With $ 130 billion tied to renewables globally, Nigeria is walking a tightrope in oil sector investment bid

* The cost of borrowing in the global commodities sector is expected to increase in 2022
* Despite headwinds, Wood Mackenzie projects global spending of over $ 400 billion

Emmanuel Addeh in Abuja

Nigeria’s desire to continue reaping the benefits of its oil and gas resources before the world fully embraces renewables could face serious headwinds this year, with the global financial community committing more than $ 130 trillion. to finance carbon-free energy investments.

This means that the funds available for loans to international oil companies (IOCs) and by extension to the Nigerian National Petroleum Company (NNPC) Limited, which acts as joint venture partners (JV), could be severely reduced.

Nigeria continued to struggle to increase its production volume upstream from the country’s oil and gas industry, but largely failed due to years of underinvestment, aging infrastructure and inability to procure modern equipment to deter incessant theft and sabotage of oil.

The much needed investment would also allow operators to adopt artificial intelligence systems and deploy virtual and machine learning in exploration and production.

In August last year, the country enacted the Petroleum Industry Law (PIA) which was supposed to spur needed investment in the industry, but that dream appears to be under threat as global funding bodies continue to withdraw their funding. financing for fossils in preference to renewable sources of energy.

In its latest report, Wood Mackenzie, a global energy, research and advisory group, noted that while the oil and gas sector continues to rally in 2022, the positive outlook has been tempered by concerns about the future of industry.

In his oil and gas outlook for 2022, Wood Mackenzie predicted that record cash flow would come under scrutiny as operators begin to align with their decarbonization commitments.
He further predicted that existing cracks in the fragile services sector would widen and explorers would keep options open for the energy transition.

Through the Glasgow Financial Alliance for Net Zero (GFANZ), more than $ 130 trillion in private capital has now been committed to net zero for more than 450 companies in 45 countries.

In its recently released progress report, GFANZ announced that net-zero financial sector commitments exceeded $ 130 trillion, a 25-fold increase in recent years.

Global funding bodies are spending more money on renewable energy, including banks, insurers, pension funds, asset managers, export credit agencies and stock exchanges, as well as rating agencies, index providers and audit firms.

“Financing oil and gas was becoming increasingly difficult before COP26, but the pressure will increase in 2022. Institutions with more than $ 130 trillion in capital under management have joined the Glasgow Financial Alliance for Net Zero.

“(As we) watch for the reduction of the donor pool, borrowing costs will rise and financing oil projects will become more difficult,” said the well-known research firm.

Despite the benefits of this year, Wood Mackenzie said that for many stakeholders and even some CEOs, the risks of the industry outweigh the gains, stressing that “this tension will define 2022”.
In the wake of COP26, the research firm predicted more drastic oil and gas downsizing will take place, but noted, however, that “opportunists” could take over and spend more on development and development. acquisitions.

He stressed that while lending would not dry up immediately, the recovery in demand could be interrupted by new global headwinds, including additional variants of Covid-19, derailed prices and the promised wall of upstream liquidity. .

Stressing that oil and gas reinvestment rates remain critical to meeting demand, Wood Mackenzie predicted that with capital discipline in place, the industry could experience a 9% increase in investment from the industry. last year.

“A nine percent year-over-year increase will require spending of more than $ 400 billion again in 2022. Despite this, at 40 percent, the global reinvestment rate will remain near record lows at our expected price,” he stressed.

According to the firm, the focus would be on advantaged barrels, low-break-even projects and low-carbon deepwater projects, which it says will dominate entirely new Final Investment Decisions (FIDs). .
He added that most operators would hesitate to sanction projects without short payback periods and low emissions, while companies would allocate more capital for upstream decarbonization.

Increased transparency and emissions benchmarking reports, he said, would put pressure on upstream actors, thus increasing action on decarbonization.

The company noted that while 2021 was a big year for upstream carbon capture and storage (CCS), 2022 would be more important as the world continues its quest for cleaner fuel sources.
He said conventional exploration would follow the disciplined path set in 2021, despite improving prices, predicting spending to total $ 20 to $ 25 billion, led by oil majors and the largest national oil companies (NOCs). .

“In 2022, more governments could join those who ban exploration. But they are unlikely to include basins with significant potential resources. Of greater concern is the possibility that the development of new discoveries will be prohibited, ”noted Wood Mackenzie.

With an expected daily oil production of 1.86 million barrels in the country’s 2021 budget, Nigeria recorded a huge shortfall of nearly 200 million barrels of liquid in the first 11 months of last year.

Now unable to meet its Organization of the Petroleum Exporting Countries (OPEC) production allocation for months and with only 12 of the country’s 53 oil rigs currently active, the oil and gas sector is in desperate need of a Huge influx of these investments to help speed up the pumping of more oil.

NUPRC Director General Gbenga Komolafe, who recently attributed the decline in production to theft, insecurity, aging facilities, declining exploration and production improvement initiatives, noted that Nigeria aspired to increase its reserves to 40 billion barrels and increase production to three million barrels per day.

NURPC figures obtained by THISDAY last week indicated that while Nigeria was to pump around 635 million barrels of oil by November 2021, it had only struggled to produce 441 million barrels for the entire period.

Although OPEC expects Nigeria to produce 1.683 million barrels per day by January 2022, achieving this target would be a daunting task as the country has maintained an average of 1.25 million barrels in recent months. .

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