The 'Dutch Disease' is a situation where a resource-rich nation, such as Nigeria, becomes overly dependent on a single commodity, like oil. This concept defines Nigeria’s energy policy and has led to the neglect of other sectors of the economy, hindering diversification and long-term economic stability.
Amidst the urgent global warming crisis and the immediate effects of climate change, resource-rich nations like Nigeria are in a race against time to diversify their energy mix and the larger economy. The situation is critical, with International Oil Companies (IOCs) showing waning interest in funding new oil exploration projects and the annual United Nations Climate Change Conferences (COP conferences) pushing for a swift move from policy to action. Nigeria, under the Bola Tinubu Administration, is at a pivotal policy crossroads. The overarching goal of the Energy Transition Plan (ETP) is to ensure energy access for all Nigerians by 2030 and achieve net-zero emissions by 2060, a goal conceived by the previous Buhari administration. While the ETP is laudable and ambitious, it appears there are inherent limitations to securing energy independence for Nigeria’s future.
Nigeria has been a key member of the Organisation of Petroleum Exporting Countries (OPEC) since 1971. It has since primarily tailored its energy policy to align with OPEC’s geopolitical and economic considerations. Energy transition would be improbable without Nigeria achieving unique energy independence, which would mean, among other things, exiting OPEC.
With conflicting political, policy, and institutional interests, clarity is needed to coordinate the plans of ministries. It is imperative to understand the goals of Nigeria’s energy transition plan, the need for energy independence through an OPEC exit strategy, and the holy grail of infrastructural investment in the oil sector, as well as diversification of the national energy mix, leading to overall economic diversification. All these are imperative and essential to give the necessary boost to a chronically underutilised economy. Finally, a crucial comparative analysis will feature nations, including Qatar, that are following a similar path on their energy transition journey.
Proposed OPEC Exit Strategy and the Future Ahead
Exiting OPEC will surely be no easy task, especially from a geopolitical standpoint. Not only has Nigeria played a key role in ensuring compliance with production targets, but it has also held key positions, including Secretary General, on numerous occasions. It has also been elected to the prestigious position of President, with Diezani Alison-Madueke as the first woman to occupy this role.
For the Tinubu Administration, an OPEC exit strategy must begin with getting the right people in place and the right minds in the room. The President should relinquish the position of petroleum minister and appoint a rigorous and internationally recognised energy professional to coordinate this transition. There must be apparent unison and roles to play in this grand strategy, as the cost of energy independence must be offset through careful and strategic investments and execution.
Energy Transition, Energy Independence and Nigeria’s Climate Goals
The previous Buhari administration signed essential bills into law to aid the overall energy transition, a renewable energy strategy and an act to modernise the petroleum sector. From a bird’s-eye view, it seemed the plan was to reinvigorate the ailing petroleum sector and implement new processes, while planning for a gradual transition in the near future. The previous Buhari administration passed the Climate Change Act 2021, the Petroleum Industry Act 2021, and pioneered the ETP in 2022.
The current Bola Ahmed Tinubu administration has other priorities. Nigeria is plagued by double-digit inflation, presently pegged at around 25%, despite a recent consumer price index (CPI) rebasing exercise. While noble, the decision to float the naira and remove the expensive fuel subsidy has occasioned untold hardship on everyday Nigerians. The priority for the Tinubu administration would be to “steady the ship” while presenting enough consistency to court international investors. Both are quite herculean tasks.
Nigeria’s energy mix relies heavily on thermal sources, accounting for approximately 80% of total electricity generated, while hydropower systems account for the remaining 20%. While growing, the current renewable energy capacity is still quite underwhelming, especially for a nation with natural comparative advantages in solar energy. For Nigeria, necessity must meet demand before policy matches action. Although the Renewable Energy Roadmap 2023 exists, legislative priority in a renewable energy strategy was sorely lacking in the Electricity Act 2023, which has contributed to policy inconsistency and incoherence. At the time of writing, there is still no clear legislative framework for renewable energy in Nigeria, with professional advisors deferring to the Nigerian Electricity Regulatory Commission’s (NERC) directives on key issues related to power generation and licensing regimes. Due to the ailing economy, energy transition and independence may again be put on a policy waiting list until the economic crisis is sorted.
For a change in fortune, the Tinubu administration must view energy transition as a part of a larger and expansive economic recovery plan. Energy independence is the key to securing Nigeria’s energy security and ensuring that the nation generates enough electricity to meet the growing and currently underserved population. Data shows that in 2022, about 61% of Nigerians had access to electricity. However, there are still significant challenges caused by low electricity generation and the structural inefficiencies of the Transmission Company of Nigeria (TCN), leading to frequent blackouts. The potential benefits of a successful energy transition are immense, offering a brighter future for Nigeria's economic prosperity and a more sustainable environment for future generations.
A post-OPEC future must involve strategic and concerted efforts to establish a global presence in all significant parts of the oil and gas supply chain. Being guided by the OPEC reference basket and adhering strictly to production cut limits affects state planning, budget spending, and implementation. The Nigerian government must eliminate this. The world is changing, and OPEC’s relevance is questioned in today's fast-paced and evolving energy market.
A brash exit from OPEC without a straightforward pre-exit strategy implementation equals economic suicide. The following factors are necessary (albeit with varying importance) before an OPEC exit and to ensure stability post-OPEC:
- Increase in local refining capacity through an effective Public-Private Partnership Model
- Strengthening partnerships with the International Energy Agency (IEA)
- Foundation-setting for a clean nuclear energy strategy with International Atomic Energy Agency (IAEA) oversight.
- A clear, cohesive, and interconnected energy transition regime is not just a necessity but a fundamental requirement for success. This includes a distinct law governing licensing regimes and investments in the renewables sector. The importance of a well-structured plan cannot be overstated, as it is the key to a successful transition. This emphasis on the need for a clear plan should highlight the importance of careful and strategic planning in Nigeria's energy transition.
Regarding climate adaptation, science shows that while Africa has the lowest emitters per capita, the continent is still projected to suffer the most adverse effects of climate change, partly due to its overdependence on agriculture. Nigeria, in particular, has been ranked as the 7th most vulnerable country to climate change, according to Verisk Maplecroft. In 2021, the Notre Dame Global Adaptation Initiative (ND-GAIN) ranked Nigeria 161st out of 182 countries assessed based on vulnerability to climate disasters and adaptive capacities.
While there has been policy and legislative support for Nigeria’s climate change goals, a rigorous application of the Hydrocarbons Tax regime, as embedded in the Petroleum Industry Act, and the adoption of a workable carbon credit system should be encouraged, especially for new companies seeking registration. It will be counterintuitive to strive for long-term alignment within OPEC while implementing a climate change strategy.
OPEC: Historical Significance, Nigeria’s Oil Governance and OPEC +
Nigeria’s association with OPEC began in June 1971 upon its official membership. However, OPEC was set up in 1960 in Baghdad, Iraq, to maximise members' profits by controlling global oil prices and production. The founding members are Iraq, Iran, Saudi Arabia, Kuwait, and Venezuela.
For a large part of the 1960s and until the early 1970s, OPEC coordinated and controlled the global oil market, accounting for more than 60% of the international oil supply, as well as up to 75% of the world's proven oil reserves. Nigeria’s admission to membership in 1971 provided the nation with a unique economic opportunity through the Global Oil Crisis of 1973. In 1973, the Organisation of Arab Petroleum Exporting Countries (OAPEC) (Arab members of OPEC) issued an embargo on the United States for its support of Israel in the 1973 Yom Kippur War. The Oil Crisis worsened because, when coupled with the peak production of oil reached in the United States in 1970, energy prices soared globally as the limited supply could not meet increasing global demand.
Nigeria, during this time, especially as a relatively new OPEC member, experienced untold financial fortune as the United States and its Western partners scrambled for new trade partnerships to cover up supply deficits. However, short-sighted leadership, weak internal policies, and inadequate local refining capacity meant that the cash-flush nation failed to establish a sovereign wealth fund or implement rigorous state planning—failures compounded by the political instability of coups and military dictatorships.
Table 1: Shows global oil producers for 2023. Five of the top ten are OPEC members, but the United States (a non-OPEC member) still leads in global oil production. The lists also boast of OPEC+ members, such as Russia, holding considerable influence within the organisation.
After the calm came the storm, and in 1983, an economic recession ensued, marked by a GDP growth rate of -10.9%. This was occasioned by the oil glut of the 1980s—a period marked by increased production and exportation that met reduced global demand, culminating in a drastic fall in oil prices.
Moreover, this is no longer 1970. OPEC’s oligopoly is no longer as dominant as it once was. Following the 1973 oil crisis, the global West adopted a pragmatic stance on energy security, focusing on conservation and multilateral coordination, which culminated in the formation of the International Energy Agency (IEA) in 1974. The IEA has as one of its primary purposes “coordination” in addressing the energy crisis.
In modern times, the group of nations known as “OPEC +” have begun asserting growing influence on the world stage, and now has an increased sway over global oil prices. Nations such as Russia, Canada, and Mexico now exert considerable influence in OPEC and hold significant geo-economic sway over the international oil market. OPEC is weak, certainly much weaker than it was during its peak period of influence in the 1960s and 1970s.
Policy Recommendations: Views from Qatar and Private Sector Partnerships
- Qatar’s strategic diversification and forging new alliances for energy independence: Qatar exited OPEC in January 2019, partly due to its need to diversify away from oil dependence, as well as geopolitical tensions with Saudi Arabia. In June 2017, members of the Gulf Cooperation Council (Saudi Arabia, Egypt, UAE, and Bahrain) imposed a trade and diplomatic embargo on Qatar due to political tensions. During this period, Qatar established new trade alliances and leaned towards independence and self-sufficiency in the global market. Following the normalisation of relations between the parties in January 2021, data shows that the Qatari economy experienced growth after 2017. According to the IMF and the United States Energy Information Administration, Qatari earnings from the hydrocarbons sector accounted for 81% of total government revenues in 2021, an increase from 77% in 2020. Revenues from hydrocarbon exports grew by $30 billion from $47 billion in 2020 to $77 billion in 2021. It is, however, worth noting that renewables accounted for just 1% of Qatar's primary energy consumption in 2021.
Nigeria’s case is not unique, and the leadership must work towards forging renewed energy alliances and commitments, especially with new markets across Europe affected by Russian gas sanctions and leading innovators in the Asia region, such as China. A refocused Nigeria-China partnership for renewable energy investment will be a practical solution to a pressing problem, with a natural extension of the growing Sino-Nigerian relationship.
- Public-Private Partnerships (PPP) for Increased Refining Capacity: The Dangote refinery requires institutional support to meet Nigeria’s refining demands. The private sector must be allowed to own a stake in energy security and future independence. The Nigerian government will need all the project financing it can get from international financial institutions, including the African Development Bank (AfDB). Still, the private sector must have some skin in the game. When successful, this would result in a win-win situation, offering tax breaks and other incentives to private investors. At the same time, the government would increase oil revenue and save approximately ₦15 trillion ($10 billion) annually from the costs of importing refined petroleum products.
To save further policy blushes on gross mismanagement, with the timely revelation that over $10 billion has been spent on Nigeria’s notoriously non-productive Indigenous state-owned refineries, it is also recommended that all indigenous refineries ( Port Harcourt, Warri, and Kaduna refineries) be stripped down, sold off, or have their capacity significantly reduced to modular levels for the benefit of the oil-producing states.
- Pioneer Renewable Energy Legislation: Nigeria must plan for an inevitable future of oil depletion with the advent of more stable and increasingly diversified energy sources. Electric vehicles, battery-powered manufacturing (such as Tesla’s Giga Factories), and advanced solar engineering, among others, have shown that the next 25 years will feature a reduced global demand for crude. A coordinated legal framework on renewable energy signals policy consciousness and leadership foresight as the nation creates an incremental progressive path towards widespread adaptation.
With recent developments in the Israel-Iran war affecting global oil prices and the discovery of new oil fields in Guyana, striking a perfect balance would be a challenging task. This is true, especially for commodity-dependent nations with untapped hydrocarbon potential. A good model for commodity-dependent nations is to adopt a steadily progressive approach to climate change adaptation, especially for newcomers to the global oil market, such as Guyana. In Nigeria, which is particularly vulnerable to the effects of climate change, deadly floods in Borno and Jigawa in 2023 and 2024 underscored the urgent need for a more proactive response. Harnessing energy resources must work in tandem to protect Nigeria’s future.
References
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