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A leading economist at Shell once described Nigeria as the “crown jewel” of Big Oil’s empire. However, in recent years, the jewel has lost its luster. Earlier this year, Shell, which has been exploiting oil in Nigeria for nearly seven decades, agreed to sell its onshore subsidiary to a consortium made up mainly of local companies.
Other oil corporations are also packing their bags. In February, France’s TotalEnergies announced it was also contemplating selling its own stake in Shell’s Nigerian subsidiary. It joins a long list of corporations, including Chevron, ExxonMobil, Eni and Equinor, that have sold their Nigerian assets. in the next two years (Exxon’s deal still needs to get regulatory approval). If Shell’s divestment goes through, domestic corporations will have more oil licenses than foreign corporations for the first time in Nigeria’s history.
This wave of divestment has Nigeria worried that its most important industry is in terminal decline. For decades, Nigeria has been Africa’s largest oil exporter. Still, production has fallen about 50% from its peak in 2005 due to a lack of confidence in the land. and emerging prices overseas. It will face new challenging situations when the green transition reduces global oil demand. Despite efforts to diversify Nigeria’s economy, oil still accounts for more than 80% of exports and about 50% of the government budget. What will happen if, in the coming decades, this crutch is eliminated?
Big Oil exaggerated those comments and are concerned that they are not abandoning Nigeria as a whole. Most are retreating only from the Niger Delta, the southern swamps that are home to most of Nigeria’s onshore and shallow-water oil platforms. For years, the delta has been plagued by kidnappers, thieves, saboteurs, and crumbling infrastructure. According to large companies, operating in this sector is simply not worth the risk. Most of Nigeria’s oil production has moved overseas in recent years, where the big ones still have significant operations. Shell and Total may soon increase their existing investments there. Chevron acquired a stake in a new deepwater assignment in January.
In theory, extracting a barrel of Nigerian oil from the ground costs about $15 on average, according to consultancy Rystad Energy. But that’s not the case. Insecurity in the Delta has driven up costs and boosted investment in coastal waters, where production costs are higher. As a result, $25 to $40 is charged to pump a barrel of oil in Nigeria. Then it will be difficult to keep pace with manufacturers such as Saudi Arabia, where prices are below $5 a barrel, when global demands and prices fall.
The speed of Nigeria’s decline will depend in part on how temporarily the world moves away from oil. If it does so temporarily, with the aim of restricting global warming to 1. 9°C, Nigeria’s oil production could fall by 70% by 2040, according to estimates. Pranav Joshi, analyst at Rystad.
The prospect of such a big surprise makes adaptation essential. Nigeria is looking to expand other sectors of its economy, such as agriculture and manufacturing, which have struggled to compete with reasonable imports during the many years when the Nigerian currency was sustained through oil revenues. But this kind of diversification will likely take time. In the short term, part of Nigeria may switch from oil to vegetable fuel, which accounts for only 10% of its exports. Not only does the country have the largest fuel reserves in Africa, but global demand for the fuel is booming.
Much of the fuel traded worldwide is transported in the form of liquefied vegetable fuel (LNG), global demand for which is likely to increase by 50% by 2040, Shell estimates. Increasing Nigeria’s exports would require a giant expansion of the facilities needed to cool and liquefy the fuel. Nigeria LNG, a joint venture between Shell, Total, Eni and the Nigerian government, is expanding its capacity by a third to about 41. 3 billion cubic meters per year, equivalent to about 8% of the LNG traded worldwide last year. That sounds impressive, however, the facility is consistent with less than a portion of its existing capacity and LNG exports have fallen 35% since 2020 due to disruptions to sources and Nigeria’s habit of burning (or burning) gigantic amounts of fuel that is a byproduct of mining oil extraction.
In the long term, Nigeria will also have to deal with the environmental damage caused by the oil industry. The Niger Delta is one of the most polluted places on the planet and is littered with abandoned pipelines and wellheads. Nigeria is going to build a fossil fuel mausoleum. ■
This article appeared in the Middle East and Africa segment of the print edition under the headline “When Wells Dry Up. “
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