An Overview of the Nigerian Oil and Gas Industry: Structure, History, and Reforms

1. Introduction

Since the emergence of oil and gas in large commercial quantities in 1958 by Shell, the Nigerian economy has experienced massive growth. However, the industry was historically controlled by Transnational Corporations due to professional skill and technology gaps until the early 1980s. Indigenous participation was finally enhanced through the Nigerian Oil and Gas Industry Content Development (NOGIC) Act in 2010. The objective of the Act is to promote the use of indigenous enterprises in awarding projects, contracts, and licenses.

The petroleum sector is segmented into three primary features:

• The Upstream Sector: Focuses on exploration, exploitation, and production.
• The Mid-stream Sector: Bridges the commercial gap, focusing on transportation and processing.
• The Downstream Sector: Encompasses processing, logistics, storage (tank farms), and marketing (supply, distribution, and pricing).

Nigeria’s crude oil typically has a gravity between 21° API and 45° API, with Bonny Light and Forcados being main exports. As of 2010, proven reserves were estimated at 28.2 billion barrels. However, exploration has slowed due to insecurity in the Niger Delta and legislative uncertainty surrounding the Petroleum Industry Bill (PIB). Nigeria also holds massive untapped natural gas reserves, estimated between 187.7 and 600 trillion cubic feet (TCF).

1.1. Statement of the Problem

The core weakness of the Nigerian petroleum sector lies in the inability to align resource abundance with domestic growth. For decades, supply, distribution, and pricing have been suffocated by poor economic policy and unpatriotic behavior by stakeholders. This study analyzes challenges such as price volatility, scarcity in the supply network, hoarding, and the monopolistic tendencies of major marketers.

2.0. Regulatory Framework and the PIB

Upon assuming office in 1999, President Olusegun Obasanjo inaugurated the Oil and Gas Industry Committee (OGIC) to take a comprehensive appraisal of the sector. The OGIC’s findings eventually informed the Petroleum Industry Bill (PIB). The reform aims to:

• End “labor flight” by employing indigenous human capital.
• Maximize gas utilization for economic growth.
• Privatize government-owned assets to eliminate monopolies.
• Remove the Petroleum Subsidy Fund (PSF) completely.
• Dismantle the current “amorphous cost center” structure of the NNPC.

Key Proposed Agencies under the PIB

If passed into law, the PIB will reposition several agencies:

• Upstream Petroleum Inspectorate (UPI): A non-profit technical regulator for exploration.
• Downstream Petroleum Regulatory Agency (DPRA): Responsible for refining, marketing, and retail pricing.
• National Petroleum Assets Management Corporation (NAPEMC): To manage government investments in the upstream sector, taking over NNPC’s assets.

2.1. Genealogy of Nigerian Petroleum Activities (1908–2012)

The evolution of the industry is marked by several key milestones:

• 1908: British Colonial Petroleum & Nigerian Bitumen Corporation commenced operations at Okitipupa.
• 1956: First successful crude oil well drilled by Shell D’Arcy.
• 1958: First shipment of crude oil out of Nigeria.
• 1971: Nigeria joined OPEC.
• 1977: NNPC established by Decree 33.
• 1993: First Production Sharing Contracts (PSCs) signed.
• 2010: Promulgation of the NOGIC Act to boost local content.
• 2012: Liberalization of the downstream sector begins.

3.0. Major Forms of Oil and Gas Arrangements

Nigeria utilizes four primary contractual models for upstream operations:

1. Production Sharing Contracts (PSCs)

Adopted in 1993 to alleviate the financial burden on the NNPC. The contractor (usually a foreign firm) bears all exploration risks. If successful, they recover costs through “Cost Oil” and share “Profit Oil” with the government.

2. Joint Ventures (JVs)

A business agreement where the government (via NNPC) and private companies pool resources. This model is being phased out in favor of PSCs due to government funding constraints (cash calls).

3. Service Contracts (SC)

The contractor has no title to the oil produced but is reimbursed for costs and paid a fee for services rendered.

4. Marginal Field Concessions (MFC)

Fields that have remained unproduced for over 10 years are awarded to indigenous players to encourage local participation and increase national reserves.

4.0. Marketing and Distribution Analysis

The downstream sector is the final link to the consumer. In Nigeria, distribution is managed through a network of 5,000 kilometers of pipelines and 21 depots. Supply shortages are often supplemented by imports when local refineries (Port Harcourt, Warri, and Kaduna) underperform.

Table: Minimum Expenditure Program for Exploration

5.0. Conclusion

The distribution system of petroleum products in Nigeria currently remains inefficient. This study strongly recommends the complete deregulation of the downstream sector and the removal of subsidies to allow market forces to determine pricing. Private investors must be allowed full participation to create jobs and foster the growth of small and medium-scale enterprises. Ultimately, the refineries should be privatized to ensure they are managed for optimum performance rather than serving as amorphous cost centers.