Nigeria companies continue to expand their asset portfolio, strategic alliances and equity collaborations are becoming an important part.
Oshisanya asserted that financing energy in Nigeria is becoming sophisticated and diverse.
Responsibly develop energy resources, maintain production levels and support economic growth will depend not only on geology or engineering, but also on capacity to mobilize capital in the chain.
There has to be an important platform for dialogue between industry practitioners, financiers, policy makers and advisors. These allow for exchange of ideas, challenge assumptions and ideas.
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