Abstract
This study systematically analyzes the activities of the oil and gas economy globally, with a focus on the origin of crude oil and natural gas in Nigeria. It examines the first commercial activities in the petroleum industry, the socioeconomic benefits to the economy, and the structural management of oil and gas organizations. The study highlights how international petroleum dynamics have evolved since 1940, moving from resource nationalism to a highly politicized global discourse. Key topics include price volatility, the transition from an agrarian economy to a petroleum-based one, and the structural challenges facing oil-producing nations like Nigeria.
1.0. INTRODUCTION
Before the emergence of crude oil and natural gas in Nigeria, the country’s prime export earnings were agricultural products. In the Neolithic era, agriculture was central to the general wellbeing of global citizens. Nigeria, with a population of approximately 175 million and vast fertile lands, once relied on agriculture for 75 percent of its economic development. This sector produced raw materials that accelerated the industrial revolution in Europe, with palm oil from the coastal states used as engine fuel.
However, pre-independence and post-independent struggles slowed agricultural progress. The focus shifted when crude oil was discovered in 1950 in commercial quantities at Oloibiri, Nigeria. Nigeria is endowed with vast natural mineral resources, including crude oil, natural gas, limestone, gold, coal, and iron ore. Despite these endowments, systematic policy guides on national integration and sustainable development have often eluded the nation. Exploration began as early as 1908 by a German firm in Ondo State but was interrupted by the British amalgamation in 1914 and subsequent political crises.
Nigeria exported her first commercial quantity of crude oil (about 5,100 barrels per day) in 1950. Since then, the sector has been the mainstay of the Nigerian economy but has suffered under retrogressive eras of military dictatorship, policy setbacks, and systemic corruption.
1.1. Research Problems
The research addresses salient challenges confronting the Nigerian oil and gas sector, including:
- Ineffective policy direction and government implementation.
- Petroleum products price volatility and supply distribution inefficiencies.
- Illegal bunkering, cross-border smuggling, and hoarding.
- The dilapidated state of local refineries and infrastructure due to vandalism.
- Primitive acquisition of state wealth (corruption).
1.2. Objectives of Research
The primary objectives are to examine the historical discovery of Nigerian oil and gas, its economic benefits, the structural management of organizations like the NNPC, and the role of government policy in shaping the industry’s future.
2.0. OVERVIEW OF OIL AND GAS FORMATIONS
Geologists state that crude oil and natural gas are formed in sedimentary rocks from the remains of dead marine organisms. Over millions of years, heat, pressure, and chemical catalysis transform these organic matters into hydrocarbon compounds. These hydrocarbons are trapped in small pores within rocks and eventually migrate upward through porous formations until they are trapped by an impermeable “Cap Rock.”
Visual: Oil & Gas Impermeable Rock Formation
A detailed geological diagram showing the trapping of gas, oil, and water under cap rock is available on page 5 of the original PDF.
2.1. Shale Gas
Shale gas refers to natural gas trapped within fine-grained sedimentary rocks. Modern technology, specifically horizontal drilling and hydraulic fracturing (fracking), has reawakened the global benefits of the natural gas industry. Horizontal drilling provides greater access to gas trapped in deep formations, while fracking introduces chemicals, sand, and water to open cracks in the rock, allowing gas to escape.
Visual: Conventional vs. Gas-Rich Shale Extraction
A comparative diagram sourced from the USA-EIA (2010) showing coalbed methane and shale gas layers is available on page 7 of the PDF.
2.2. Commercialization and Infrastructure
The Nigerian government has charted a new roadmap to reorganize the sector for global competitiveness. However, the industry remains hampered by the menace of pipeline vandalism. In 2013 alone, major transmission export pipeline systems, including the Trans-Forcados and Trans-Niger lines, were relentlessly sabotaged. These losses result in hundreds of billions of Naira in lost crude oil and indirect costs for security and environmental remediation.
3.0. GENERAL ANALYSIS
Global oil and gas reserves are primarily concentrated in the Middle East (Iraq, Saudi Arabia, Iran, UAE, Kuwait) and in nations like Russia, Canada, and the United States. Nigeria’s current estimated proven crude oil reserve is approximately 32 billion barrels (Bb), largely located in the simple geological structures of the Niger Delta coastal area.
3.1. Production and OPEC Quotas
About 65 percent of Nigerian oil is specified as “light sweet” crude with low sulfur content, considered among the best in the world market. Between 2002 and 2003, production averaged 4.136 million barrels per day. However, due to insecurity and militant attacks on installations, production often falls below OPEC-designated quotas. The government aims to reach a reserve target of 45 billion barrels and a production capacity of 4 million barrels per day through aggressive exploration.
3.2. Oil & Gas Benefits to the Nigerian Economy
The petroleum sector is the largest industry in Nigeria, contributing approximately 88 percent of foreign exchange earnings and 85 percent of government revenue growth. However, this dependence on a “monoculture” economy has led to severe economic shocks during global oil price gluts. In response, the “Gas to Earth Initiative” was launched to reposition the gas sector as a viable alternative to crude oil.
Economic crises in Nigeria are often traced to structural deficiencies and the “resource curse,” where wealth leads to corruption and the neglect of other sectors. Since the 1970s, the “expected benefits” of oil wealth have remained an illusion for many, as the middle class was virtually eliminated by the mid-1980s due to declining per capita income and rising debt services.
Table: Macroeconomic Trend of GDP and Per Capita Income (1980-2015)
Statistical data comparing GDP growth, exchange rates, and inflationary indices is available on page 8 of the original document.
4.0. THEORETICAL FRAMEWORK
This study applies the Neolithic school of thought, which suggests that harnessed natural resources are the only sure way to growth, and Systems Theory to explain the relationship between oil potential and economic policy. While petroleum has the potential to triple the earnings of other sectors, leadership lapses and sectorial corruption have retrogressively hindered development. The paper advocates for the urgent passage of the Petroleum Industry Bill (PIB) to modernize the outdated legal frameworks (such as the 1969 Petroleum Act) and ensure a conducive business environment for both local and foreign investors.
