Abstract
This study will systematically analyse in general, terms and activities of oil and gas
economy globally. With a view to having a broader understanding of the concept of
origin of crude oil and natural gas with reference to Nigeria, Nigerian first commercial
activities in the petroleum industry, its socioeconomic benefit to th e economy, and
the structural di sposition of oil and gas organization in Nigeria as a reference point.
In order to impact scholarly knowle dge to academia, stakeholders and all those in
search for hon est means to acquire knowledge. Today international petroleum
industry is radically diffe rent fr om wha t it was in 1940, yet , it remains as highly
politicized as it where in the days of resource nationalism decades ago when oil
became a major issue in both international and national political economy discourse.
Those who started the business of crude oil have dwindled in number, except for the
oil export ing countries that recently had to bear an extraordinary burden of
adjustment when petroleum products prices persistently remained relatively unstable
from when it was discovered to date. Even so, petroleum issues has remained
significant subject of discuss in a wider political setting. Less than three decades
before now, developed economy has engage on battle of survival instigated by crude
oil politics and international price volatility. Modern price theory have been applied to
stabilizes this inconsistence, yet, price of crude oil and gas has continued to
determine the socioeconomic and political direction, growth and development of
major oil producing nations of the world.
KEYWORDS: the origin of crude oil and natural gas in Nigeria, its economic benefits
to the economy, and structural management of the oil and gas organization in
Nigeria.
1.0. INTRODUCTION
Before the emergence of crude oil and natural in Nigeria , the country’s prime export
earnings was agricultural products, and was g lobally recognised from that
perspective. In a Neolithic era, agriculture was central to the general wellbeing of
global citizens. Thus, different societies place high concern on agriculture and
endeavour to improve and nurture the sector, whereby assuring sustainable food
security, employment opportunities and revenue generation amongst others globally.
Nigeria, whose population is about 175 million with vast geographical spread across
millions of fertile lands for crop cultivation, livestock grazing , pure sea waters with
species of fishes and abundance of historic natural rich forest, with about 75 percent
of her population rural dwellers, involved in agricultural activities had in the past
contributed to economic development in Nigeria.
The immense role played by agriculture sector in development of Nigeria before the
discovery crude oil, is what is today referred to as Nigeria , her people , and her
cultural pride both in socio -political and economic spheres as documented, by her
colonial master abroad. The sector produced raw materials that accelerated
industrial revolution in Europe initiated by the British, with palm oil from the coaster
states of the Bight of Benin (south/south) used as engines fuel (gas) in Nigeria as it
were. Though, technologically regressive compared today modernity, yet, produces
were just enough food crops to feed the timing population and als o responded to the
needs of other countries of the world, such as Tran Saharan trade within Africa. At
the abrogation of slave trade by the Western world, legitimate trading policy became
the new order. Occasioned by Europe industrial revolution was a huge dependent on
raw agricultural products to energise their economy. The needed exported raw
agricultural materials like; timbers, palm oil, and elephant tusks just to mention but a
few, were exported to Europe to sus tain their economy. However, the periods of pre-
independence and post -independent struggles slowed down the progress of the
sector, yet, agriculture remained the mainstay of the Nigerian economy before crude
oil was discovered in 1950 in commercial quantity at Oloibiri, Nigeria.1
Nigeria is endowed with vast natural mineral resources, prominent among these
include: crude oil, natural gas, lime stone, tin, columbine, kaolin, gold, silver, coal,
lead, zinc, gypsum, clay, shale, marble, gr anite, iron -ore, stone, and zircon . The
persistent problems of social economic integration have been a major concern of
Nigeria since independence. Over decades, problems of systematic policy guide on
national integration, democratic stability and sustainable socio -economic
development have eluded the Nigerians . These problems had their roots from pre-
colonial da ys, when crude oil exploration began in 1908 when a German oil firm
discovered exploration sight at Araoni, presently Ondo State in Nigeria. Exploration
was short leaved in 1914, due to British amalgamation policy of the North and S outh
proletariats coming together to form one nation known as Nigeria today. However, in
1937, exploration resumed led by Shell oil firm. There was another break in
exploration activities in 1 939 due to political crise s and exploration commenced
unhindered, in 1947 respectively.
Nigeria exported her first commercial quantity of crude oil of about 5,100 barrels per
day ( bpd) in 1950. Shortly after independence in 196 0, the natio n experienced
military coup d’état from 19 67 to January 1970, in between was a three years civil
war, which lasted till October 1970 . They ruled till 1979 . There was a break from
1980 to 1984 when democracy was experienced within these few years. Once again,
the military resurfaced in 1985 and held on to power till mid -1999 when the
Abdusalami’s military regime relinquished power to a democratically elected
president, President Olusegun Obasanj o government in 1999 . Within this
retrogressive era of military dictatorship, petroleum economy suffered series of policy
set-backs, and corruption. Yet, the economy was a little bite above recession due to
1 Eko John .N. (2014), Agriculture in Nigeria.
accrued petroleum earning generated previous leader. Oil and gas has remained the
mainstay of the Nigerian economy.2
1.1. Research Problems
This research work intend to address some salient challenges confronting the origin
of the oil and gas sector in Nigeria with a view of referral on othe r country’s derivable
oil and gas organization. Over the years, industry watchers, opinion molders and civil
rights campaigners have been very critical of the role being played by stakeholders
and government in the oil and gas industry vis -Ã -vis their commi tment to economic
benefits and p olicy implementation , these were viewed as complaisant attitude of
investors towards better service delivery, as they are more concerned with
profiteering and individual class benefit . This gave rise to numerous challenges
which have been identified as critical to the success of any re solution of the
problems of oil and gas industry. These include:
- Ineffective policy direction and Implementation of government,
- Petroleum Products Price volatility as a result of inadequate supply and poor
distribution network system resulting to protracted queues at filling stations,
- Illegal bunkering and cross -border smuggling and hoarding of petroleum
products;
- Untapped natural gas potentials over decades.
- The sorry state of the four local refineries and disrepair of logistic facilities
(pipelines, depots and jetties) due to vandalism across Nigeria, and
- Primitive acquisition of state wealth (corruption).
The above are remote causes for the lingering, and intractable crisis associated with
the petroleum industry . These were p redictable outcome of failed policy
programmes.3
1.2. Objectives of Research
The objectives of this research is to examine current cha nges in the oil and gas
industry, analysis on the historical dispensations of Nigerian oil and gas discovery,
its economic benefits to the economy since inception, and structural management of
oil and gas organizations, the role of NNPC in government policy direction as it
regards oil and gas sector in Nigeria. The aforementioned objectives provide us
insights that will contribute in answering our research questions.
2 NNPC (2015), History of Nigerian Petroleum Industry
3 NNPC (2011), Corruption at NNPC.
1.3. Research Methodology
This study examines the method, design and characteristics of the research
procedure, determination of data collection base on content analysis.
- Research Question
In order to effectively conclude this study, the following question below will give
empirical analysis (answers) to the research questions as follows:
i. Are the activities of Nigerian oil and gas industry justified in terms of its
economic benefit?
ii. Is it a catalyst for industrialization of the country?
iii. What role does NNPC plays on behalf of the gover nment to ensuring
policy actualisation in the industry?
iv. Will the discovery of natural fast -track development in Nigeria better
than petroleum?
- Research Propositions
To adequately carry out the research work, the following propositions are
made:
i. Discovery of oil and gas in Nigerian has not impacted negatively on
the economy;
ii. The oil and gas industry in Nigeria has only made the government to
begin to re-think on how to develop alternative sources to crude oil.
iii. To allow the LPG market growth and develop as alternative energy
source.
iv. The agricultural sector can boost socioeconomic growth if revamped.
2.0. OVERVIEW OF OIL AND GAS FORMATIONS
There is this general assumption that crude oil and natural gas resides in huge
structures deep underground caves. Geologist in var ious literatures on geologica l
research carried out on rocks (sedimentary rock) states that crude oil is formed or
yields with deposit of dead marine organisms together with silt, sand, and other
sediments which build up rocks under the beds of the sea. The build -up of rocks;
layers continued to develop consisting organic matter of marine orga nisms creating
higher temperature and pressure without oxygen amidst the effect of these combined
factors of temperature, pressure, time and catalysis begins to have chemical reaction
upon these marine substances gradually s tarts breaking -down, transform ing these
components into hydrocarbon compounds which was initially trapped in small
pockets (pores) holes within the rocks. The outco me of these formations turns into
chemical liquid known as crude oil and natural gas.
However, shortly after the formation of these components into petroleum substances
under the bed of the rock, migration begins to take place in an upward direction
through the rock bed source via porous rocks. Thus, gas, oil and wa ter under same
components forceful moves slightly different towards a direction. The composition of
Gas is fewer dens to oil, oil less dense to water. Thus, oil and gas lightened up
weight to move upward surface water because water velocity is heavier in
component. The systematic movement of these components (gas, Water and oil)
allows a chemical r eaction that subsequently trap petroleum substance under a Cap
Rock (impermeable laye r), which subsequently flows along this cap rock until it
cannot move further. At this point, it is trapped, while migrating process continues as
oil and gas pressure begins to develop under this impermeable rock until it becomes
economic goods.4 See figure 1.1.
Figure 1.1: oil & gas Impermeable Rock formation.5
4 Narris .A. (2014), The Origin and Production of Crude Oil & Natural Gas
5 Shell Petroleum (2014), Origin of Oil & Gas
Geologist classifies known forms of petroleum accumulations as fol ds, stratigraphic
traps known as reservoirs o r structural traps, measuring about 90 percent of
petroleum reserves that occurs in traps. They are characterized as follows:
- It possesses sedimentary origin.
- Rocks are permeable and porous.
- The features of reservoir are capped by a non-permeable rock bed.
Furthermore, most worlds’ crude oil depths range between 600 and 3000 meters
below the earth surface. While Gas tends is deeper than oil and more stable at
higher temperature. In some instances, its formation becomes a primary product in
source rock.6
2.1. Shale Gas
Shale gas could be described as natural gas trapped within shale formations. Shale
gas is rich sources of petroleum products found within fine -grained sedimentary
rocks. Over centuries, the method adopted in exploration activities of shale gas is
through the combination of horizontal drilling and fracturing hydraulic method, used
to create access to large volumes of shale gas that were previous ly uneconomical to
produce. This new technology in production of natural gas from shale formations has
reawakened the economic global benefits of natural gas industry to the world
economy.7
In natural gas exploration, two major methods are adopted; these are horizontal and
hydraulic fracturing drilling methods:
- Horizontal Drilling
Horizontal well drilling is a technique that provides greater access to gas
trapped in deep producing formation of shale gas. The f irst approach a
technique is the used vertical well drilled approaches to target rock formation.
After ascertaining the desired depth , drilling bit begin to bore a well that
stretches through the reservoir horizontally exposing the well to where more
of the producing shale is concentrated.
However, studies shows that most drilled wells contain more water than oil natural
gas information. After hitting target, it stimulates the reservoirs in ways that cannot
be achieved with a vertical well drilling machine. In these cases, an ability to
accurately steer the well in directions and angles that depart from the vertical is a
valuable ability further attract the combine directional drilling with hydraulic fractional
6 EIA (2010), ‘’ Energy in Brief’
7 EIA (2010), Shale Gas.
drilling techniques to extract some rock materials which were unproductive when
applied vertical drilling method becomes producers of oil or natural gas.8
- Hydraulic Fracturing
This drilling techniques entails hydrocracking or fracking process in which chemicals,
sand and water are introduced into wells to trapped residing hydrocarbons in shale
formations through opening of cracks in rock and allow natural gas to escape from
shale into the well. The use of hydraulic fracturing exploration techniques, allows gas
explorers to extract shale gas at reasonable cost.9. See figure 2.1.
Figure 2.1. Sample diagram sourced from USA-EIA (2010)10
The USA has approximately 110 years sufficiency build up plan for consumption of
natural gas. The country process about 2552 trillion cubic feet (Tcf) of natural gas
potential with about 90 percent consume domestically. thus, supply of gas in the US
is locally sourced and produces and not dependent on foreign investors like crude
oil supply , making the delivery process less subject to interruption and price
manipulation. The availability of large quantities of shale gas will further allow the
United State s to consume a predominantly domestic supply of gas. The US Shale
8 Geoscience News and Information (2015), Directional & Horizontal Drilling in Oil and Gas wells.
9 EIA (2014), Hydraulic Fracturing of Shale Gas.
10 USA EIA (2014) Natural Gas Diagram formations.
gas resource and production is projected to increase significantly between year 2015
and year 2016 as alternative energy source given the continuous down ward slide in
global crude oil supply, demand and pricing.11
Unlike the Unit ed States high consumption profile, Nigerian with about 18 7 trillion
standard cubic feet (Tscf) of gas reserves, is still yet to come to term with the
existing and huge potential associated with gas market in Nigeria as consumption
and awareness pattern is still very incommensurate with that of crude oil business.
There is growing concern on new discove ries of natural gas in deep offshore being
made in Nigeria in recent times, as against the old discoveries in Akpo, Erha, Bonga,
Egina, Agbami, Usan and others in the South-South region of the country. However,
lots of new discoveries and exploratory programmes are ongoing. For instance, high
pressure drilling and high temperature deep drilling exploration by Shell is currently
on at the moment in Nigerian. This is with a view to explore existing potentials to
enrich its socioeconomic environment of the nation.
With high determination of natural gas exploration, the country is hoping to be one of
the most sought for gas market in Africa as the expectation on deep-water and
offshore deeper drilling may lead to discov ery of more hydrocarbons. The
expectation and stake is quite high in this regard.
The current quest for alternative source of energy is to empower power electricity in
the country has been a driving force for more gas rather than petroleum products .
Thus, the 2020 projection for gas for all Nigerians might just come to pass with
ongoing determination for gas exploration and utilization awareness programs by
government and NGOs for domestic and industrial consumption might just be
socioeconomic revolution the country is waiting for. The aw areness on Liquefied
Petroleum Gas (LPG) consumption has created very strong domestic and
international market awareness. Suffices to say unequivocally, that Nigeria has
abundance of gas than crude oil, thus, government is determined to use gas to
generate electricity in the country.12
2.2. Commercialization of Oil and Gas Section
The present state of Nigerian oil and gas industry and its achievements made are of
great concerns to Nigerians. Hence, the government charted a new roadmap with a
view to reposition the sector for better efficiency as earlier d iscussed in this study.
The roadmap objective is making and reorganizing the sector to favourably compete
with global oil and gas industry, while remain ing as the mainstay of the country’s
economy activities in terms of export and foreign exchange earnings. Although
subjected to the menace of pipeline vandalism for decade s now, but, in the last few
years it has become much more preventive. In
2013 alone, major transmission export pipeline systems, including: Obabgbiri,
TimmDaba-Brass, Trans-Forcados Line; Nembe Creek Trunk line, and Trans -Niger
11 EIA Annual Energy Outlook (2011), Today in Energy
12 Oboarekpe (2014), Shale Gas is a Threat to Nigerian Crude Oil Export
Pipeline have relentlessly been vandalized. The pipelines that transmit crude oil from
Escavoe and Bo nny to Nigerian National Petroleum Corporation (NNPC) refineries
were sabotaged. This impact t rickled down significantly as economic losses, for the
sector and country. These losses are not only interim of financial, also on indirect
and direct cost for provision of security, petroleum products and crude oil and
losses, loss associated with environmental pollution, production degradation and
associated remediation costs and resulting in escalation of project implementation
costs.
These losses reversely pressurise the adequacy of the budg etary provision for
projects of the sector . Despite these challenges , the sector has consistently
maintained average crude oil production of about 2.3 million barrels per day (bpd) in
2013 for the country, with an estimated deferred production of about 300,000 barrels.
Nigeria is Africa’s biggest crude oil and gas producer with a production capacity of
over 3 million barrel per day (bpd) from renewed operations in dive sted assets and
planned deep -water projects. While there were divestments by oil trans-national
corporations in shallow waters and onshore assets , where by creating opportunities
for indigenous operators to participation into oil and gas business.
Despite security challenges, the industry had suffered institutional capacity
deficiency, high technical cost, obsolete legal framework, outdate d fiscal regime,
poor funding on investments, and infrastructural constraints, with particular respect
to gas market liberalization . In aspect of institutional capacity, it is obvious that
existing petroleum laws in the country was designed for petroleum oil production,
without projectin g gas legal framework (law). This implies as it were, that gas
products is being less fungible compared to oil, requires complex commercial and
technical regulations, designed to ensure its commerci alization. Furthermore,
Nigerian decision to liberalizing the oil and gas sector motivated indigenous and
foreign participation to invests in the sector, and for the sustainability of these
investment, new code of conducts are requi red to regulate the activities . While the
gas sector requires capacity enhancements in open access regimes, codes and tariff
methodology for oil terminals, there is the need to establish oil and gas infrastructure
protection squad with responsibility for dealing with industrial vices associated with
crude oil theft, sabotage, vandalism, and other criminality, which have bedevilled and
cost the sector about N250 billion crude oil product losses.
However, through NNPC subsidiary, Products Pipelines Marketing Company
(PPMC) has about 5,120 kilometres of oil and gas pipelines across Nigeri a. These
include about 4,315 kilometres of multi -product pipelines and 666 km of crude oil
pipeline. While, the Nigerian Gas Company (NGC) has about 1,100
Kilometres of gas pipelines, stretching diameter between 4 and 36 inches
respectively. The entire gas operations has a total transport capacity of about 2
billion cubic feet of gas daily ( Bcf/d), and 14 compressor stations, including 13
metering stations. Example is; the Escravos /Lagos domestic gas con sumption
Pipeline System (ELP S), established in 1990. H owever, new pipelines continue to
spring up due to oil and gas potentials in the country.13
These pipelines were established decades ago and have become obsolete and
depreciated and unusable. This sit uation influenced cost of product supply and
distribution negatively, tripled the cost of pipeline maintenance and environmental
remediation cost was frequent and expensive. Moreover, since 211 to date, the
petroleum sector has witnessed a tremendous improvement in performance levels,
which placed the industry on a renewed path of growth and sustained development.
Some of the remarkable achievements within this period include, ensuring annual
average crude oil production of about 2.4 million barrel per day (bpd) of crude oil, an
increased gas production from about 6.6 to about 8.5 billion cubic feet (Bcf ), in
2013, despite incessant chokings as earlier mentioned, the sector has
unprecedentedly stabilized its distribution and supply network of petroleum products
across the country, until the very recent when the country begin to experience
products shortages created by supply glitches panic buying, hoarding and diversions
engendered by rumours of increase in the price of petroleum products.14
3.0. GENERAL ANALYSIS
The general analysis of this study is to systematically analyse, terms and activities of
global oil and gas industry, with a broader understanding to the Nigerian concept,
and origin of crude oil and natural gas potentials. Nigerian first commercial activities
in the petroleum industry , its socioecon omic benefit to the economy, and the
structural disposition of oil and gas activity management in the Nigerian as a
reference point.
3.1. Oil and Gas Reserves around the World
Studies revealed, that most global oil and gas reserves are stock in Middle East,
and strategically located in countries like; Italy, Australia, New Zealand and
Malaysia. OPEC leading giants include Iraq, Saudi Arabia, Iran, United Araba
Emirate and Kuwait. Canada, Russia, China, Venezuela , Brazil, Mexico, Norway,
Great Britain, Texas in United States, and Nigeria , California, Louisiana, Kansas,
Oklahoma, and Alaska produces oil and gas also. Recent discovery shows that
North Sea, South America , Africa and the Gulf of Mexico have large offshore
reservoirs. 15
A Nigerian current estimated proven crude oil reserve is about 32 billion barrels (Bb).
Bulk of these reserves is sighted in relatively simple geological struct ures along
13 NNPC (2010), NNPC: a pipeline of opportunities
14 Ogodo Douglas (2014), Nigeria’s Oil industry: Moving it to the Next level
15 John Mossesso .J. (2014), Origin of Oil & Gas National Biological Information Infrastructure (NBII)
Niger Delta coastal area of Nigeria . And it has continued to gravities ranging from
21o API to 45 o API base on new discoveries of reserves in the dee p off shore.
Furthermore, about 65 percent of Nigerian cruel oil production specification is crude
light with 35o API or higher and crude sweet with low sulphur content . These two
specifically of crude oil has been judge one of the best in world crude oil market .
Between year 2002 to year 2003, Nigeria crude oil averagely produced about 4.136
million barrel s per day (M bpd). This attracted a subsequently reduced Nigeria’s
quota to about 2. 020 million barrel s per day (Mbpd) in anticipation of returning Iraq
back to the market.16
However, due to incessant insecurity by the Niger Delta militant on the attack on oil
and gas installations in that region, the OPEC designated 1.67 million barrel s per
day (Mbpd) production quotas could not be attained. But OPEC is determined not to
further cut production quota of the country to avoid negative impact on nation’s oil
production.17
In year 2011, the country’s production was about 2.6 million barrels of crude oil per
day (bpd), which amount to about 650, 000 barrels above OPEC expectation of 1.67
million barrels per day (Mbpd) quota as integrity work on pipelines is still ongoing,
after years of militant attacks. The situation gave a ray of improvement from 1.3
million barrels per day (Mbpd ) in 2008 to 2.6 million barrels per day (Bbpd) in 2011,
as a resul t to the restoration of system 2C, which supplies crude oil to Warri and
Kaduna refeneries. There was a sharp upward movement in crude oil reserves to
about 31.218 billion barrels per day (Bbpd), barrels of condensate reserves
increased to about 5.314, gas reserves was standing at 187.6 trillion standard cubic
feet (Tscf), associated gas stood for about 92.945 barrels per day (bpd), and non –
associated gas was 89.871 barrels per day (bpd) respectively. Althoug h the current
gas production in 2011 was about 6.8 billion cubic feet per day (Bcfpd), while about
1.4 billion cubic feet (Bcf) is still being flared on a d aily basis. Hence, government
determination to achieve growing reserves of about 45 billion barrels with an
increase production of 4 million barrels per day (Bbpd), through aggressive
exploration activities.18
Despite the current global oil prices glut, OPEC M embers resolved to maintain the
supply of crude oil on designated current production quotas for Member Countries. In
the mid-2014 and early 2015, there was unprecedented decline in global crude price,
which had a negative impact on Nigerian econ omy. S ince administration of her
domestic economy is largely dependent on export earnings from crude oil. An OPEC
12 basket of crude averaging about $100 per barrel at the wake of year 2015,
astronomically declined to about $75 per barrel and subsequently declined further to
about $55 per barrel shortly afterword’s.
16 Ogodo .D. (2014), Nigeria’s Oil industry: Moving it to the Next level
17 Guardian News Paper (2014), Security Issue Stalls Nigeria’s OPEC Quotas Target.
18 Ejiofor .A. (2011)Crude Oil: Why Nigeria’s Output Exceeds OPEC Quota
This unprecedented oil famine, gave the Nigerian government another think cap, that
gave rise to ‘‘Gas to Earth Initiative’ ’project that is current ly ongoing. Objective is
awareness of gas utilization, with a view to reposition the gas sector as alternative to
crude oil.19
In funding of crude oil operations in Nigeria, ChevronTexaco, S hell, ExxonMobil,
ENI – Agip and TotalFinaElf, all have a joint ventures account with NNPC for about
95 percent of Nigerian crude oil. Other arrangement fo r funding the oil operation in
Nigeria are through production sharing contract, under which the companies fund the
operations and the profits are shared according to the agreed formula after the
company has recouped its expenditure. Furthermore, government over time has
created various form s of investment incentives, such as tax holidays and a stable
relationship to investor with a view to encourage indigenous and foreign investment
drive in oil and gas industry.20
The petroleum sector is t he biggest industry in Nigeria contributing approximately
about 88 percent of foreign exchange earnings and about 85 percent of government
revenue growth rate to gross domestic product (GDP). Since the discovery of large
commercial quantity of crude oil by Royal Dutch Shell in year 1950 , at Oloibiri,
Nigeria. The sector has been characterized by political and economic uncertainty
largely due to mal -administration, poor policy direction, corruption and activities of
Six Transnational Oil Corporations; Shell, Elf, Agip Mobil, Chevron and Texaco
monopolized oil and gas industry in Nigeria holding about 8.55 percent property
equity share in the business oil and gas.
Nigerian oil and gas consist of seven major stakeholders; Nigerian National
Petroleum Corporation (NNPC), Federal Government represented by the Ministry of
Petroleum Resources, Directorate of Pet roleum Resources (DPR) upstream
regulator, Petrol eum P roducts Pricing Regulatory Agency (PPPRA) a regulator on
downstream activities of the sector, Petroleum Equaliza tion Fund & Board (PEFB)
equalizes petroleum products bridging payment through trucking, from one end of
the country , Petroleum Technological Development Fund (PTDF) responsible for
manpower development of industry personnel and Petroleum Training Institute (PTI)
and oil and gas training institute for young Nigerians to acquire skills in oil and gas
activities.21
The policy guidelines of petroleum activities in Nigeria is solely decided by
government via NNPC; that is, initiate and implement oil and gas policy direction in
the sector. Nigerian oil and gas industry legal framework is currently obsole te,
hence, the current Petroleum Industry Bill (PIB) reform, awaiting ascent from
legislatives arms (National House Assembly ) of government , updating its status to
19 Bassey UDO (2014), OPEC Retains oil Quotas Despite oil pric Crash.
20 NNPC (2015). Investment Opportunity in the Downstream Sector.
21 Baghebo .M. & Timothy Okule. A. (2012), The Impact of Petroleum on Economic Growth in Nigeria
global standard. Although, severa l bills have been enacted to chart sustainable
roadmap on oil and gas activities; e xploration, refining and marketing in the past,
these include: 1969 Pe troleum Act know as CAP 350, 19 66 oil pipeline Act, 1978
land Use Decree, the Indigenization Decrees of 1970, and the current ongoing
Petroleum Industry Bill (PIB) of 2012 . The bill when passed will reposition the entire
oil and gas sector for o ptimum effi ciency, that will enable conducive business
environment, energise domestic gas utilization for power generation and industrial
growth, enable a process that will encourage fiscal framework for investment, while
ensure return on i nvestment for operators, a very strong commercial portfolio in
downstream and upstream industry and finally, it will bo ost local content efficiency
that will subsequently promote growth and development of the country’s economy.22
3.2. Oil & Gas Benefits to Nigerian Economy
Though the nation at independence inherited sophisticated nationalists, politicians
and statesmen, its economy was still pr ofoundly underdeveloped, based solely on
export-driven agricultural product s, petty trading and small and medium scale
manufacturing activities. These economic activ ities were specifically designed to
generate agricultural products, such as cocoa, palm – kernel, cotton and groundnuts .
With a view to supply its raw materials to industries in the United Kingdom an d other
parts of Europe. T he trade sector was dominated by a number o f British multi –
nationals who engaged in buying and selling of finished goods from Africa Countries
to Europe . This situation led to post-independent economic set back in Nigerian
economy, particularly from the late 1980.23
The genesis of economic crises in Nigeria is traced back to structural deficiency
during pre and post -independence era. Between year 1962 and year 1985, four
national ‘Development Plans were implemented . First , is from year 1962 to year
1968, second Plan was in year 1970 to year 19 74, the third Plan took place from
year 1975 to year 19 80, and the fourth national plan was from year 1981 to 1985.
There was also the first National Rolling Plan of year 1980 to year 1 992 as part of
economic projection plan to develop the country’s economy. The objectives of these
plans include the following:
- Increase real income of average citizens;
- Equitable distribution of inc ome among individuals and socio economic
groups;
- To reduce unemployment to its barest minimum;
- Increased manpower development;
22 The Petroleum Industry Bill (2012), Nigerian Oil and Gas Legal Framwork.
23 Ikpamejo .A. (2011), The Issue of Corruption on Economic and Political Development in a Developing
Economy: The Way Forward.
- To increased sectorial and regional balanced development;
- To i ncreased Nigerians participation in ownership and management of
production and enterprises;
- To be self -sustaining economy through dependence on local content
development process; and
- To maintain macroeconomic stability.
In the light of the foregoing, the nation’s economy is very much undeveloped, likened
to Neolithic era . Bedevilled by unprecedented poverty; high executive corruption
among military elites , industry stakeholders and smaller group (oligopolistic) of
Nigerians. Other negative feature includes ; unfavourable practices of m ono-
economic policy (total dependence on petroleum); lack of executive capacity; and
the dependency theory ( massive importation of goods and services ) without
domestic equilibrium measures taken.24
At the wake of oil boom in 1970, there were fundamental ch anges in the Nigerian
economy that strengthened her diplomatic role in the International Community. The
period experienced economic boom which triggered real GDP growth in all sectors of
the economy. Examples are: infrastructural development improved, foreign earnings
increased, attraction of expatriate into country for skill transfer and technological
acquisition, improved in per capital income of an a verage Nigerian , and economic
viability went on pretty well until mid-1984 when corrupt mili tary elites forcefully took
power from a civilian democratic elected government . From that time till now, the
expected benefit of crude oil and gas is remains an illusion.
Prior to the year 1986, Nigerians begins to witness a traumatic economic crisis. That
is, there was heavy dependence on crude oil export as the main source of foreign
exchange earnings and government national budgetary projection. However, in 1980
the sector could only account for about 22 percent of the country’s GDP, 80 percent
of g overnment revenue and 96 percent of earnings to encourage structural policy
incentives and controls the influxes of import oriented products with little incentives
for non -oil exports. This situation er oded th e high competi veness recorded in
agricultural sector in the 1960 including, over-value Nigerian naira exchange rate in
world market; inappropriate pricing of Nigerian crude oil in the international market ;
rural-urban migration and colossal waste emanating from the wind -fall from oil in
1970 had a trickle down negative impact on the economy.
Furthermore, the inappropriate and ineffective policy of the past, such as t he
Economic Stabilization policy of year 1982 and Economic Emergenc y Measures of
1985 and depletion on oil prices aggravated the economic quagmire giving
corruption a sky -space encouragement. As result , these measures drastically
decreased supply of raw m aterials and spare parts to import dependent industrial
24 Lawal .T. and Oluwatoyin .A. (2011), National development in Nigeria: Issues, challenges
and prospects.
sector in the county , forcing these sectors to liquidate, substantial drop in capacity
utilization and the down -sizing and right-sizing of huge work forc e. Thus, at the end
of mid-1980, real per capita income and consumption level fell simultaneously with
the total elimination of the middle -class structure, creating internal and external
imbalance in receipt of payment, while external debt services rose to about 45.07
percent in 1985, and between 60 to 70 percent in 1990 respectively.25
The Nigerian economy is faced with diverse challenges a nd opportunity. Yet, its
crisis seems to occur about every decade at the instance of crude oil price
fluctuation in the international market. As exporter of crude oil , international price
volatility will obviously have a negative impact on the domestic eco nomy, both at
short and medium ter m. Given that crude oil reserves are relatively depleting in
previous years. In 2014, reserves depleted to about 23.1 percent as against 35.2.
Billion barrels (Bb) in 2013. This supposedly infers that Nigeria imports refined
petroleum products and subsidises its retail cost to consumers. This in the long run
had a negative impact on government expenditures. Further decline of prices of
petroleum products attracted other negati ve challenges to economy. The situation
subsequently widened supply gap in foreign exchange market , astronomical
imbalance in demand for dollar , as dollar outweigh supplies, thereby disvaluing
Nigeria naira downward, and making our export crude price irrelevant in global
market. This situation subsequently deepened and deplete d the existing crude oil
reserves.
However, while development do pose challenges, government reactiveness in
anticipation, formulated policies that with address future negative price shock of
crude oil prices some of which had been rolled out in the current year of 2015 budget
presentation; shoring up non -oil revenues by increasing the tax base, while cutting
down government expenditures. Although, global crude oil price shocks which
resurfaced mid -2014 and spilled to current year 2015, had a declining negative
impact on government expenditure on development of social infrastructure of the
country. Having, a negative multiplier effects on other sectors of the economy as a
result of insufficient funds. Thu s, government prioritization of infrastructure
development; roads and power are l ikely to remain top most agenda, based on
projection and expectation of an increase in oil and gas revenue by mid -2015 of
about 5.6 percent, as non-oil sector of the economy i s projected to energise growth.
While between 2015 through 2017 period, growth is expected to average 5.7 percent
respectively. See figure 3.1.
25 Middleton .P. (2007), The End of Oil: the Gulf, Nigeria and Beyond
YEAR 2011 2012 2013 2014 2015 2016 2017
GDP
DEVELOPMENT
5.31 4.21 5.49 6.23 5.54 5.78 5.80
INFLATIONARY
TREND
10.83 12.22 8.50 8.05 8.78 8.10 7.52
SUMMATION 49.21 -4.30 -24.26 18.40 9.66 2.48 3.01
Figure 3.1. source: National Bureau of Statistics (2014).
Political economists have speculated further pressures on crude oil prices as a result
of political uncertainty and insecurity in Ni gerian environment as it were in previous
years of 1999, 2003, 2007 and 2011 respectively, witness only one year that had an
increase in inflation index. An upward pressure on inflati on rates depreciated the
Naira as inflation rose to 8.8 percent in first quarter of 2015, and expected to rem ain
moderately stable at 8.13 percent by the end of 2015 to 2017 period s. However, the
decline in crude oil prices had i ts toll on the value of oil exports, while the continued
depreciation of the local currency is expected to promise well for non -oil exports
goods. The depreciation also implies that imports are likely to be more expensi ve
and likely to slow down importatio ns activities. Thus, value of total t rade was
therefore projected to incre ase by 9.66 percent in year 2015, an average of 5.05
percent over the forecast period.
In 2014, Gross Domestic Product growth was about 5.59 percent in the first quart er
of 2014, a rate that was 0.54 percent lower than that of preceding quarter; yet, it was
about 1.76 percent greater than was recorded in the corresponding q uarter of year
- At 6.54 percent in the second quarter growth was 0.33 percent higher than
that of first quar ter. This was also over a percentage point greater than the rate of
5.40 percent recorded in previous year. The third quarter was relative to the second
quarter, which saw a slight downward growth, of about 0.32 percent to 6.2 percent.
Not with standing, this remained 1.06 percent greater than the year on year rate of
5.17 percent recorded in 2013.26
Real gross domestic product ( GDP) was about N15, 438,679.50 million in first
quarter of 2014, a quarter rise of 9.88 percent from N17, 132,164.77 million recorded
in the fourth quarter of 2013. The Nigerian economy gained growth in the second
and third quarters of 4.18 percent and 8.67 percent respectively.
There was a steady decline in the average growth of crude oil and gas output in year
- In first quarter 2014; crude oil production was about 2.26 million barrel per day
(Mbpd), valued at about N2, 612,066.21 million in nominal terms. The second
quarter of 2014 experienced a decrease of about 2.21 million ba rrels per day
(Mbpd), totally about N2, 633,328.61, of 7.6 percent increase with an average dollar
price of crude oil from $104.31 to $112.25. The third quarter experienced decline in
26 National Bureau of Statistics (2014).
production of crude oil of about 2.15 million barrels per day (Mbpd), va lued about
N2,328,257.79 million in nominal terms.
The oil sector real growth stood at about -6.60 percent in the first quarter of 2014.
This implies a 2.76 percent increase from the -9.36 percent gro wth recorded at the
end of 2013. That is about 4.79 percent grea ter than -11.40 percent earlier attained
in 20 13. The sector subsequently picked up in the second quarter, increasing to
about 5.14 percent in second quarter; and further increased by 21.57 percent from
2013 and decreased by -16.42 percent recorded in the corresponding quarter of that
year. Nonetheless, this growth was short lived and, by the third quarter slipped back
into the negative at -3.60 percent, an 8.74 percent decline from that of sec ond
quarter, but moved up to 11.12 percent towards the end of 2013.
The non-oil sector of the economy has contributed in sustaining growth of Nigerian
economy in 2014. At the first quarter of the same year, the non-oil sector growth was
at about 8.21 percent, despite being 0.57 percent lower in the previous year of 0.76
percent of 2013. By second quarter of 2013, there was a downward movement in the
growth rate of about 1.49 percent from the opening quarter of the year to about 6.71
percent greater than 2.17 percent points below that of second quarter of 2013. The
third quarter recorded an upward movement real growth, from about 0.79 percent to
about 7.51 percent yet; lower than that of 8.46 percent growth rate recorded in the
third quarter of 2013, as well as being lower than the 2014 peak of 8.21 percent.
However, year 2014 generally experienced decline in non -oil growth due to
slowdown in growth of service sector.
In year 2014, agricultural sector contributed about N3 , 033,970.43 million to real
gross domestic products (GDP) in the opening quarter of 2014, which is about 19.65
percent of the quarterly total. It further increased to about N3,360,450.48 million of
20.89 percent of the total amount in the second quarter of same year, and remitting
about 4, 655,322.16 million in third quarter, with 26.63 percent of N igeria’s real GDP.
Agriculture sector comprised of four divisions; Crop Production, Livestock, Forestry
and Fishing. The biggest of these divisions is Crop Production. A major driver of
growth of agricultural sector, con tributing about 85.91 percent and 90 .13 percent
growth in first, second and third quarters of 2014 respectively. Fishing division is the
fastest growing of th e sector, exhibited a growth of about 8.40 percent in the first
quarter of 2014, declined to about 4.89 percent and subsequently incr eased to 6.72
percent growth in the third quarter of year 2014.27
From the above scenario, there is a very strong indication that, oil and gas industry
remain a major economic determinant to economy growth irrespective of
contributions of other sectors in revenue generation. The oil and gas industry has
two major sector; upstream and downstream sectors. The U pstream refers to
activities such as exploration , production and delivery to export terminal of crude oil
27 National Bureau of Statistics (2014), Nigeria in 2014: Economic Review and 2015 – 2017 Outlook.
or gas. The Downstream compresses of commercial activities; logistic facilities,
marketing, refining, supply and distribution of petroleum. Previous studies on Nigeria
economy in the last decade show that the petrol eum industry has been playing
important role and dominates strategic position in the economic growth and
development of Nigeria
4.0. THEORETICAL FRAMEWORK
This study provides a summary of the theoretical analysis on the origin of crude oil
and gas, its economic relation ship to socio -political development of Nigeria. The
purpose is to first initiate a theoretical perspective on the issue of economic
management and progress; various mediums through which oil and gas may impact
growth and development follow each perspective. The study has shown valuable
hypothesis that there is significant positive relationship between oil and gas economy
and economic growth in Nigeria.28
Conventional saying before late 1970 was that natural oil and gas activities had
positive impact on growth. This view was shared by some school of thoughts;
political economists and neo -liberal economists who still holds such view, that
emergence of crude oil and natural gas in Nigeria has greatly positive impact on the
country’s foreign policy among committees of nations due to her economic strength .
The Neolithic school of thought posited that, abundance of a country’s natural
resources well harnessed and managed, is the only sure way to growth and
development. However, the mediums throu gh which oil gas sector could contribute
to economi c wealth of scale in oil produc ing countries have been identified:
generates huge revenues base that enables governments’ capital projects and
create employment opportunity for her citizens, based on expected investment
projection without recourse to taxation. On the issue of revenues generation,
petroleum industry tripled other sector s of the economy on revenue earnings as oil
producing nation. The little worries over the years; is leadership lapses and sectorial
corruption in the oil and gas industry, this has retrogressively taken the country
backward, thereby denying her of steady growth and development like other
progressive developing economy of the world.
Furthermore, Nigeria d erives huge for eign exchange earnings from export trade of
crude oil, despite its huge demand on domestic consump tion, its proceeds are used
to import other capital goods, such as raw material used by indigenous
manufacturing sectors. Another benefit of the oil and gas sector on th e economy is
the huge reserves base of the country capable of attracting huge investment seeds.
28 Akinyele Samuel .T. (2000), Srategic Marketing Management in the Oil and Gas: A Theoritical Framework.
That can be seen as a self -insured strategy agains t weakness of domestic and
foreign shocks exchange market. Oil and gas industry of any economy is the
economic spring board for development.
Nigerian oil and gas industry remains a very critical sector for growth and
development of the economy. For example, there are bye products from oil and gas
that are raw materials to other ind ustries. Such as; petrochemical industries,
manufacturing industries, and liquefied natural gas (LPG) provides gas for power
generation (electricity).
The potentials of oil and gas in dustry to development remains an enviable energiser
for industrialization , provides goods and services, create employment, open up the
economy to small and medium enterprises to grow a nd in a long run redistribute
wealth by gradual elimination of poverty. Oil and Gas sector encourages the inflow of
foreign resources through export of crude oil.
Empirically, few studies have pro vided findings in favour of oil and gas economic
potentials, growth and development of producing countries . Some of these studies
had not only reported that petroleum resources had positive impact on growth and
development but also found that single resource dependence has negative impact
on growth if n ot well managed towards diversification of investment . Several
analyses have posited that, petroleum resource null hypothesis; some other reasons
why resource -rich countries might suffer resource utilization inefficiency are due to
unprofessional human involvement in resource management and investments, and
precipitated, that leads to inefficient resource allocation. Empirical data has not been
very précised or conclusive in this regards, whether the emergence of oil and gas
are economic goods or not . Even among scholars, claimed that economic potentials
actually exist with the sector , but there is disagreement on what e xactly drives its
potentiality in some developed economy like Nigeria. Hence, further studies should
be emphases on the relationship between oil and gas potential and its economic
policy drive in developing economy. Reiterating the objectives of the petroleum
industry bill (PIB), and the oil and gas sectorial re-structuring, one will hope for a
better reform programme for that is just what Nig erians need to derive the needed
benefit from petroleum re sources, but such conclusion might just be hasty
generalization, rather, time might just be the healer.29
29 Baghebo .M. & Timothy Okule. A. (2012), The Impact of Petroleum on Economic Growth in Nigeria
5.0. FUTURE SUGGESTIONS AND RECOMMENDATIONS
Studies shows significant impact of the effect of oil and gas sector on the
socioeconomic prospect of Nigerian economy, with specific analysis to some salient
challenges posed as hindrances to growth and development of oil producing
developing countries, like Nigeria.
5.1. Suggestions for Future Study
From the above study, this research has been able to expose some salient
challenges confronting the economic potentials of Nigerian oil and gas industry
amidst its large advantages to grow the ec onomy. Future area a researcher should
concentrate upon is on the policy direction of the Nigerian oil and gas industry and
the journey thus far.
5.2. Study Recommendations
- Nigeria should internalise her corporate advantages on the potentials of oil
and gas to develop other sector of the economy.
- Government should deregulate the oil and gas industry to attract foreign and
indigenous investors,
- Nigerian economic sector should be entrepreneurial drive and heavily
competitiveness, rather than government dictating the mode of the economy,
- An urgent passage of petroleum industry bill (PIB) policy into law is imminent,
as the current legal framework is obsolete to modern oil and gas operations,
- Manpower development is Key, to national growth and development. Nigerian
government should invest heavily on human capital development.
- Nigerian should involve better turn aro und maintenance in the four refineries
for full capacity utilization and for maximum performances.
- Nigerian should explore the alternative sources of revenue generation through
agricultural sector. That is, revamping the sector for economic growth.
- The gas sector should be developed as alternative source of energ y to
petroleum for domestic and industrial usage.
.
6.0. CONCLUSION
This study has carefully discussed historical analyses of oil and gas and its potential
advantages’ to development of Nigerian economy, Its salient challenges hindering
the realization of her true potentials among committees of nations, and carefully
outlined its driving forces of growth and development in economy. The s tudy also
suggested viable strategies needed to enge nder sustainable development in oil and
industry in Nigeria . Therefore, it is belief, that if these options are faithfully pursued
and imbibed, Nigeria will reclaim her position in the global economy ranking and
attain her economic expectations by year 2020.
Furthermore, Nigeria should expand her projection on gas utilization through a build-
up of her gas reserves into economic wealth . While developing gas master plan
project, there is need to creating enabling environment for investment market. On
other hand, investment patronage like tax rebate or holiday should be given to
potential investor in the agricultural sector to revamp the sector as alternative source
for wealth creation. Human capital de velopment is also key to national growth; this
has been experienced and demonstrated in other countries of the world. This implies
that development depends very much on human knowledge and skills. For
development to take place, a country must be determined to have a well-trained,
professional, highly educated and skilled human resources to drive the natural
resource of nature to economic goods, wealth and growth’s needs. Literature on
growth and development posited human resource ( people) as the driving force for
any meaningful development to be actualized in any society. And unless there are
quality numbers of suitably qualified people, development could be a mirage.
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