Brief History of Petroleum Industry in Nigeria
Summary of the assignment: This assignment focuses on the challenges faced by the petroleum industry in Nigeria and proposes solutions to address these challenges. It covers topics such as the history of the petroleum industry in Nigeria, challenges faced by the industry including corruption, oil theft, government underfunding, inadequate maintenance of refineries, and environmental pollution caused by oil spillage and gas flaring. The assignment also discusses the effects of these factors on Nigeria, including their impact on health, global warming, atmospheric layer, ocean, and the inconsistency of oil prices in the international market. The assignment concludes with recommendations to address these challenges and improve the petroleum industry in Nigeria.
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Added on 2022-08-18
Brief History of Petroleum Industry in Nigeria
Summary of the assignment: This assignment focuses on the challenges faced by the petroleum industry in Nigeria and proposes solutions to address these challenges. It covers topics such as the history of the petroleum industry in Nigeria, challenges faced by the industry including corruption, oil theft, government underfunding, inadequate maintenance of refineries, and environmental pollution caused by oil spillage and gas flaring. The assignment also discusses the effects of these factors on Nigeria, including their impact on health, global warming, atmospheric layer, ocean, and the inconsistency of oil prices in the international market. The assignment concludes with recommendations to address these challenges and improve the petroleum industry in Nigeria.
Added on 2022-08-18
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Running head: OIL AND GAS
Oil and Gas
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Oil and Gas
Name of the Client
Name of the Author
Course ID
OIL AND GAS1
Table of Contents
1: Introduction............................................................................................................................2
1.1: Brief History of Petroleum Industry in Nigeria..............................................................2
1.2: Challenges of Facing Petroleum Industry.......................................................................3
1.2.1: International Oil Companies in Nigeria (IOC):.......................................................3
1.2.2: The Nigeria Petroleum Act:.....................................................................................5
1.2.3: Nigeria Local Content Development Act:...............................................................7
1.2.4 Human Resource Shortfalls in Nigeria Petroleum Industry:.....................................8
2: Factors Affecting Petroleum Industry in Nigeria:................................................................10
2.1: Corruption.....................................................................................................................10
2.2: Oil Pilfering and Pipeline Damage:..............................................................................12
2.3: Government Underfunding:..........................................................................................13
2.4: Inadequate and lack of maintenance refineries status:..................................................14
2.5: Oil spillage/Gas Flaring causing environmental pollution:..........................................16
2.51: Factors effecting on health:.....................................................................................17
2.52: Global warming:.....................................................................................................17
2.53: Effects on the atmospheric layer:............................................................................17
2.54: Effect on Ocean:......................................................................................................18
2.55: Inconsistencies in the oil price in international market:.........................................18
3.0 Factors effecting economy of Nigeria................................................................................19
3.1 Corruption......................................................................................................................19
Table of Contents
1: Introduction............................................................................................................................2
1.1: Brief History of Petroleum Industry in Nigeria..............................................................2
1.2: Challenges of Facing Petroleum Industry.......................................................................3
1.2.1: International Oil Companies in Nigeria (IOC):.......................................................3
1.2.2: The Nigeria Petroleum Act:.....................................................................................5
1.2.3: Nigeria Local Content Development Act:...............................................................7
1.2.4 Human Resource Shortfalls in Nigeria Petroleum Industry:.....................................8
2: Factors Affecting Petroleum Industry in Nigeria:................................................................10
2.1: Corruption.....................................................................................................................10
2.2: Oil Pilfering and Pipeline Damage:..............................................................................12
2.3: Government Underfunding:..........................................................................................13
2.4: Inadequate and lack of maintenance refineries status:..................................................14
2.5: Oil spillage/Gas Flaring causing environmental pollution:..........................................16
2.51: Factors effecting on health:.....................................................................................17
2.52: Global warming:.....................................................................................................17
2.53: Effects on the atmospheric layer:............................................................................17
2.54: Effect on Ocean:......................................................................................................18
2.55: Inconsistencies in the oil price in international market:.........................................18
3.0 Factors effecting economy of Nigeria................................................................................19
3.1 Corruption......................................................................................................................19
OIL AND GAS2
3.2 Oil theft and pipeline vandalism....................................................................................22
3.3 Government underfunding.............................................................................................23
3.4 Poor refineries status......................................................................................................26
3.5 Oil spillage/gas flaring causing environment pollution.................................................28
4.0: Solution and Recommendations:......................................................................................31
5.0: Conclusion:.......................................................................................................................32
6.0: References:........................................................................................................................34
3.2 Oil theft and pipeline vandalism....................................................................................22
3.3 Government underfunding.............................................................................................23
3.4 Poor refineries status......................................................................................................26
3.5 Oil spillage/gas flaring causing environment pollution.................................................28
4.0: Solution and Recommendations:......................................................................................31
5.0: Conclusion:.......................................................................................................................32
6.0: References:........................................................................................................................34
OIL AND GAS3
1: Introduction
1.1: Brief History of Petroleum Industry in Nigeria
The modern world is dependent on the massive supply of energy to fuel all the
economic activities particularly transportation, industrial procedure, communication,
education, security, food production and health delivery system. Energy is considered as life
force of every economies across the world and worldwide economic development is
dependent on the reliable, satisfactory and reasonable supply of energy (Monday, 2015).
Historical facts have suggested that industrialisation as well as growth rate of any nation is
reliant on energy available in that nation and till the extent the energy is used.
Nigeria is gifted with huge amount of energy “resources, non-renewable and
renewable” however most of its economic events involves oil and gas that is finite and not
environmentally friendly. For instance, the “oil and gas industry of Nigeria” accounts for
80% of the government revenue while 90-95% of the export proceeds and 90% involves
earnings from “foreign exchange” (Owolabi, 2015). Around 64% of the nation’s electricity is
produced from oil and gas and the transportation system in Nigeria is wholly reliant on oil
and gas.
The Nigerian petroleum industry has fallen short of energy security which not only
involves adequate amount of energy reserve but has also fallen short of availability,
accessibility and affordability. The Nigerian petroleum industry is regularly characterised by
unbalanced supply of fuel and fluctuations in prices, epileptic supply of power to around 40%
of the population in the country, environmental pollution and imports of greater than 85% of
petroleum products due to low refining capacity (Asikhia & Awolusi, 2015). The purpose of
this study is to showcase energy challenges in Nigeria and the danger posed to energy
1: Introduction
1.1: Brief History of Petroleum Industry in Nigeria
The modern world is dependent on the massive supply of energy to fuel all the
economic activities particularly transportation, industrial procedure, communication,
education, security, food production and health delivery system. Energy is considered as life
force of every economies across the world and worldwide economic development is
dependent on the reliable, satisfactory and reasonable supply of energy (Monday, 2015).
Historical facts have suggested that industrialisation as well as growth rate of any nation is
reliant on energy available in that nation and till the extent the energy is used.
Nigeria is gifted with huge amount of energy “resources, non-renewable and
renewable” however most of its economic events involves oil and gas that is finite and not
environmentally friendly. For instance, the “oil and gas industry of Nigeria” accounts for
80% of the government revenue while 90-95% of the export proceeds and 90% involves
earnings from “foreign exchange” (Owolabi, 2015). Around 64% of the nation’s electricity is
produced from oil and gas and the transportation system in Nigeria is wholly reliant on oil
and gas.
The Nigerian petroleum industry has fallen short of energy security which not only
involves adequate amount of energy reserve but has also fallen short of availability,
accessibility and affordability. The Nigerian petroleum industry is regularly characterised by
unbalanced supply of fuel and fluctuations in prices, epileptic supply of power to around 40%
of the population in the country, environmental pollution and imports of greater than 85% of
petroleum products due to low refining capacity (Asikhia & Awolusi, 2015). The purpose of
this study is to showcase energy challenges in Nigeria and the danger posed to energy
OIL AND GAS4
security within the country particularly being a mono-cultural economy. The paper will also
lay down the possible solution to overcoming the challenges in Nigerian petroleum industry.
1.2: Challenges of Facing Petroleum Industry
1.2.1: International Oil Companies in Nigeria (IOC):
The sorry state of circumstances relating to lower capacity use that developed and yet
existed presently is mainly because of following reasons;
a. Poor governance
b. No such significant maintenance has been conducted by the government in any of its
refineries since 2008. The last time a maintenance conducted by government was in
2000. This must be considered against the recognised best practice across the world
that maintenance must be performed on refineries in every two or three years.
c. Pipelines that supplies crude oil in refineries and those that convey products from
them are vandalized regularly (Nwapi, 2015). This contributes in significant revenue
loss and deteriorated the problems of under-recovery of crude price.
d. Even though the plants were able to function steadily, the cost of petroleum motor
spirit is constantly governed by government, resulting in serious “under-recovery of
crude price”.
The price of crude oil which involves 90% of the exports and 70% of the Nigeria’s
consolidated budgetary revenues has declined by around 70% ever since second half of
November 2016 and has pulled down Nigerian economy in recession, crisis in exchange rate
and stagflation. Regrettably, this regime of lower prices of oil in Nigerian petroleum
continued to last till 2019. As forecasted, the prices of crude oil would remain approximately
$50 per barrel by 2020. This cannot be viewed as good news for Nigeria and its petroleum
industry as requires serious investment since investors and International Oil Companies
security within the country particularly being a mono-cultural economy. The paper will also
lay down the possible solution to overcoming the challenges in Nigerian petroleum industry.
1.2: Challenges of Facing Petroleum Industry
1.2.1: International Oil Companies in Nigeria (IOC):
The sorry state of circumstances relating to lower capacity use that developed and yet
existed presently is mainly because of following reasons;
a. Poor governance
b. No such significant maintenance has been conducted by the government in any of its
refineries since 2008. The last time a maintenance conducted by government was in
2000. This must be considered against the recognised best practice across the world
that maintenance must be performed on refineries in every two or three years.
c. Pipelines that supplies crude oil in refineries and those that convey products from
them are vandalized regularly (Nwapi, 2015). This contributes in significant revenue
loss and deteriorated the problems of under-recovery of crude price.
d. Even though the plants were able to function steadily, the cost of petroleum motor
spirit is constantly governed by government, resulting in serious “under-recovery of
crude price”.
The price of crude oil which involves 90% of the exports and 70% of the Nigeria’s
consolidated budgetary revenues has declined by around 70% ever since second half of
November 2016 and has pulled down Nigerian economy in recession, crisis in exchange rate
and stagflation. Regrettably, this regime of lower prices of oil in Nigerian petroleum
continued to last till 2019. As forecasted, the prices of crude oil would remain approximately
$50 per barrel by 2020. This cannot be viewed as good news for Nigeria and its petroleum
industry as requires serious investment since investors and International Oil Companies
OIL AND GAS5
(IOCs) cut down significantly on their CAPEX internationally. At present, Nigeria’s offshore
rig count has fallen to simply 7. As estimated by De Vita et al., (2016) the international
upstream investment for 2015 to 2020 has been reduced by US $1 trillion and that 56
international oil companies have cut their E&P spending by 49% or by $230 billion relative
to the level set in 2016. The macro and financial impact of lower price of oil pose as a
challenge to the Nigerian petroleum industry (Rui et al., 2018). The Nigerian petroleum
industry is very much vulnerable to the shocks in the Oil and gas market. Therefore, decline
in price of crude oil/gas and quantity generated would result in severe decline in receipts of
foreign exchange, larger disproportionate pressure, foreign exchange induced inflation,
reduced government revenues, government inability at every levels to meet its objectives,
stagflation and stark economic crisis.
The NNPC with the help of its pipelines and products marketing company (PPMC)
administers the facilities and infrastructure that involves the supply as well as distribution of
crude oil and refined petroleum products. This involves 5 terminals, 21 petroleum depots, 750
km crude oil pipelines and 4400 km of products pipeline networks. The crude lines are
related to export terminals of major international oil generating companies such as Shell
Petroleum Development Company (SPDC) and Chevron Nigeria Limited that accounts for
main feedstock for refineries totalling 445,000 bpsd capacity (Onwe, 2014). The SPDC is
expected to have more than 6000 km of pipelines and flow lines, 87 flow stations, two
terminals for export and greater than 1000 producing wells. Besides this, Chevron
administers nine oil mining leases (OMLs) and a terminal for export. These two operating
companies accounts for large proportion of crude oil requirement for refineries. Hence,
unplanned shut down of crude oil pipeline to the terminals has immediate effect on the
overall performance of the refineries during that period.
(IOCs) cut down significantly on their CAPEX internationally. At present, Nigeria’s offshore
rig count has fallen to simply 7. As estimated by De Vita et al., (2016) the international
upstream investment for 2015 to 2020 has been reduced by US $1 trillion and that 56
international oil companies have cut their E&P spending by 49% or by $230 billion relative
to the level set in 2016. The macro and financial impact of lower price of oil pose as a
challenge to the Nigerian petroleum industry (Rui et al., 2018). The Nigerian petroleum
industry is very much vulnerable to the shocks in the Oil and gas market. Therefore, decline
in price of crude oil/gas and quantity generated would result in severe decline in receipts of
foreign exchange, larger disproportionate pressure, foreign exchange induced inflation,
reduced government revenues, government inability at every levels to meet its objectives,
stagflation and stark economic crisis.
The NNPC with the help of its pipelines and products marketing company (PPMC)
administers the facilities and infrastructure that involves the supply as well as distribution of
crude oil and refined petroleum products. This involves 5 terminals, 21 petroleum depots, 750
km crude oil pipelines and 4400 km of products pipeline networks. The crude lines are
related to export terminals of major international oil generating companies such as Shell
Petroleum Development Company (SPDC) and Chevron Nigeria Limited that accounts for
main feedstock for refineries totalling 445,000 bpsd capacity (Onwe, 2014). The SPDC is
expected to have more than 6000 km of pipelines and flow lines, 87 flow stations, two
terminals for export and greater than 1000 producing wells. Besides this, Chevron
administers nine oil mining leases (OMLs) and a terminal for export. These two operating
companies accounts for large proportion of crude oil requirement for refineries. Hence,
unplanned shut down of crude oil pipeline to the terminals has immediate effect on the
overall performance of the refineries during that period.
OIL AND GAS6
The Nigerian petroleum industry remains vulnerable to the shocks in the oil and gas
market. Hence, a decline in the price of crude/gas and quantity generated during the second
half of the 2014 will result in severe decline in the foreign exchange receipts, larger amount
of disproportionate pressure on Niara, foreign exchange induced inflation, reduced
government revenues, in ability of governments at every levels to meet satisfy their
obligations, stagflation and huge economic crisis (Akenbor & Agwor, 2015). A report
published in 2014 provided a correlation amidst the effect of lack of feedstock and the poor
state of reliable operations of refineries. The Nigerian petroleum industry also faces the issues
of supply chain as this issues contributes 53% of the unplanned shut downs whereas
equipment failure contributes 47% shut downs. Matters have further been worsened due to
the sabotage of crude oil pipelines that feeds the refineries and product evacuation pipelines.
As stated by Olu-Daniels & Nwibere, (2014) the major challenges faced by the IOC is
breakdown of pipeline with a total of 16,083 breakdowns has been recorded over the last ten
years. While 398 pipeline breaks represent 2.4% mainly due to raptures, and the rest of
15,685 breaks have translated from the case of vernalisation.
Figure 1: Figure representing Nigerian Petroleum Industry Refinery Categories
Source: (Okafor & Aniche, 2014)
The Nigerian petroleum industry remains vulnerable to the shocks in the oil and gas
market. Hence, a decline in the price of crude/gas and quantity generated during the second
half of the 2014 will result in severe decline in the foreign exchange receipts, larger amount
of disproportionate pressure on Niara, foreign exchange induced inflation, reduced
government revenues, in ability of governments at every levels to meet satisfy their
obligations, stagflation and huge economic crisis (Akenbor & Agwor, 2015). A report
published in 2014 provided a correlation amidst the effect of lack of feedstock and the poor
state of reliable operations of refineries. The Nigerian petroleum industry also faces the issues
of supply chain as this issues contributes 53% of the unplanned shut downs whereas
equipment failure contributes 47% shut downs. Matters have further been worsened due to
the sabotage of crude oil pipelines that feeds the refineries and product evacuation pipelines.
As stated by Olu-Daniels & Nwibere, (2014) the major challenges faced by the IOC is
breakdown of pipeline with a total of 16,083 breakdowns has been recorded over the last ten
years. While 398 pipeline breaks represent 2.4% mainly due to raptures, and the rest of
15,685 breaks have translated from the case of vernalisation.
Figure 1: Figure representing Nigerian Petroleum Industry Refinery Categories
Source: (Okafor & Aniche, 2014)
OIL AND GAS7
1.2.2: The Nigeria Petroleum Act:
Without any doubt the Nigerian petroleum industry is plagued by several impending
problems. The first issue involves the licenses and leases given under the Petroleum Act
1969. As per this act, the petroleum ownership resources within the country is vested in the
hands of Nigerian federal government however the Act specifies that the citizens and other
firms can be provided rights (Okafor & Aniche, 2014). The oil exploration license is hardly
used these days however the act specifies the lease expires on 31 December of the year in
which the grant was provided the activities were performed based on this licence comprising
of preliminary research by surface, geological and geophysical methods comprising of aerial
surveys but excludes drilling lower than 91.44 metres. The oil prospecting license grants
exclusive rights to explore and viewpoint for petroleum and its maximum initial term of five
years. The act also states that the area applied for is anticipated to have boundaries of straight
lines that runs from north to south and east to west directions.
The Oil Mining Lease (OML) provides exclusive grants over the lease area and also
confers the interests relating to petroleum discovered by the lease. The duration of OML
should not exceed twenty years and it can be renewed (Elenwo & Akankali, 2014). There are
certain things which is not correct within this act and continues to be the number one legal
framework regulating the petroleum industry. The act has only mentioned about licenses and
lease but has failed to recognize the contractual rights which is involved in the Nigerian
petroleum industry. As participation has resulted in joint ventures and there are risk service
contracts and production sharing contracts which is not mentioned within this Act. This
somewhat makes the act old since other modern types of licenses and lease are not stated in
this act and it is supposed to be the number one legal framework that governs the oil and gas
industry.
1.2.2: The Nigeria Petroleum Act:
Without any doubt the Nigerian petroleum industry is plagued by several impending
problems. The first issue involves the licenses and leases given under the Petroleum Act
1969. As per this act, the petroleum ownership resources within the country is vested in the
hands of Nigerian federal government however the Act specifies that the citizens and other
firms can be provided rights (Okafor & Aniche, 2014). The oil exploration license is hardly
used these days however the act specifies the lease expires on 31 December of the year in
which the grant was provided the activities were performed based on this licence comprising
of preliminary research by surface, geological and geophysical methods comprising of aerial
surveys but excludes drilling lower than 91.44 metres. The oil prospecting license grants
exclusive rights to explore and viewpoint for petroleum and its maximum initial term of five
years. The act also states that the area applied for is anticipated to have boundaries of straight
lines that runs from north to south and east to west directions.
The Oil Mining Lease (OML) provides exclusive grants over the lease area and also
confers the interests relating to petroleum discovered by the lease. The duration of OML
should not exceed twenty years and it can be renewed (Elenwo & Akankali, 2014). There are
certain things which is not correct within this act and continues to be the number one legal
framework regulating the petroleum industry. The act has only mentioned about licenses and
lease but has failed to recognize the contractual rights which is involved in the Nigerian
petroleum industry. As participation has resulted in joint ventures and there are risk service
contracts and production sharing contracts which is not mentioned within this Act. This
somewhat makes the act old since other modern types of licenses and lease are not stated in
this act and it is supposed to be the number one legal framework that governs the oil and gas
industry.
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