The Future of Oil
The Future: Connecting The Nexus!
Being a Discussion Paper At:
2019 “Eze C.C. Nwuche Memorial Lecture” of Upata Kingdom on December 28, 2019
By the Guest Speaker
Amaopusenibo Bobo Sofiri Brown JP; FNIPR
Managing Consultant /CEO GRAIN Consulting
The theme of the 2019 “Eze C.C. Nwuche’s Memorial Lecture” is huge by design. It appears to be intended to serve as a magic wand to make things happen. The size of imagination that it invokes, makes it so. It is a theme that is fit for an annual national conference or regional Summit of major groups. This should be a constant feature in a country where component units want to ensure that they are seen as stakeholder groups that are serious minded. Stakeholder groups earn such a status by their purposeful contributions to protect any advantage that will enhance the productivity of their people, in order to influence their local economy directly and also improve the pace of national development. It would require such stakeholder groups to organize themselves to conduct regular assessment of their national economy’s direction and to make social realignments as may be necessary, to achieve the overriding purpose of collective progress.
Is it not amazing that since 1999, no House of Assembly in the Niger Delta has hosted either alone or together with sister states, a public forum on “The Future of Oil” and the Niger Delta? Do our Niger Delta Legislators at state and national levels show that they know or care about the nation’s major foreign exchange commodity? Yet the Niger Delta is the home base where Nigeria’s oil production activities are situated.
Unlike our legislators, stakeholder groups as Aberdeen fishermen in Scotland, according to Sky News report in 2003, made their government & the oil industry to re-train their members and provided them longer fishing nets and better sea going vessels or mid-sized trawlers. That was well ahead of the dredging of the North Sea, because they saw the future. So also the group who do Lobster & seafood fishing in Maines United States of America (USA). They contribute to a product that has a market size of about $2b US dollars each year, By defining the future to protect their local economies, they found ways to maintain export of sea foods through Canada, in order to beat US –China Trade War ( Bloomberg Businessweek of November 12, 2018; p13-15). And about December 22, 2019, the CNN report on Market Place Africa shows that in Kenya those who produce Avocado Pear on commercial scale for export, are now beginning to seek a place in the future of Kenya’s agriculture.
Of course in Nigeria “Miyetti Allah”, the Cattle Dealers Association has finally caught attention as a stakeholder group. But it did so by default out of frustration. Its members own cattle that supply beef to our markets. That is a revenue generating business that touches a long and loaded value-chain. But our governments historically never thought of the future of the cattle business in Nigeria, to make it an important industry in our national economy. You may think it is because the “British master” ignored the cattle and general livestock side of our colonial economy before 1960. He did not need Nigeria’s cattle to serve beef dishes in their restaurants and homes. Our cattle market thus remained underdeveloped like our people. Every cattle in Nigeria is consigned to a life of suffering and hard labour, with a long distance road walk from Katsina to Kono market. Remarkably too, our governments have not shown reasonable awareness of the need to explore the future of any economic group or communities. That is where we are before Upata Kingdom brought a wake-up call.
It says something about the quality of Vision of the leadership of Upata Kingdom that this theme is being discussed as the 2019 “Eze C.C. Nwuche Memorial Lecture”. Please join me to commend His Majesty Eze Felix Enene Otuwarikpo PhD; FNIPR,JP; AP, Eze Igbu Upata III, of Upata Kingdom. Also let us jointly commend the traditional institution and Izugbani leadership structures and people in Ekpeye land. Together you are showing a remarkable vision. We expect no less from communities that have placed the leadership mantle in the hands of a proven resource Manager of great modesty and an astute Public Relations Executive in the person of His Majesty. He has gained wide exposure in the corporate world. It is that cumulative experience that is placed at the service of his people.
We pray that His Majesty will continue to enjoy God’s grace as he leads his traditional council and the people of Ekpeye land to gain self actualization and national acclaim. In my view this will come through making his people embrace three specific qualities. First is for them to experience shared ownership of a consistent passion for workable ideas and relationship building. Secondly, it is for the traditional institution in Upata kingdom and entire Ekpeye land to stimulate a hunger for excellence in the people, at every level of human interaction. And thirdly Upata Kingdom and Ekpeye land need to lead Niger Delta in a determined implementation drive of structured actions to actualize what will become clearly a new pathway for collective progress. It will highlight community development that is sustainable and will serve as a model for the nation.
Such a forward- looking leadership in Upata and Ekpeye land, is what best captures the spirit of Eze C.C. Nwuche. He was among the early Niger Delta business executives in the oil sector. In my time as an active journalist I knew Eze Nwuche in both my professional and personal capacities. He agreed to speak to the Press only where he felt he could bring a new light to an issue of interest. But he was more engaging on a friendly and informal note, to talk about how the Oil Sector or the entire economy was affecting the Niger Delta. I have no doubt that he would have wished to turn Upata Kingdom and indeed Ekpeye land as well as the Niger Delta, into a viable and historical “exploration oil well” of a different kind. It would be one for new ideas to improve understanding of how Nigerians can grow their economy to serve a majority of the citizens better.
But “Eze C.C. Nwuche’s drive to make a difference, became institutionalized by way of an annual Memorial Lecture last year in 2018. I was here to participate in the inaugural memorial lecture. The theme was on “Leadership Recruitment In Nigeria; Beyond Inclusion And Diversity”. No less a personality than a distinguished scholar and Manager of the enormous human resource pool called the University of Port Harcourt, Professor Ndowa E.S. Lale, ( Vice Chancellor of the University of Port Harcourt), gave the lecture. Speaking under the title: “Democracy And The Leadership Question In Nigeria” Professor Lale made it a deep interrogation of contemporary Nigerian society. He highlighted the internal contradictions we face as we demonstrate a curious zig-zag style of “journey management”, on an international highway of globalization.
I was privileged to be one of the two discussants of the paper. Among the crucial points I noted at the lecture, is what I consider to be Professor Lale’s humanistic view of leadership. He identified three defining qualities as the traffic light indicator that can show Nigerians what kind of leadership they have. The qualities are humility, openness to ideas and a strong appetite to encourage excellence. Be it at community, LG, State or Federal level, Nigerians can ask whether those three defining elements are manifest in any person or group who wants to be called their leader. As a university administrator who is used to conducting examinations, Professor Lale may be disappointed that no group or community in Nigeria has published the result of the behaviour of those they interact with and who claim to be our leaders at community, LG, state or Federal level. But the three defining elements of good leadership which he identified in his 2018 “Eze C.C Memorial Lecture”, cannot be lost on our people. A day of public reckoning will yet come.
The 2019 “Eze C.C Nwuche’s Memorial Lecture” comes with an unspoken demand that we locate the national importance of the theme Upata Kingdom has challenged us to explore: “The Future of Oil And The Oil Of The Future: Connecting The Nexus”. In that regard, we will try to explain why we began this discussion from the importance of leading our people to unlock their future. It is more relevant to our future than how the existing oil economy will transform itself or what new oil will emerge in the market. We will go further to examine some trends in the energy market environment, to settle industry issues in our discussion. Then we will look at how the Crude Oil economy has functioned in Nigeria and its impact on people and relationships, part of what Professor Tekena Tamuno called “the 3 C’s of communities, companies and country” ( Oil Wars In The Niger Delta 1849-2009 pp7-9). We will come to a conclusion at the beginning. It is the bit on Nigeria’s way forward, which is where we started from.
Trends In The Industry: It would seem that the most important trends tend to point largely in one direction. Changes are coming upon the industry from within and without. For instance technology has opened up North America to shale oil and tar sands, both of which a lay man like me can consider as part of the hydro-carbon family. As a result, the US has become the world’s largest producer with over 11 million barrels per day capacity. Much of this increase in capacity has come from technology that has opened up shale oil deposits to exploitation. While Nigeria is not listed among countries likely to benefit from shale oil deposits, our country has good off-shore prospects. Seven of such deep off-shore blocks are reportedly undergoing development or in different stages of production. Deep off-shore production was considered as a major break-through in the Nigerian industry environment of the1990s. In his seminal work on Nigeria’s oil industry titled “Oil And The Future of Nigeria” Professor Wumi Iledare of the Centre for Energy Studies in Louisiana State University, told the Abuja Petroleum Roundtable in 2007 that deep offshore was to help Nigeria gain access to an oil reserve capacity of about 40 billion barrels of crude oil. Without access to that level of reserve, Nigeria stood the risk of running out of oil within about 11 years, if production went above 2 million barrels per day or closer to 4 million barrels per day as was envisaged in Nigeria’s Vision 20:2020 policy document.
Also within the oil industry, technology has made 3-D seismic and high definition video surveillance of hydro-carbon assets, more common place in Nigeria. So also did we marvel at the horizontal drilling technology of the 1990s. We expected a lot of trouble as we were told the technology could take hydro-carbon deposits from long distance locations. But one of the biggest changes we have seen since the last 15 years or so, is the explosion in the number of Marginal Field oil companies that are now in the business. Over 80 of them were listed at the last count our agency (GRAIN Consulting) did a survey but it was not quite clear how many are actually operational. One thing was clear though. An industry that had been the exclusive preserve of International Oil Companies (IOCs) appears not to be so anymore in Nigeria.
Since 1958 when Oloibiri brought Nigeria into the international market, the language of the industry in Nigeria had been largely foreign. Was that good or bad? Will the era of Nigerian industry operators working alongside IOCs, be good or bad for Nigeria? These are questions that we need to explore in some more detail after closer review of data on their structure and operations etc. There is also a national drive for domestication of industry technology and perhaps the emergence of indigenous technology in the industry. The Nigerian Oil and Gas industry Content Development law of 2010, lists 16 areas of the industry’s business that require that operators must apply the principle of Nigerian Content.
Apart from the changes within the industry, there are trends from outside it too. A Climate Change campaign is getting louder across various countries. In 2019 a Swedish teenager and environmental activist Greta Thunberg shared the UN’s General Assembly podium to ask World leaders to cut back on use of fossil fuels ie consumption of energy supplies from Crude oil. The increasing level of awareness encouraged by international environmental movements that identify with activist Greta, is pushing “renewables” to grab a growing share of the global energy market. The renewables range from bio-fuels of all sorts, to solar panel and wind power that are to support the age of electric cars and such devices powered by rechargeable energy. Where will Nigeria fit into a global surge in renewables market? How will it affect life and living standards of Nigerians? It is safe to remark here that coal is still in the global market, with Australia and the United States as major producers. Renewables will not immediately push oil and gas out of the market. A greater threat seems to lie in the availability of commercial scale oil and gas and the optimization of its value chain, the way China has done. Nigeria does not seem to have a game plan on the changing shape of the energy market and how to remain a major player.
An interesting dynamic affecting the market is the price of oil. The non OPEC countries led by the current largest producer which is the US, is disposed to influence the price of oil by the simple mechanism of market supply. In the old market environment before the era of shale oil, the industry learnt that a price run of below $60 / barrel, turned oil producers in the Western world off. They were not able to break even and therefore could only invest to produce when the price went upto $60/ barrel or above it. Thus OPEC- member countries learnt to influence the market price to stay at below $60 / barrel by a strict product quota regime. It largely pumped in more supplies to keep prices down, in order to shut out products from high cost fields such as those in Europe and the US.
It would seem that a similar logic is currently at play in the era of shale oil. Citing an 800 page 2019 report by the International Energy Agency (IEA) which stated that “ there are signs of fatique in shale” Rachel Adams-Heard and Kevin Crowley in November 2019 wrote an interesting piece in an internet-based industry newsletter (worldoil.com). They referred to analysts in Bloomberg who were pointing to indicators which include depressing market prices and reluctance by investors to support the shale Sector further. In a post by OILPRICE.com of November 25 quoted Haynes and Boone that 32 drilling companies in the shale oil sector had filed for bankruptcy making it about 200 bankruptcy cases since 2015.
This development will seem to be good news for OPEC- member countries, including Nigeria. What appears to be a seasonal decline in the production of shale oil, will give OPEC members less pressure in the market. They may not need to keep price lower, in order to discourage investment in shale oil. Oversupply capacity from shale oil in the market which in a sense threatens “The Future Of Oil” can be said to be less with drop in market price to a $50 range. But how does quota regime affect Nigeria’s indigenous producers?
Defining “The Future of Oil And Oil Of The Future”: We need to pay closer attention to the central lesson from the global performance trend of the Crude Oil economy. It is the strategic vision of where a people want to be, that takes them there. It is not technology or organizational innovation that determines their future. For instance China has no crude oil at commercial production level. But the country has built over 28 refineries, with nitrogenous fertilizer plants and petro-chem facilities. Its composite portfolio in the global crude oil economy has gained domination of market capacity for refined products in Asia. It has also become a major player in terms of international supply of process industry units, support systems with made- in- China operating technology. In other words China without any known production of oil and gas, at least not in commercial quantity, appears to gain more comparative advantage from the global crude oil economy while its people also enjoy more sense of ownership stake in the industry, than Nigeria and most OPEC countries.
But unlike China, a majority of Nigerians have been turned into strangers to the industry by the way our Crude oil economy is managed. While it provides more than 70% of export market transactions for our country, the Nigerian people cannot feel that they are contributing to 70% of the export capacity of the economy. It is because a blanket of lies appears to represent the industry to our people. Since 1999, the Nigerian people are confronted by an establishment position that that our citizens suffer because of low oil prices and that there is too much corruption. It is not true. We show from 30 years of historical data that upward price of oil has not translated into better living conditions for Nigerians. The exchange rate market indicates a constant depreciation of the Naira against the US dollar and every major foreign currency. But unknown to us is that each exchange rate level, is a statement of relationships within the economy. It is significant that Nigerians felt safer and more eager to travel within Nigeria in the period when exchange rate made the Naira a king over the dollar. Between 1972 when the dollar (US $) was a mere 63K ( i.e. less than one Naira) to 1983 when the US $ was 72K. Those years marked the period of greater interaction between football clubs and a more reputable national football industry. But as the Naira became more subservient to foreign currencies (i.e. between 1986 of about N4 / $1 to 2016 at about N360 / $1), uncertainties and fears about travelling from one part of the country to another, has afflicted many Nigerians. For instance in November 2019, the coach of a Nigerian football club reported in the news that his players were attacked by robbers on the highway while driving to a different town for football match.
There is a second level of concern. Every time the Naira declines again, it further weakens the masses and robs us of dignity. At the same time it makes the few who have access to the public treasury, to tower over us as “Masters” because they see us as their Slaves. The December 2019 report on the Nigerian economy published by a credit rating agency called Fitch, an international credit rating agency based in the US, seems to predict that the Naira in 2020 will be in a worrisome condition. But Nigerians are not worried because it is our normal experience with the Naira since 1983. It drags the quality of life of Nigerians down! For instance who would believe that it took 13 years for the Naira to go down from 65K of 1972 to 89k in 1985 against one US dollar ($1)? And yet within 2 years by 1987 a dollar turned to N4.02, but ended up at N85.98 by 1999! Today the constant decline of the Naira gives it a best rate of N361 to $1.
Now let us examine the 30 years relationship of oil price and the exchange rate of the Naira to the $ and what it shows about the strength of the national economy as a measure of the positive impact on the Nigerian population and its investment in a secure future for the nation. Between 1988-1998 the average price of crude oil/barrel was $21.34. But it rose to an average of $53.1 / barrel by 1999-2009. This is about 150% increase. At the same time (1988-1998 versus 1999-2009) the exchange rate of the Naira devastated the take -home value and purchasing power of the currency: from 1988 exchange rate of N 6.7 to $1, it crashed to average of about N36 to $1 in 1998 (ie over 500% fall in value). It hit N90 in 1999 & scored a 10 year average of N142.18 by 2009. Compared to 1998 average of N36, in 2009 Naira crashed by additional 300%! The story only became worse in 2010- 2019! Put together, it shows that the higher the price of oil and more revenue to Nigeria, the less the value of the Naira.
Does this show that the Nigerian political elite care about their people? Interestingly series of government investigations have shown that most of those who ruled the states and our country from 1979, have raised elephant bank accounts and assets in foreign countries to draw from. It is their own insurance of their comfort and future well-being. But Nigeria doesn’t seem to have anything to fall back on beyond the foreign reserve that can hardly last 6 months of consumption charges. Even worse we have added an increasing burden of borrowing unto it. Here we seem to see a pattern of behaviour by most of those in power at different stages in our country. A content survey conducted by GRAIN Consulting covered seven newspapers namely Guardian, Daily Trust, Leadership, Vanguard, Punch, The Nation and TIDE newspapers from 2012-2013 and then 2017-18. It showed that most Governors invested only about 20% of their news time to make reference to the economy of their states. Less than 15% of our Governors between 1999 and 2019 have held specific summits to define and direct how to grow selected sectors of local economies of the states, with a clear commitment to investment targets, performance milestones and monitoring standards.
This has created a paradox of appearance. We seem to have too much government and little governance! Our roads are crowded with the mayhem of sirens as government convoys of expensive bullet proof vehicles, move in different direction. What we see is that our patch-patch roads and the Nigerian news media are drowning the public with waves from the commotion of government activities at LG, State and Federal Government levels. But they do not translate to verifiable business investment footprints to raise the purchasing power of the people or to secure their future. For instance yesterday the 2019 list of allocations of revenue from crude oil and VAT to Local Governments in the country, was released to the public domain. It showed that each of four LGAs in Rivers State that receive the lowest revenue collected at least N1.5b. That comes to over $2.7m, at the exchange rate of N362 to $1. Imagine if we have as a government policy, a dedicated LGA investment account of 25% of revenue. Two or there LGAs in Rivers State can invest in a foreign currency spinner for their local economies by becoming the hub of a regional maize industry. For example with farms to grow maize in commercial quantities three times a year and factories to process the crop for export, Rivers State LGAs can claim market share in the maize zones of Africa and South America.
This lack of productive impetus at the foundation of our societies, has created a vacuum in our communities which created a crisis for oil companies since the mid 1990s. Unfortunately the companies have responded with Community Development initiatives that go no where because they do not tackle the lack of productive capacity in the local economies. It has resulted in a situation of where the companies tend to see communities as social Oliver Twists who keep asking for more. And the communities appear to see the companies in their environment, as unkind affluent neighbours who come to exploit the people. This needs to change. A new paradigm of development is required to reconcile Communities and Companies to the pursuit of shared progress and aspirations of collective prosperity.
This is one of the lessons of the Palm Oil economy in the old Oil Rivers from 1850 -1930. It created shared prosperity through a production system that encouraged collective labour and rewards. For instance the Coastal Kingdoms created a long canoe haulage industry that enabled each chieftaincy House to cover its markets in the hinterland and supply palm produce to white traders on the coast. But as stated by Professor Sylvernus Cookey, the trade also engaged available productive manpower in each kingdom (“King Jaja of The Niger Delta” by Sylvernus J. Cookey NOK Publishers 1974). It took huge manpower for each long canoe called “gigi” to run. In so doing, each of the 67 Chieftaincy Houses of Opobo Kingdom could provide jobs for a manpower pool of at least 60 gigi labour. That created sustainable employment for over 4000 men in the kingdom who shared from the profit of the Palm Oil economy.
Again the Foreign Remittances record supports the argument that the Nigerian state has not put the Nigerian people as its priority especially since 1999. In 2017 Nigeria’s remittance record stood at about $27b. Yet no state or LGA has been able to mobilize Nigeria’s Diaspora population to invest in new refinery, fertilizer, petro-chem and IT or Maritime industries to give the country a lead in those sectors. It suggests that “dependency effect” might create a syndrome where local economies are unable to harness resources for productive purposes.
This situation brings us to the importance of what Upata Kingdom is doing. Nigeria can show that it is a serious nation when its component units, especially states in the Niger Delta are seen to borrow a leaf from the young tree planted by Upata Kingdom. Our first recommendation at this discussion is that our 36 states + Abuja, should commit to host a productive annual workshop on this theme and other sector-based themes, by applying a “bottom-up strategy”.It will convert communities in all the states into the building block of a national enterprise, to turn Nigeria away from a future that appears to be a looming disaster for the ordinary citizen in every part of our nation.
Mobilizing our nation’s human resource pool to look at the future collectively, is quite constructive and urgent. This process will help us to challenge a subsisting historical strategy of the Nigerian state which disconnects our people from a proud future that they can build for themselves. We will also be reversing the sense of helplessness that results from the Master / Slave relationship that results from a feudal system where people are not connected by a shared future of progress that uplifts all the people equally. Is it not curious that our economy disconnects its productive arteries from the human population that is supposed to make us a market attraction for the global economy? Our population flows into social clubs, age grade systems, women groups, religious bodies and students’ unions as well as youth groups, market associations, business groups, professionals and the traditional institution etc. But these social groups are not directly involved in engaging in a collective effort to define the future.
We can start from this Upata Kingdom 2019 event to create an authentic African model. We can do so by connecting identified groups in each community in a collective search to contribute to the formulation of a road map for the economy, we can provide traffic lights to guide our people into more productivity. Then at the state level we should organize similar representative bodies to work with government agencies in using the economic aspirations of communities as raw materials. Together we can raise the economic horizon of our people to become more competitive. That provides us with clear statements of the economic future which every segment of society can identify with. This approach will help us to do three things:
First is to develop a coherent community, state wide and regional blueprint on the economy. It is because if we seek the kingdom of the economy and ensure to make its management a national priority, everything else may not be added unto us but we shall live above poverty level. Secondly, we will be able to monitor performance of identified milestones included in such a blueprint. And thirdly we will be in an informed position to expand the blueprint as an objective road map for local and national development. What a difference it would make to public understanding and reconstruction of society, if our Niger Delta states or our nation can become so focused! Thank You.
