- 74% of CAPEX already lost due to defunding of fossil fuel
- Federal revenue to dip further from fossil fuel funding reduction
By Ben Eguzozie.
Nigeria, a heavy hydrocarbon-dependent nation, faces even heavier capital expenditure (CAPEX) losses as global energy transition is set to shave two percent off the world’s GDP. At present, 74 percent of the country’s CAPEX is already lost due to defunding of fossil fuels, according to data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
The transition to clean energy requires that all countries of the world jointly work to prevent world temperatures from rising swiftly. A report by Wood Mackenzie, a natural resources consultancy firm, said last year that, to achieve this goal would involve shaving off 2% or a cumulative $75 trillion hit to the world’s GDP by 2050. Though this is likely recoverable before the end of the century, the report added.
Gbenga Komolafe, the chief executive of the NUPRC said due to the global energy transition programme, Nigeria’s GDP would be more negatively affected, due largely to the heavy economic dependence on revenues from the oil sector.
He spoke during the Energy Year Nigeria annual book launch and awards ceremony themed: “Innovation in the Nigeria Oil and Gas Upstream Industry: A Catalyst for Growth and Development in Nigeria Economy,” in Lagos, informing that, governments and energy companies were supporting major research, development and demonstration projects in critical areas such as low-emission hydrogen-based energy, lithium-ion and lithium-free batteries for electric vehicles, carbon capture utilisation and storage, and other critical energy technologies, resulting in massive defunding of fossil fuels.
Komolafe said Nigeria’s GDP which currently stands at $477.39 billion as of 2022, would undoubtedly be more negatively affected because the economy depends largely on revenues from the oil sector.
“Between 2014 and 2022, about 74% of CAPEX had been lost due to defunding of fossil fuels. The defunding of fossil fuels negatively impacts production with direct implication on the federation revenue for an oil-dependent economy like Nigeria,” the NUPRC boss said.
According to him, the expensive and poor availability of vital technology to power the renewable energy system, and a lack of consensus on how fast the transition should take place (partly due to its potential economic disruptions), are the challenges posed by energy transition.
Oil industry experts are urging especially stakeholders in the oil and gas sector to challenge the current thinking, and develop innovative measures to mitigate the confounding effect of energy transition.
The Wood Mackenzie report, titled, “No Pain, No Gain: The economic consequences of accelerating the energy transition,” said although investments in technologies like solar and wind farms, and advanced batteries will generate jobs, the transition will also likely cause a loss of jobs and tax revenues in fossil fuel generation.
The impacts of the global energy transition are not expected to be felt evenly, as had been reported. Heavy carbon emission polluters like China and the USA will feel only about 27 percent and 12 percent of a cumulative $75 trillion economic hit to the global GDP by 2050. Europe will experience 11 percent, while India about 7 percent. But the impact in Africa, the least polluter, will see fewer advantages and greatest drawbacks.
Fatih Birol, IEA executive director, said that based on the current energy crisis, Africa has gotten the raw end of the deal from the fossil fuel-based economy, obtaining the fewest advantages and the greatest drawbacks.
He said the new global energy economy promises Africa a brighter future, with great possibilities for solar and other renewables to power its development – as well as new industrial prospects in critical minerals and green hydrogen. But the continent must spend at least $190 billion every year on renewable facilities to make any gain.
On a global scale, it has been estimated that achieving global net zero by 2050 will cost as much as $130 trillion, making it the single biggest global growth opportunity. For those who cannot transition, it will be a significant disrupter, with the risk of major stranded assets across the globe.
Nigeria has set 2060 as its start-off year of energy transition. A critical question yet to be answered is whether or not Africa will benefit from an equitable share in the global investment and growth. Or, lacking economic strength, continue to fall further behind global standards as outlined in the Sustainable Development Goals (SDGs).
For Nigeria, this is a sad reality. Grossly lacking in financial reserves to invest in non-fossil fuel sectors, it has been predicted that countries in this group could suffer the biggest losses in economic output. In particular, the year 2060 looks far away from today, especially as many countries have gone far afield in the transition roadmap.
