“The Stone Age didn’t end for lack of stone, and the oil age will end long before the world runs out of oil.” – Sheikh Ahmed Zaki Yamani (2005)
John Defterios anchored the session. On the high table as discussants were Nigeria’s Ibe Kachikwu; President Aliyev of Azerbaijan; Khalid Al Falih, the MD of Saudi Aramco; Lin Boqiang, Director China Centre for Energy Economics and Research; Kiril Dmitriev, CEO of Russian Direct Investment Fund; and of course good old man Daniel Yergin, scholar and author of The Prize – The Epic Quest for Oil, Money and Power.
It was an engaging debate at the recently-concluded Davos World Economic Forum meetings, and despite the challenge of time and expensive internet facilities, I just had to sit through watching the one and half hours long debate… on my laptop.
The core arguments were as follows: Nigeria’s Ibe Kachiwku has by now become well-known for pushing for another meeting of OPEC, at which he hopes that the oil cartel will agree to cut production so that the price of crude oil will rise. He believes that the current price does not reflect the ‘true value’ of crude oil. He argued stridently (some will say painfully) that upcoming events will lead to ‘shut-ins’ of about three million barrels of crude oil which will lead to an increase in prices. Some of the others agree with him. But what to do? Saudi Aramco’s Al-Falih disagreed. He stated that Saudi Arabia will not be compelled, any time soon, to cut production, because in his words “Saudi Arabia is committed to providing energy at ‘reasonable’ prices for the world”. He also appealed that nobody should put Saudi in the position of a global balancer who can single-handedly determine where crude oil prices are going. Politics.
Azerbaijan is not a member of OPEC, so its president in his response looked at Kachikwu and said he really hoped OPEC will NOT agree to meet because as is now evident, each time OPEC meets, the price of crude oil falls, not rises. To this, the anchor, Defterios, dissolved into a fit of laughter. He laughed so hard he had to excuse himself. I felt he was laughing at us.
Azerbaijan is not a member of OPEC, so its president in his response looked at Kachikwu and said he really hoped OPEC will NOT agree to meet because as is now evident, each time OPEC meets, the price of crude oil falls, not rises. To this, the anchor, Defterios, dissolved into a fit of laughter. He laughed so hard he had to excuse himself. I felt he was laughing at us. Well, you know, these CNN guys have their allegiances and it was obvious from the questions. He wanted to know if China was feeling the pinch and if it was the death knell of that superpower. He constantly asked – no, opined – that OPEC was dead; a remark that Saudi and Nigeria cleverly avoided. The President of Azerbaijan offered that his country was solid anyway, because their foreign reserves were the same size as their GDP. That is like saying Nigeria was sitting on $550 billion (our GDP size), and not a puny $28 billion. Guess who’s in serious trouble. I checked though, and Azeri GDP is around $74 billion while its foreign reserves are at $8 billion. But who knows what other countries have under the table?
Let’s not forget the Russian response. Dmitriev’s response was also to Nigeria. He said ‘some ministers’ seated were of a view to ‘punish’ shale producers, but we should remember that oil was doomed anyway, since 70 percent of crude oil was used for transportation and 42 percent of that was used by cars. He drew attention to the plethora of electric and solar cars that now dot the streets of Europe.
…it felt like anyone complaining about the low price of oil – or that the price was not ‘real’ or ‘proper’ – is equivalent to a firewood-cutter in today’s world complaining that people are not paying him near enough for his efforts at manually hewing wood. That is what technology does to you. It takes you out entirely!
China interjected. Boqiang said China is going ‘green’, hoping to achieve 50 percent green energy by year 2020 but for now they were already aty 12 percent. The usual Chinese determination showed through his piercing eyes, in spite of his faltering “Engrish”. Defterios informed the panel that Iran was coming back on stream, with its 4.3 million barrels per day of crude oil. Saudi Arabia says the real problem is that long-term capital investments were not matching long-term needs in the sector. In other words, oil producers were not doing proper forecasting and were downplaying the fact that really, global demand for crude oil as an energy resource was on the way down – at least compared to production. Maybe their models are lying to them. Heads buried in the sand.
At that point, it felt like anyone complaining about the low price of oil – or that the price was not ‘real’ or ‘proper’ – is equivalent to a firewood-cutter in today’s world complaining that people are not paying him near enough for his efforts at manually hewing wood. That is what technology does to you. It takes you out entirely! No one will show pity that you carried wood on your head to the city, covering a thousand kilometres. If the world doesn’t need your wood, you’ll just be ignored. Like antiquity.
How Low Can You Go?
For several years now, a great debate that always reoccurs in Nigeria is about the benchmark crude oil price for our annual budgets. Usually, the presidency, while sending its budget has one idea. The National Assembly has another. The NA would usually call for a higher benchmark because in their view Nigeria needs to spend more money. We were always convinced about the ‘urgency of now!’, only that most of the urgency – as can now be seen from Buhari’s corruption probes – ended up in the pockets of people. The Federal Government was said to have created an illegality called Excess Crude Account, which was promptly emptied out, because according to the governors, ‘the rainy day was here already’. Yes, it rained here. But they cocooned themselves in their properties in Dubai, USA, UK, South Africa and elsewhere. They left most of us at the mercy of the elements.
How low can the price of crude oil go? Kachikwu says deepwater production is more expensive than already established wells. The price of Brent Crude dropped below $30, but received a bump on Friday 22nd January, 2016 due to the storms pummeling USA and elsewhere.
We have come to a point where it’s either we exploit the crude oil, process locally at our refineries and use in powering our economy, or we jolly well watch it go to waste. What if the age of crude oil has ended already?
People hardly say the truth in that sector. The Shale Producers in the US were meant to have closed shop if Crude prices fell below $60. Most of them are still around today. How can anyone fight the owners of technology? Are we not now being shown, in clear terms, that innovation rules the world? For those who can think, there’ll always be a solution.
Nigeria hopes against hope that the price climbs up to a ‘decent’ $70 in the nearest future, so that we can get some money to ‘fund’ our economy. But what if it goes the other way? What if crude oil prices drops below a point where it ceases to make sense to exploit it for export? Would we then not focus on drilling for local use, while we wait to catch up with the world in the quest for alternative sources of energy? We have come to a point where it’s either we exploit the crude oil, process locally at our refineries and use in powering our economy, or we jolly well watch it go to waste. What if the age of crude oil has ended already? Remember, we were warned that when the age of crude oil ends, we would be left holding trillions of metric tonnes in the bosom of the earth.
The Random Walk
For one, NOBODY can tell which direction the price of crude oil will go. It’s basically like predicting the future. It’s ‘hit or miss’. Even none of Nigeria’s heaven-dwelling, backslapping God-buddy pastors have offered to stake their careers on it. They’d rather be predicting something else. The Economist Magazine sometimes last year called predicting the price of crude oil a ‘fool’s game’. They said they should know, for they have been caught playing the fool many times in the past. When you think it’s going to go up, it goes down. When you think it will go down, it spikes in the other direction. When you are living on that kind of resource, you keep your expectations low. Not Nigeria. I think I heard some of our leaders asking the people to ‘pray’ to God, for higher crude oil prices. That was echoed – mockingly – by a columnist at Guardian UK. They simply forget that God is also the creator of other human beings where they are enjoying the cheap price of energy today.
But to be safe, it is better to assume that what goes up usually comes down. Nothing stays up forever. If crude oil has sold for $9 per barrel before, it sure can again. And the world will not end. Except maybe in Nigeria.
The simple explanation to the ‘stochastic’, almost random nature of the price of a crude oil is that for any rapidly traded commodity, it is hard to tell the sentiments of the market and the players in it. Sometimes one looks at the price of a commodity and feels it could never go down. Just then, a big player runs into liquidity trouble and decides to offload, further depressing prices. Also vice versa, no matter how high the prices of such a commodity, people still buy based on their own internal strategy. The relative unpredictability of prices is why they call such movement ‘random walk’, the walk of a drunken man. The ‘big boys’, ‘masters of the universe’, drive market sentiments, but as was evident in the financial markets meltdown of 2008/9, even they get their fingers burnt.
But to be safe, it is better to assume that what goes up usually comes down. Nothing stays up forever. If crude oil has sold for $9 per barrel before, it sure can again. And the world will not end. Except maybe in Nigeria. God merely plays an unbiased umpire in these matters.
One can argue that some things have changed since crude oil sold for $9 in the early 1980s and in the late 1990s. For one, human population has increased, places have become more urbanised. But also, alternative sources of energy have come up, people have become wiser, technology and innovation has taken on lives of their own. It seems we here were the static ones. We not only failed to innovate, we merely bought whatever innovation people had done abroad and carried on like we owned the innovation. As we speak today, we are totally oblivious of what innovators are working on elsewhere in the world and how it will impact us shortly and in future. With Nigeria flailing and Kachikwu trying so hard to help us push the prices up, it is hard not to pity us as a people who give no thoughts for the future. Even Lugard said so. Hear him, again, don’t get tired of this admonition:
“In character and temperament, the typical African of this race-type is a happy, thriftless, excitable person. Lacking in self control, discipline, and foresight. Naturally courageous, and naturally courteous and polite, full of personal vanity, with little sense of veracity, fond of music and loving weapons as an oriental loves jewellery. His thoughts are concentrated on the events and feelings of the moment, and he suffers little from the apprehension for the future, or grief for the past…”
I have always maintained that “he who owns the technology, owns the resource”. For without the technology, the resource will be useless. Nigeria totally failed to heed that simple commonsense. Instead we were fighting and killing each other over a technology around which we have little or no input.
Acting as bulwarks to drive down the prices of crude oil are the fact that many countries suddenly became crude oil producers even in Africa. Uganda, Kenya, Ghana, to name a few. Cameroun and Niger also have theirs. So the glut appeared.
I have always maintained that “he who owns the technology, owns the resource”. For without the technology, the resource will be useless. Nigeria totally failed to heed that simple commonsense. Instead we were fighting and killing each other over a technology around which we have little or no input. If today a Chinese or European comes to your backyard and discovers the earth there is direly sought for some new technology, wouldn’t you say ‘God put it there to bless me’? But without that foreign intervention what did YOU do with the resource? Innovate, or die!
Nigeria’s bane is that we are dealing with so many ‘unknown unknowns’. This is a term made popular by former US Defence Secretary Donald Rumsfeld. “Unknown unknowns” are those things that you are not even aware that they exist. You don’t know that you don’t know they exist. Nigeria today has absolutely no idea of what will hit it next. Our solution will be long-term, but we have to start immediately; we have to develop the mindset for development. We have to learn how to appreciate things. We have to develop humility. We have to know what really matters and what does not.
Who would have thought jobs will become so fragile in the oil sector? They had it made, those lucky guys. We hear there is so much redundancy in NNPC already, with Managers and General Managers walking along corridors with no office or desk. The private oil companies – even the major guys have since been laying off by the droves. Those ones waste little time. The oil servicing subsector is no better. Over 150,000 jobs are being cut globally. Which sector can one point to as being buoyant in Nigeria today? Telecoms? Ask MTN. Visafone closed almost all its outlets in Abuja last week. Even whizkid Jim Ovia could not make that one a resounding success. Banking is a ghost of itself already. The property sector bubble has burst already. It’s bedlam over here, no matter how we disguise it. But our owambe still continues.
Not only our owambe.
The Real Cancer In Nigeria
The real sickness with Nigeria is that our elites – government and private – are the largest spenders in the world. Of all those seated with Mr. Kachikwu in Davos that day – China, Azerbaijan, Russia, USA – Nigeria parades, till tomorrow, the most profligate public officers. Our public officers don’t behave like they understand what’s going on. When it comes to spending public money, they are fearless… and peerless. That is why we are the biggest sharks in the water, washed ashore and gasping for breath! Our stock market is tanking – again. Yet our senators are demanding for the latest American-spec, full-option, luxury cars. Bullet-proof.
We are in this together. But the debate hasn’t started. It even seems as if the government of the day is infected with a prima-donna attitude. It brooks no debate and there are millions on the prowl who ensure they go to sleep believing all is well. Let me quote something here from Olusegun Adeniyi, to emphasise how we all contribute and the urgency of a mass mobilisation for change:
“…within a period of seven months between June and December of 2015, Business Travelling Allowance (BTA) and Personal Travelling Allowance (BTA) alone accounted for $180,307,021.52 of our forex expenditure. And since Nigerians like to travel, the airlines took $584,489,624.60 while school fees for children abroad accounted for $284,928,102. Yet it must be noted that these are just figures from the CBN which tell only a fraction of the story of our waste. So, in total, airlines, BTA/PTA and school fess took a whooping sum of $1,049,724,748.12 within a period of seven months!”
He’s absolutely bunkers. If he was here, he’d probably be on the streets in tattered clothes and ‘dada’ hair, assembling tyres and cans for nothing. But hey, Donald Trump knows us well!
And then there is this little thing the ‘next’ American president (Donald Trump) said about us. He may be crazy, but no one can say he’s lying about us:
“To make America great again, we need to get rid of the Muslims, Mexicans and the Africans, especially the Nigerians. They take all our jobs, jobs meant for honest hard working Americans… We need to get the Africans out. Not the blacks, the Africans; especially the Nigerians. They’re everywhere. I went for a rally in Alaska and met just one African in the entire state. Where was he from? Nigeria! He’s in Alaska taking our jobs. They’re in Houston taking our jobs. Why can’t they stay in their own country? Why? I’ll tell you why: because they are corrupt. Their governments are so corrupt, they rob the people blind and bring it all here to spend. And their people run away and come down here and take our jobs! We can’t have that! If I become president, we’ll send them all home. We’ll build a wall at the Atlantic Shore. Then maybe we’ll re-colonise them because obviously they did not learn a damn thing from the British!”
He’s absolutely bunkers. If he was here, he’d probably be on the streets in tattered clothes and ‘dada’ hair, assembling tyres and cans for nothing. But hey, Donald Trump knows us well!
It’s a New World Out There
Three years ago I wrote a book Things to do Before Your Career Disappears, because I came across several articles pointing to a vastly changing world and tried to apply it to Africa – and in particular my country Nigeria. A few people have seen and read that book. The reality is what we are seeing today. The world has changed. And will change some more.
Listen to the gurus, Eric Brynjolfsson and Andrew McAfee:
“Technology has sped globalisation forward, dramatically lowering communication and transaction costs and moving the world much closer to a single, large global market for labour, capital, and other inputs to production… If the previous wave of technology made workers in high-income countries like the U.S. feel that their jobs were being outsourced to China, the next wave is going to make those low-skill workers in repetitive jobs-whether in China or anywhere else-feel that their jobs are being outsourced to robots… Even as the globalisation story continues, however, an even bigger one is starting to unfold: the story of automation, including artificial intelligence, robotics, 3-D printing, and so on. And this second story is surpassing the first, with some of its greatest effects destined to hit relatively unskilled workers in developing nations… Official Chinese figures report a decline of 30 million manufacturing jobs since 1996, or 25 percent of the total, even as manufacturing output has soared by over 70 percent… rewards will go to “people who create new ideas and innovations,” in what they refer to as a wave of “superstar-based technical change.” If you aren’t a superstar entrepreneur, then you are likely to be replaced by a robot, or a lower-paid work in another country, or you’ll have to scramble against all the other non-superstars to find a job in the remainder of the economy.”
So, there you have it. Nigerian leaders are still talking of ‘solid minerals’, agriculture – all in raw form – and ‘manufacturing’, bailing this country out. I think they’re just setting themselves – and us – up for a ‘sucker punch’. For now, we need serious self-examination to get over this technological and innovational upper cut, and get back to our senses.