Time ticks for Nigeria as oil demand seen peaking 15 years earlier

Nigeria faces a bleaker future should oil demand peak 15 years earlier than previous forecasts that estimated it will take another 20 years to happen.

This was deduced from a new report by London headquartered Carbon Tracker Initiative, an independent financial think tank that carries out in-depth analysis on the impact of the energy transition on capital markets.

The report stated that a combination of technology, policy and “necessity” will translate into a peaking of oil demand in the 2020s,  perhaps around 2023, much faster than almost anybody is predicting, not least oil companies and their investors. Previous forecasts had put the timeline around 2030s and ‘40s.

Carbon Tracker says the necessity behind this change comprises the need to transition to cleaner energy on environmental grounds and the drive to avoid the geopolitical pitfalls of energy dependence. Looking at past technology transitions, peak demand tends to occur when the upstart technologies capture only 5 to 10 percent of the market.

Nigeria does not look ready for this eventuality. “Whatever happens, economies will continue to rely on oil as energy resource for at least another 15 or 20 years” Maikanti Baru, General Managing Director at state-owned Nigerian National Petroleum Corporation (NNPC) had said at a recent Society of Petroleum Engineers event in Lagos.

Investors are not going to wait for the complete phase out of fossil fuels before they start to redeploy capital and shun fossil fuel investments; that shift occurs much sooner, arguably around the peak.

The motor of change now lies in the emerging markets, which is where all the growth in energy demand will come from, the Carbon Tracker report asserts.

“They have less fossil fuel legacy infrastructure, rising energy dependency, and are anxious to seize the opportunities of the renewables age. We believe it highly likely therefore that emerging markets will increasingly source their energy demand growth from renewable sources not from fossil fuels” the report stated.

Carbon Tracker said that there are three types of risk stemming from the coming peak: systemic risk to the financial system, country risk to major oil producers, and company risk to entities financially-tethered to fossil fuels. The total estimated value of fossil fuel infrastructure stands at about $25 trillion, the group says according oilprice.com.

Also this week, a report from Norwegian risk-management company DNV GL comes to a similar conclusion as Carbon Tracker – that is, peak oil demand will arrive in the next half-decade or so. “The transition is undeniable,” said DNV CEO Remi Eriksen, according to the WSJ.

In an earlier report, BusinessDay had pointed to a raft of bans on petrol and diesel cars by European countries and China. The trend suggested that United States shale producers are perhaps less a threat to oil than the gradual shift to electric cars and subsequent ban of petrol cars by some of the world’s largest car markets.

In July 2017, the United Kingdom announced a ban on petrol and diesel cars by 2040, coming after similar announcements by Sweden, France and unconfirmed moves by Norway to toe the same path.

Car manufacturer, Volvo, had also said that all new cars launched from 2019 will be partially or completely battery-powered, in what the company describes as “historic end” to building models that only have an internal combustion engine.

“It sends a signal to oil producers that consumers are thinking ahead, so Nigeria and other producers would also need to rise to the occasion and show they are also planning ahead” Dolapo Oni, former head of energy research at Econbank Group had told BusinessDay in earlier report on the matter.

The adoption of renewables at such a blistering rate will only be possible because costs continue to fall. Carbon Tracker stated that the rate of adoption for solar photovoltaic (PV), wind, batteries and electric vehicles will follow an “s-curve,” referring to a period of slow growth that suddenly morphs into a steep growth curve after it passes a certain threshold.