Oil & GasThe Petroleum Industry in Nigeria

Melyn AtienoOctober 17, 202112311 min
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Petroleum is a non-renewable source of energy, just like coal and natural gas. It can occur in gaseous, liquid or solid forms. According to the National Geographic Society in U.S,  petroleum was formed from the remains of ancient marine organisms such as plants, algae and bacteria. Due to intense heat and pressure over a very long period of time, the organic remains, also known as fossils, transformed into carbon-rich substances that are used as raw materials for fuel and various products as well.

Nigeria, a country in West Africa, ranks 11th  in the world, when it comes to the production of petroleum. This makes Nigeria the largest producer of petroleum in Africa Read more. The petroleum industry in Nigeria traces its origin to 1956, when oil was first discovered at Oloibiri which is in the Niger delta. The oil was discovered after 50 years of exploring Nigeria. In 1970, oil prices increased and this made Nigeria reap instant riches from its oil production. Furthermore, in 1971, Nigeria was privileged to join the Organization of Petroleum Exporting Countries (OPEC). The Nigerian National Petroleum Company, a state-owned corporation, was founded in 1977 with the aim of regulating and participating in the country’s oil business. Today, Nigeria has 18 operating pipelines and an average daily production of over 1.56 million barrels. This is according to Simona Varrella, 2020(https://www.statista.com/topics/6914/oil-industry-in-nigeria/).

The petroleum industry accounts for around 90% of the country’s foreign-exchange earnings. In 2020, crude oil exports from Nigeria reduced due to the COVID-19 pandemic and the response measures. The graph below shows the number of crude oil exports in 2020. Due to the decrease in the exports from Nigeria, many countries faced a decrease in crude oil imports due to restrictions on mobility. In January, before the COVID-19 pandemic hit Africa, the exports of barrels per day were at 1.62 million, while in October 2020, when many African economies were affected by the pandemic, the number of barrels exported per day significantly reduced to 1.16 million barrels. This, of course, affected the country’s export earnings. Furthermore, the contribution of the petroleum industry to the country’s Gross Domestic Product was at 5.87% in October 2020, down from 7.32% in October 2019. According to KPMG, the COVID 19 pandemic also led to a decrease in the global demand for crude oil. Over 15 to 20 million barrels of crude oil were left unsold, which is about 25% of the country’s total oil exports.

Source: statistica.com

The sale of petroleum has led to various opportunities for the country to generate revenue to help in the development of the economy, as well as raise living standards. The sale of crude oil has attracted foreign exchange and huge revenues from the wide differential between unit production costs and economic rents, royalties, petroleum taxes, oil exports and many more. This is according to a term paper written by Irina Romanova(https://www.grin.com/document/67959).

Furthermore, most major projects such as infrastructure projects executed by the Nigerian government has come from revenue generated from the petroleum industry. This has led to a massive improvement of infrastructure in Nigeria.

According to Onyemaechi Joseph Onwe(2012)(https://www.aijcrnet.com/journals), the petroleum industry has led to the development of the economy of Nigeria through foreign direct investments(FDI). These are real investment interactions from the rest of the world with a given economy. They are made with in aim of acquiring a long-term management interest. This has led to globalization and an increase in available capital through a combination of resource mobilization and reforms.

Many Nigerians feel as though they are not benefitting from their natural resources due to corruption within the industry. The government creates a very tough situation when people lack equitable sharing and the revenue from the petroleum industry is not equally distributed or being pumped back into the economy.

This is according to an article written by Matthew Nga Uwakonye et al, 2006(https://clutejournals.com/index.php/IBER/article/view/3458/3505). In the article, it has been stated that despite the revenues being brought from oil exports, the Nigerian government still holds a large unemployment rate and a high poverty rate. There has also been a lot of focus on the petroleum industry and this has led to neglection of other sectors in the country, such as the agricultural sector which helps to increase the supply of food for domestic consumption. Since the petroleum industry is a fast-growing industry, many farmers in the rural areas left for the urban cities in search of greener pastures. This affected the agricultural sector in a big way since more food is imported and this reduces the level at which the economy can be self-reliant when it comes to food production.

According to Prof. William R. Stanley from the University of South Carolina, the petroleum industry has brought about a lot of environmental and social problems. Majority of the Nigerian population in the Niger Delta is discontented with the oil companies in Nigeria, in particular to the socio-economic responsibilities to the local residents. Between 1976 and 1997, there were around 5,334 reported cases of crude oil spillages, and this led to a loss of around 2.8 million barrels of crude oil into the land and coastal waters of Nigeria. This of course led to the death of marine animals due to lack of oxygen penetration into the water. Moreover, oil spillage into the land can prevent the functioning of certain organ systems of plants. This of course destroys the livelihoods of those who depend on agricultural crops, to earn a living.

The good thing is that various non-governmental organizations such as Environmental Rights Action and Our Niger Delta have come together to help prevent further destruction of the environment by creating awareness and carrying out conservation projects around the Niger Delta, where oil is produced. Nigeria also has a high oil refining capacity hence the petroleum sector is more likely to contribute more to the country’s Gross Domestic Product in the years to come.

Melyn Atieno

Melyn Atieno. Strathmore University of Mathematical Sciences Writer at Cue Africa Email: melynatieno@gmail.com LinkedIn: Melyn Were

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