NAIRAMETRICS

Geopolitical tensions in Europe have seen questions raised in different spheres of the world on how national economies would react to disruptions from war and unrest. During times of war, commodities such as oil, natural gas, aluminum, agricultural commodities get affected as a result of either supply networks being disrupted or sanctions from international superpowers.

The Iraqi war called the Second Gulf war, the Libyan war, the Iranian nuclear impasse, the US-China trade war, Russia’s annexation of Crimea, Venezuelan elections, The Guinea coup, saw oil, gas, and aluminum supply affected leaving gaps in the commodities market.

In 2019, 59.1% of Russia’s $407 billion exports were in hydrocarbons such as crude oil, petroleum products, and natural gas equating to $240 billion in commodities. Issues like the imminent war between Russia and Ukraine present opportunities for other countries to learn lessons on countries’ dependencies on natural resources.

1. Missed opportunity in gas revenue

On Wednesday morning, the Minister of State Petroleum Resouces, Timipre Sylva, was queried by a Bloomberg reporter if Nigeria can heed to the calls from the United States on replacing Russia’s gas once sanctions begin to take place. The Honourable Minister responded by saying he was not privy to that conversation and reiterated that Nigeria does not have the infrastructure for that gas distribution. Herein lies the missed opportunity. Nigeria makes up the top 10 countries with the largest gas reserves in the world, and as reported late last year, the Nigerian government discovered 206 trillion cubic feet of gas accidentally while searching for oil.

Because of the West’s united front in hurting Russia, there are possible sanctions they would want to consider to hurt the Russian economy. Vladimir Illyich Lenin once said, “the best way to destroy a country is to debauch its currency”. The United States and Europe are making concerted and calculated efforts to hurt the Russian economy – not buying their energy products would be top of the list. Russia’s economy depends on oil and gas. Russia provides about 30-40% of the supply to Europe. There is no single country that can replace that kind of volume. Russian state-backed company, Gazprom sells over $200 million worth of gas daily to Europe.

Note that: Russia has the largest gas reserves in the world and just recently completed an $11 billion gas pipeline called Nord Stream 2 across the Baltic sea to supply Europe through Germany. Germany, now, has taken an economic risk by sanctioning the pipeline meaning energy security could become an issue because of Germany and other European counterparts’ dependency on Russian gas.

This is where countries like Nigeria would have come in. Qatar and Australia, a close ally of the US have given their word in helping close the supply gap in the short term, although Qatar realizes it cannot replace Russia’s capacity. Now, Nigeria which has excess capacity to supply a decent part of Europe does not have the critical infrastructure needed. At the moment, there are talks, reiterated by the Minister of Petroleum, Timipre Sylva, for Nigeria to take gas to Europe by building two pipelines across the Trans Saharan region from Algeria and Morocco. This pipeline will run through the Northernmost part of Nigeria and connect with Niger. However, these are long-term ambitions. For now, we have missed out on potential revenue from Europe. If we leveraged on being the 10th largest gas reserve country in the world, we would have had structures in place to fight for the world’s gas market share with Russia. The gas pipeline Russia built cost $11 billion. Nigeria realized $34 billion from oil and gas in 2019 – where did this money go to if we do not have pipelines and refineries?

The question raised by the Bloomberg reporter has shown that we can become big players in the industry if only we leverage on our natural resources which brings me to the next point.

2. Missed opportunity in Oil revenue

Nigeria has failed to live up to its title as the Giant of Africa and the Largest Oil producer in Africa. The country has missed out on oil earnings because of underperforming production capacity. Joe Biden is not expected to target Russia’s crude oil and refined fuel sector with sanctions due to concerns about inflation and harm it could do to its European allies and oil markets. As of yesterday, sources say 700,000 barrels of Russian crude left for the ports of the USA worth $60 million. In the last 24 hours, Europe, the United Kingdom, and the United States bought over 3.5 million barrels of Russian oil and refined products worth $330 million at current prices. So Russian oil has become indispensable. If Nigeria has developed its oil reserves and production capacity, the country would have been a major force in the world to fill in gaps. Although, I must add that there are nuances with oil grades and transactional volumes. Ural is different from Bonny Light in respect to sulfur content, density, and quality. Nigeria holds 37,070,000,000 barrels of proven oil reserves as of 2020 (10th highest in the world) but on average produces less than 2,000,000 barrels a day. There is potential to double the production figures but the West African giant has been hamstrung by a combination of reasons, ranging from innovative fiscal and legal regimes fashioned by the government to foreign investment in the oil and gas sector amidst conflicts, militancy, vandalism, and theft in the Niger Delta. Additionally, the higher prices go as a result of the tensions in Europe, Nigeria is spending more and more on subsidies and is not enjoying prices at these levels.

3. The Wheat importation concern

Wheat prices continue to surge past their nine-year high amid concerns two of the world’s biggest exporters, Russia and Ukraine are on the verge of war. Russia, today’s aggressors are one of Nigeria’s top sellers of wheat. The local supply of wheat fulfils a maximum of 5% of local demand – giving room for over-reliance on imported wheat. Over the years, there have been calls for Nigeria to improve its local production capacity of wheat as the country depends on imported wheat. In the past year, Nigerian bakers and other primary users of flour (a derivative of wheat) have complained that the price of wheat has created cost challenges for their businesses. The challenges facing wheat production in the country include limited access to improved seed varieties, fertilizers & chemicals, high cost of production, inadequate irrigation infrastructure, insufficient funding systems, lack of a cohesive national strategy on wheat development. If the war goes on, we should be expecting food inflation to rise as a result of expensive wheat.

4. Biafra/Niger Delta agitations

The recognition of breakaway parts in Ukraine would bring light to Biafra agitation that has rocked Nigeria for a couple of years now. IPOB’s consistent calls for separation have seen different “mini-government’s in the South-Eastern states. It’s been reported that there are unauthorized stay-at-home orders in solidarity with the separation calls. The growing movement for secession would affect the sovereignty and legitimacy of the Nigerian government as we have seen in Ukraine. Going with the street parlance of Nigerians – “na from clap, dance dey start” meaning there is a possibility a small issue can develop to a bigger one if given time to fester. The government should see that the Easterners are given a fair share of the national cake. This also comes with respecting the Federal quota in political appointments and zoning. The building of the Second Niger Bridge and the implementation of the 13% derivation earnings for oil-producing states is a welcome development. More efforts should be concentrated at the Niger Delta Development Commission to oversee the development of these agitated regions.

Conclusion

It is time for Nigerian policymakers to begin to look inwards and invest in its infrastructure. It is ironic that the largest oil producer in Africa does not have a functional refinery and imports fuel and most recently, adulterated fuel into the country. Nigeria needs to get more from our gas reserves. If the country cannot supply neighbouring countries, it should develop it as a source of domestic energy production to replace regions with epileptic power supply. I hope Nigeria learns from the Russian-Ukrainian impasse and contests to be a global player in the oil and gas markets.