On the 3rd day of June, 2009, the Nigerian federal government announced it would suspend major gas export projects and focus on supplying sufficient gas for domestic consumption. The suspension was to last until 2014.
A month later, on the 3rd day of July, Bloomberg and other news sources reported the government had signed an agreement with Algeria and the Niger Republic to build a $10 billion gas pipeline from the Niger-Delta across the Sahara to Algeria's gas export terminals on the Mediteranean coast. The intent is for everything to be ready for the first deliveries of gas for the European market in 2015.
There is nothing wrong with exporting natural gas (or crude oil). It brings billions of dollars in potential capital into the economy (whether we use it as capital or just consume it is another issue altogether). It pumps up the GDP, and underpins our infrastructure and incomes.
With that said, the route toward a wealthier Nigeria depends heavily on a core of improvements we need to make, one of which is an increase in the quantity and (just as importantly) quality of our energy consumption.
In terms of quantity, everyone knows we have an electricity problem. In a previous post, I mentioned South Africa is struggling to cope with 45,000 megawatts and has experienced occasional rollinig black-outs. Apartheid-era South African infrastructure was designed to fully support industry, but to only partially support domestic use (with a 10% minority enjoying First World services, and a 90% majority living in NEPA-land). As it stands, 45,000 megawatts is not enough to serve a country of just under 50 million people, with a per capita income five-times larger than Nigeria's. Given our population, rudimentary mathematics suggests 135,000 megawatts would be insufficient to support a Nigerian economy that reflected South-African-sized per capita wealth -- and South-African-sized wealth is not only smaller than the wealthiest economic powers in the world, but is also (more importantly) too small for South Africa's own post-apartheid transition.
In terms of quality, we have too many citizens who are still using charcoal, which is derived from woody plants. The worst part is use of charcoal is highest in those parts of the country that (in environmental, climatological and soil quality/protection terms) are most in need of whatever woody ground cover they can get. I was privileged some years ago to intern briefly with a non-governmental organization that gave out micro-credit loans, and the managers of the NGO told me about the loans they had given to women to start several micro businesses -- including firewood-collection and -sale businesses. It is a difficult thing to deal with, pondering the reduction in an activity that so many depend on (on both demand and supply sides) but which is problematic on so many different levels.
After centuries of internal and external distortions, the Nigerian and African economies are heavily distorted, dysfunctional, irrational and downright strange. Agriculture is the chief example of this. Agricultural products the world economy demands of African agriculture are produced in great quantity, but agricultural products necessary for domestic consumption are scarce, with continuous cycles of starvation, death, emergency "aid" and loss of dignity. If your principal exports do not earn enough to pay for necesssary imports (e.g. FOOD), then you have to shift to producing something else that either earns enough to buy you food, or that is food itself. I don't understand why we persist in committing all of our labour and capital to the production of things that have never, do not now, and will never earn us enough to fund what we need to fund on both the capital and consumption sides.
Another example, this one specific to Nigeria, is the crude oil industry. Refined fuel is a value-added product that brings a higher price than crude oil. You would think Nigeria would export refined fuel (having produced enough to meet domestic demand at market equilibrium), rather than exporting raw crude. It is not just Nigeria that would benefit (from higher prices, higher industrialization and more jobs). It is environmentally sensible (given global warming, and ocean pollution) to export full tankers of refined fuel from Nigeria, and bring back empty (hence, lighter and less-fuel-burning) tankers to Nigeria for the next load, rather than sending full tankers of raw crude away and bringing back just-as-full tankers of refined product. And the world would likely benefit from having cheaper refined fuel; if the supporting infrastructure existed, production costs of refined fuel in Nigeria would be lower than the same in the destination markets.
The system is irrational. Input must be used more logically, and choice of output must be optimal. And as far as energy is concerned, Nigeria needs more of it. I know Western Europe is looking for alternative sources of supply because of geo-political tensions with Russia. But you know what? Nigerians are people too, and we also have interests, and one of them is in a vastly increased domestic supply of energy.
Gas can fire electricity generating plants. Gas can also be used in itself for cooking. And gas can also power vehicles and industrial plants.
Nigeria has a lot of gas, but perhaps not enough to be everything to everyone including ourselves -- and our neighbours. If you try to envision an integrated African economy functioning at the full extent of its possibilities, you begin to realize countries like Nigeria would be supplying the continent with the energy to support that level of economic activity; electricity through a linked continental grid, gas through a continental network of pipes, and refined fuel through pipes as well as seaborne, road-borne and rail-borne tankers. This is inconsistent with the idea of Nigeria as a country that exists to send almost all of its raw energy output to Western Europe, East Asia and North America.
Even in an economically optimal Africa, we would still do business on the world markets beyond Africa, selling surplus energy, but probably not as much as we do now. Much more of our energy would be consumed domestically and continentally, but the laws of demand and supply (and the effects on energy prices of a world where every continent is economically strong) mean that there will still be market sufficient Nigerian exports (i.e at equilibrium conditions) on the world markets. Our energy use per capita is so much smaller than the economic giants of East Asia, North America and Western Europe; necessary adjustments for global warming and (if Africa rises) less distorted market conditions would see our per capita usage rise somewhat while theirs comes down.
Again, I have nothing against oil and gas exports. I am a big supporter of the Nigerian Liquefied Natural Gas (NLNG) project. The thing with LNG is we have a certain flexibility. Tanker ships of liquid gas can go anywhere in the world NLNG decides to send them; the Trans-Saharan pipeline will only go to Europe, the single buyer with potential monopsony power. With NLNG, if market conditions change, with effective demand from Nigeria and Africa going up, the liquid gas can be transported to Nigerian or African markets on road and rail tankers (or even to African markets on ships); after spending $10 billion to build it, the partnership (public, private or mixed) will have to guarantee a minimum flow of gas along the pipe to Europe for the project to pay for itself and remain economically viable, regardless of the growth of markets in Nigeria and Africa. Energy has to come from somewhere, and 135,000 megawatts is not enough for Nigeria alone much less continental Africa; as economic activity rises (we hope) and demand with it, by the laws of economics we would be more interested in shorter, cheaper pipes to electricity generating plants in Nigeria, except where will this gas come from when we would have committed (by default) large chunks of it to Europe?
Perhaps we should focus our investment on the more flexible NLNG platform, rather than participate in a $10 billion investment that only makes sense if the world remains exactly the way it is today, with Africa consuming no energy (and having no GDP) while Europe (as well as North America and East Asia) consume most of the world's supply.
I reiterate I am not against exporting to the world markets. I want us to re-balance our medium-term and long-term priorities so that we make better investment decisions. We are already exporting gas through NLNG and through the West African Gas Pipeline (WAGP).
I would be more excited if the Nigerian government had announced the construction of electricity generating plants sufficient to convert into electricity half or more of the gas they are right now planning to send to Europe. The Nigerian economy is hobbled by the lack of electricity and the costs of doing business are higher than necessary because industries must produce their own power; the fact is, much like the cell-phone boom a few years ago, dramatically increasing the supply of electricity to Nigeria would (almost automatically) create increases in demand.
No comments:
Post a Comment