Turning Oil to Salt: Paradigm Shifts and Lessons for Nigeria

Introduction

The book "Turning Oil into Salt: Energy Independence Through Fuel Choice" illuminates a time when salt held global strategic importance, driven by its role in food preservation. The authors, Gal Luft and Anne Korin recounted a time when salt held immense value as a strategic commodity worldwide. It was not only extensively consumed but also in high demand across households and within military operations. The driving force behind this demand was primarily its vital role in food preservation. Given the essential nature of sustenance, people around the globe, numbering in the millions, sought means to preserve their food, and salting emerged as a prominent method. Additionally, the military recognized the imperative of food preservation for their servicemen during battles or while stationed in remote, uninhabited areas.

Shifting Dynamics of Strategic Commodities

Today salt has lost its relevance as a strategic commodity that once enjoyed significant demand worldwide. That is why today, it is not of interest to talk of the countries with the highest salt deposit. Having a lot of salt deposits is nothing special compared to the possession of oil reserves. The invention of electricity changed the fortunes of salt’s essence. Electricity paves the way for the invention of refrigerators, enabling food preservation by cooling. Similarly, canning technology has allowed us today to preserve perishables by canning. In other words, technology has diminished the demand for salt following the invention of electricity, refrigerator and canning technology.?There's a concern that technology might emulate this progression with oil, possibly diminishing its role as a crucial commodity. Presently, oil is of paramount importance, acting as a major input in production, and a generator of cash flow and foreign exchange earnings for oil-exporting countries, Nigeria being a prime example.

Oil's Current Significance and Role

The effect of an oil price increase and decrease is not the same on oil exporters and importers. Oil price rise is good news but it is fall is bad news to oil exporting countries. The reverse is the case in oil-importing countries as an oil price increase is bad news but a price fall is good news indicating cheaper inputs. When oil price is high, wealth is transferred from oil-importing countries to oil-exporting countries. The high demand and attractiveness of oil is majorly driven by the demand for the product to power the combustion engine in vehicles for transportation of people, goods and services, and the need for electricity generation. Nonetheless, technology is rapidly redefining the narrative. A widespread belief among energy economists is that continuous technological strides will decouple vehicles and electricity generation from fossil fuels, particularly oil-related ones, and this transition is already taking place.

Technological Advances and Energy Transition

The world is already witnessing the rise of electric vehicles following a significant breakthrough in battery technology, and the falling cost of solar panels, among other renewable energy sources. Improvement in battery technology is growing the Electric vehicle (EV) market. China, a major oil importer, already has the highest number of electric vehicles on the road in the world. China and USA have lost their position as the top 2 buyers of Nigerian crude oil.

Hybrid vehicles are now more attractive than conventional vehicles in terms of fuel efficiency. Hybrid cars can be operated with the combustion engine and battery simultaneously. Hybrid cars can switch between battery and fuel for every trip. Some users have shown evidence that their hybrid cars run on average, 80% battery and 20% fuel (combustion engine), for every trip made. Hybrid vehicles will reduce fuel consumption.

Due to climate change concerns, a conference of parties under the united nations convention on climate change (UNFCCC) agreed to keep the global temperature rise below 1.5 degrees Celsius. Most of the members have ratified the agreement and have made nationally determined contributions to curtail emissions in each country. There is a need for efficiency in the way energy is used. Energy transition to cleaner fuels and the trading of emission permits among others are options. As part of their energy transition plan, major oil companies including Shell, Mobile, and Total which for the same reasons the company is now renamed TotalEnergies, are divesting heavily from the oil market to finance research in battery technology that will revolutionize the conventional petrol/gas filling stations to charging stations.

At the country level, the USA, China, and India among many other nations are also making significant efforts to transition to clean energy. As mentioned earlier, China has the highest number of EVs on the road in the world. To encourage and increase EV usage, The Chinese government subsidized ownership of EVs but introduced fines and penalties on the use, registration and licenses for obtaining cars that operate with a combustion engine. Recall that a few years ago USA, China and India were Nigeria’s top 3 buyers of crude oil. These countries are no longer in the top 3. It can be observed that while the world, especially oil-importing countries, is seriously considering an energy transition, the oil-exporting countries, especially Nigeria, are paradoxically exploring more oil wells.

Recall the effect of subsidy removal on the average Nigerian. The policy has forced people to be more efficient in the way they use energy. Similarly, oil-importing countries will need to adjust their consumption pattern and find cheaper alternatives that will enhance their welfare. This is why alternative energy sources such as solar, wind and other renewable energy sources, and the increased use of hybrid and CNG-powered vehicles will be highly attractive substitutes to oil to oil importers.

Technology, Elasticity of Oil Demand and Future Prospects

The success of oil-importing countries in decoupling from oil will mean less oil revenue for the oil-exporting countries and if the economy’s revenue sources are not well diversified, the country might experience recession. three to five decades ago, the oil importers had no better cleaner fuel options to use as alternatives to dirty fuels like oil. The lack of substitutes made the demand for oil inelastic.

On the other hand, If the oil importers should transition successfully from oil, oil demand will be curtailed significantly and may put downward pressure on oil prices. Therefore, technological advancement will provide oil buyers with some form of substitute for oil to fuel transportation and electricity generation. The availability of substitutes will enhance the ability of the oil buyers to switch between cheaper options consequently oil demand is induced to become more elastic. In this case, Nigeria and its OPEC counterparts will not succeed in keeping oil prices up by altering its supply. At this point “oil is fast turning into salt”.

Where will you seat in a post-energy transitioned new world order?

In years to come, if the transition plan to cleaner energy proves successful and EVs and renewable energy become prominent, will Nigeria and other oil exporters find a playing space to remain relevant in the energy market space of the future? Will the current investments in oil exploration remain viable if oil importers consider alternative energies? These are important questions for Nigeria and other oil exporters. Will exporters find oil buyers if the world should fully transition to clean energy? Probably oil exporters do not believe this will ever happen any time soon.

In his Keynote Address, HE Mohammad Sanusi Barkindo the OPEC Secretary General at the 3rd Dundee Energy Forum said

we do not see any reputable outlook projecting that renewables will come anywhere close to overtaking oil and gas in the decades ahead.

I think African countries should be positioned for the future oil market game. Metals, and lithium, among other raw materials, are important for EV manufacturing and Africa. Nigeria and other oil-exporting countries could be a supplier of inputs, for EV and battery manufacturing. Natural gas is considered much cleaner than oil. Nigeria and African countries with huge gas deposits should develop the gas infrastructure including the completion of the already ongoing gas pipelines.

OPEC does not believe in the idea of transitioning from one fuel to another. They encourage and prefer to invest in research that will bring about technology that will allow oil-coal-rich nations to continue to produce and use oil and coal without compromising environmental quality such as the carbon capture technology. Until then, Nigeria, Africa and OPEC countries should find a seat now in the energy market space to come. Alternatively, they ensure massive diversification and find alternative revenue sources to prepare for a world without oil.