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You are here:Home>>Strategic Research & Analysis>>Nigeria and petroleum: Paradox of wealth and poverty
Monday, 18 July 2011 13:04

Nigeria and petroleum: Paradox of wealth and poverty


Nigeria's Oil wealth Dilemma

Energy is the key ingredient that propels industry, economic growth and development. To enhance this, mother-nature has provided mankind with natural resources, some of which are sources of energy, such as coal, petroleum, wind, solar, hydraulic and nuclear.

However, their distribution, availability, affordability and utilization vary from country to country, thus impacting on the overall energy capacity for economic prosperity and development. Since the Industrial Revolution of the 18th century, Petroleum has remained the predominant energy source, having displaced coal as the primary ingredient for powering machinery for mechanized labour. The demand for petroleum over coal has continued to be on the rise owing to environmental and health concerns associated with coal utilization, since the latter is regarded as being technically dirty.

This rise in demand for petroleum has also brought in its wake extensive search for and exploitation of this commodity, both in inland [onshore] basins and offshore basins in virtually all the continents of the world, particularly in the Middle East, Africa and the Americas. The occurrence of petroleum has therefore transformed some nations into economic prosperity and development havens, and it is rightly believed that this demand for petroleum will continue to rise into the next century as mankind continues to consume energy on a very large scale.

Nigeria is a country richly endowed with petroleum, having a proven crude oil reserve base of about 40 billion barrels and current producibility of about 2.5 million barrels daily. In addition its natural gas reserves are estimated at about 200 trillion standard cubic feet, which should increase when efforts are geared at prospecting specifically for gas rather than encountering it accidentally while searching for and producing crude oil.

This scenario has placed Nigeria in the first league of petroleum endowed nations of the world, ranking 6th in the global oil map and 10th in the global gas map, which also places her on the topmost rungs of the petroleum ladder in Africa. The current aggressive exploration programmes in the frontier basins and deep offshore are expected to boost the present reserves base of both the oil and gas resources in this country. Little wonder then that Nigeria is also a prominent member of the Organization of Petroleum Exporting Countries [OPEC], having also produced both its president and secretary-general on several occasions.

However, there are also inherent challenges associated with petroleum and its related activities such as during exploration, exploitation, transmission and utilization, and in Nigeria these arise mainly from the negative consequences of environmental degradation and host community hostilities. But more importantly, for the citizenry, there are concerns associated with the inexplicable level of poverty prevalent in a nation so richly endowed with natural resources, such as petroleum, which has turned some other less endowed nations around into lands flowing with the biblical "milk and honey". But alas, not so in Nigeria!

The search for petroleum in Nigeria dates back to 1908 when a German concern, the Nigerian Bitumen Company began to investigate the seepages of bitumen occurring along the Nigerian coast, east of Lagos. Various other efforts at further exploration for petroleum occurrence were interrupted by the onset of the 1st and 2nd world wars, until Shell D’Arcy, the precursor of the present Shell Petroleum Development Company [SPDC], returned to Nigeria in 1947 after the hostilities and drilled an exploratory well, north of Owerri, southeast of Nigeria in 1955, which discovered traces of oil, but of non-commercial significance.

This partial success however encouraged the company to strike its significant success at Oloibiri, in present-day Bayelsa state, in 1956, which also culminated in the commencement of crude oil production in 1958 and the subsequent shipment overseas of the first cargo of Nigerian petroleum. With this development, several other multi-national oil companies were attracted to Nigeria, a few years later, to join in this capital intensive and high risk venture.

The Niger Delta basin being a prolific petroleum province, Shell and the other new entrants into the Nigerian setting encountered a very favourable petroleum business environment, which was translated into rapid and expanded exploration and production efforts in Nigeria, both onshore and offshore. Significantly also in keeping with OPEC directives to all host countries to get directly involved in petroleum activities, rather than relying solely on collection of royalties and taxes, the Nigerian government acquired equity interests [35%-50%] in the operating International Oil Companies [IOCs].

By 1971 after joining OPEC, it set up a national oil company, the Nigerian National Oil Corporation [NNOC], the precursor of the conglomerate Nigerian National Petroleum Corporation [NNPC], as the industry arm of government established to play both regulatory and participatory roles in the oil business. It was not until the late 70s and early 80s that private indigenous participation sprouted, leading to the involvement of local oil companies which took up some relinquished concessions or marginal fields from the IOCs.

With this the petroleum business in Nigeria became diversified and development of downstream activities resulted in the building of refineries, products depots, and petrochemical and fertilizer plants. Subsequently the need to harness and commercialize the abundant reserves of gas hitherto being flared, also led to the establishment of gas plants such as Liquefied Petroleum Gas [LPG or cooking gas], Liquefied Natural Gas [LNG], Gas to Liquid [GTL] and Compressed Natural Gas [CNG] ventures. It is also certain that with the implementation of the Gas Masterplan recently commissioned by the government, further developments in this sector will strengthen the Nigerian petroleum industry and boost the revenue base of this country.

Nigeria's Minister of Petroleum Diezani Allison-Madueke

Petroleum industry related activities impact negatively on our finite environment. During exploration, for example, seismic line cutting and explosions may lead to deforestation and reduction of biodiversity. Drilling activities produce effluents and drill cuttings which contaminate surface and underground water bodies, leading to health conditions.

Production of crude oil necessitates separation of fluids and consequently the flaring of gas and discharge of connate water which pollute the atmosphere and contaminate the environment. As crude oil is transmitted there is the high risk of spillages resulting from equipment failure, human error, sabotage or theft, which in turn may cause pollution of tracts of farmlands or fish ponds, thereby causing economic hardships and social unrest and hostilities. All these negative traits pose challenges to sustainable development. However, with the observance of global best-practices and standards, effective regulation and monitoring, appropriate sanctions and penalties, these threats to our environment and subsequent sustainable development, are reduced to the barest minimum by government and industry operators.

There are also challenges associated with raising enough capital to embark on this venture, as most of the equipment and technology have to be sourced offshore. This is where flexible monetary policy comes in, to enable prospective indigenous participation in the petroleum business to be adequately financed, so as to meet the challenges associated with sourcing for capital.

Human capacity building and local content utilization are other challenges confronting indigenous players in the industry. But with over 50 years of extensive operations in the petroleum industry in Nigeria, it should have given us ample time to grow our own timber in this industry. All the same we must give kudos to the government for its recent Local Content Law, which is making it mandatory for indigenous participation in all fronts of this mega business.

Outdated laws and policies impacting negatively on the industry in Nigeria pose a challenge which must be addressed to keep abreast with current global realities and standards, so as to be in tandem with the other world players in activities associated with the petroleum business. The National Assembly must therefore put the Petroleum Industry Bill [PIB] on the front burners as they resume. It should be recalled that the promises they and the ministry made to Nigerians that the Bill would be passed before the end of the past tenure could not be kept.


Last modified on Monday, 18 July 2011 13:12

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