Challenges and Solutions: Nigeria's Oil and Gas Sector Report

This report provides a comprehensive analysis of the Nigerian oil and gas industry, examining its history, current challenges, and potential solutions. It delves into the impact of International Oil Companies (IOCs), the Nigeria Petroleum Act, and the Nigeria Local Content Development Act. The report identifies key challenges such as corruption, oil theft, government underfunding, inadequate refinery maintenance, and environmental pollution from oil spillage and gas flaring. It explores the factors affecting the industry and their economic consequences, including the impact on health, global warming, and the atmospheric layer. Furthermore, the report offers recommendations to address these issues and improve the industry's sustainability and contribution to the Nigerian economy. The report is well-researched, citing numerous sources to support its findings and recommendations.

Running head: OIL AND GAS
Oil and Gas
Name of the Client
Name of the Author
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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

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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

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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

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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

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(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.

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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)

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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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Another problem is the regimes relating to compensation within this act. Oil is vested
within the federal government and they can take the decision of revoking a certification of
occupation granted to the person for the purpose of exploration and petroleum resources.
However, the law demands that such compensation should be paid to the person.
Furthermore, section 36 to Schedule 1 of the Petroleum Act involves the payment of “fair”
and “adequate” amount of compensation which involves the rights including and to specific
plants. Beside the outside crops and economic trees, oil pollution and activities of oil
companies can and may affect the fish ponds, farms, canals, water ways, roads and buildings.
In order to solve this problem Bello et al., (2016) views that the Act must be reviewed in
order to describe the meaning of “fair” and “adequate”.
There are other issues relating to pollution and penalties for committing the acts of
pollution and this is mainly concerned with The Petroleum (Drilling and Production)
Regulations 1969. The Petroleum Act usually empowers the minister under “sec 9 (1)(b)
(iii)” to frame regulations involving prevention of pollution of waterways and atmosphere
(Akinrele, 2014). The provision which is imposed creates a vague legal duty since the
operator is enjoined to take steps to control and possibly end it. It ignores the land pollution
while other regulations are not stringent since it comprises of unrealistic and unlikely
revocation of penalty, given it is contravened by the operator. Hence, certain part of the
Petroleum Act must be reviewed because it does not suit the current state of things within the
nation or in the international segment.
1.2.3: Nigeria Local Content Development Act:
According to Anifowose et al., (2014) it should be noted that local content is regarded
as standard price which is undertaken by resource rich nation of the world. Some nations may
approach it based on the view of economic tool as this will eventually result in creation of
local capacity while others view it as protectionist measure to safeguard their service and

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technology from disproportionate foreign competition. In context of Nigerian petroleum
industry, the local content might not lead to addition of value if certain underlying conditions
are not present. For instance, even though exclusive treatment is provided to local service
industry for fabrication works, given the local skills and ability are developed and supported
and other materials not lowered significantly for local suppliers, it may be representing that
the local content is in fact costing an economy more (Saidu & Sadiq, 2014). This is because
the money which may have been available for tax purpose or used optimally in other
industrial sectors may be spent on supporting the local supply and service industry.
As a general rule, local content works optimally to generate value where the required
technical and vocational education and training capacity is present. The value of local content
with the help of development of Technical and Vocational Education and Training to
Nigerian petroleum industry is three-fold. This type of value is mainly derived from certain
important capacities and abilities within the Nigerian economy which has noteworthy inter-
sectoral applications. The local content can be targeted and used for harnessing a hub of skills
and technical competence that can be implemented on wide number of industries.
There is hardly any doubt that the Nigerian Local Content Act adds value to Technical
and Vocational Education and Training (TVET) in Nigeria. Even though the board is
accountable for implementation but has failed to provide TVET institution and personnel
with the opportunity of contributing their quota to successful application and sustenance of
Nigerian Local Content Act. Hence, the Act is yet to effect favourably on the TVET
institutions (Ekhator, 2016). It is imperative for Nigeria to attain the envisioned goals and
objectives of the Local Content Act, the government, the stakeholders and board that is in
charge of implication and monitoring of Local Content Act.

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1.2.4 Human Resource Shortfalls in Nigeria Petroleum Industry:
The Nigerian petroleum industry suffers from the shortfall of human resource. The
industry lacks people inside the labour market that have needed qualifications, training and
needed experience. This is worsened inside the petroleum industry because of the
requirement of highly skilled and highly experienced people within the managerial positions.
Additionally, the higher cost involved in training and development of local people acts as a
prohibitive. Apart from the technical skills and competencies there are also cultural norms
which may not be compatible with the Nigerian petroleum industry needs (Oyewunmi &
Olujobi, 2016). The MNCs should take into account the intercultural sensitivities and the
local context for competing internationally. With under supply of top talents results in
competition for same people within the different companies from numerous sectors.
The human resource shortfall in Nigeria and the lack of needed talent is mainly due to
the mismatch among the provision of skills by the public education system and the needs
within the industry. Furthermore, poor leadership and limited government investment in the
alignment education based on the requirement of industry has contributed to such mismatch.
As argued by Awuzie, (2014) companies have struggled traditionally to apply successful
strategies of localization. This is mainly linked regularly to unsuitable succession planning
where employees are promoted at an early stages and to an unsuitable position or at the
wrong people are selected. This type of compounds biases inside the MNCs towards
employment of expatriates results in the exclusion of local people.
As suggested by Ozoro, (2016) the legislative targets of government towards
succession planning timelines can place pressure on the companies to hire and promote very
early. It is argued that ambiguous and ineffective localization policy designs can create a
negative effect on the Nigerian petroleum industry. As claimed by Miko & Kamardin, (2016)
the pressure of localizing the unsuitable individual can arise not only from the government

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but might also arise from the local management and parent firms. Wrong selection, training
and planning of expatriate workforce is regarded as the most commonly agreed barriers to
localization.
The attitudes of the local people can impede the localization. For instance, an
underestimation by the local people regarding the skills and needed requirement for a specific
role. As per the section 30 and 31 it makes an obligation on the operators to offer training to
the Nigerians where the Nigerians are employed due to the lack of training and offer a
succession plan for the Nigerians to understudy to an expatriate for a maximum time period
of 4 years.
By virtue of section 32 the expatriate workforce for an operator or project promoter is
restricted to a maximum of 5% of the management position as might be approved by Board.
With reference to section 33 all the applications for expatriate quota should at first be referred
to Board (Aye, 2017). The act imposes a strict measure on expatriate employment in Nigerian
petroleum industry. The management position for expatriate is restricted to 5% in regard to
every project. The overall objective of the local content act is to safeguard the indigenes in
Nigeria to produce job opportunities for the Nigerians by keeping the income and tax within
the Nigeria to assure that the international companies does not only focus on the expatriates
and indigenes to the detriment of Nigerians. It is very unfortunate that a reverse situation is
prevalent in Nigeria. Even though with all types of penalties are put in place and regulations
the overseas companies get away by not giving employment to Nigerians in every
professional level. A large number of Nigerians are found to be employed in the lower level
with little emphasis are given in highly specialized levels.

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2: Factors Affecting Petroleum Industry in Nigeria:
2.1: Corruption
One of the greatest threats to the economic as well as political development for any
country is the corruption. Corruption is recognized as a notable obstacle militating against the
rapid growth and development of the Nigerian economy. It weakens good management,
basically distorting the policy of public, resulting in misappropriation of resources, troubles
the private sector and development in private segment (Hassan & Kouhy, 2015). Following
the discovery of petroleum in Nigeria, it resulted in huge corruption in the petroleum industry
of Nigeria.
The Nigerian petroleum industry is largely plagued by endemic corruption. In the
latest scandal that involves the Nigerian national petroleum corporation (NNPC), the nation’s
official audit revealed that approximately $19 billion of oil revenues have went missing
through oil theft and corruption. As per some estimates, approximately $400 billion has
vanished in an identical fashion ever since the country gained independence in 1960. This
makes up the second largest crime in the oil industry in country. It is projected that
approximately 200,000 barrels per day is stolen by the sophisticated network of previous
warlords, corrupt officials and local businessmen. As per Seiyaboh & Izah, (2017) the type of
endogenous corruptions in the industry comprises of overpricing, recycling of inventory,
syndicated bidding, espionage, collusion and fraud. The corruption in the Nigerian petroleum
industry has been going on ever since the discovery of oil in the commercial quantities.
During the year 2013, the then president of Nigerian Central Bank wrote to president
to describe the condition of Oil Company NPC was unable to remit $20 billion of oil revenue
that was owed to state. As per the inquiry the state oil group derived a revenue of $67 billion
from the sale of oil in the previous 19 months (Ocheni, 2015). Out of which 10.8 billion was

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unaccounted for. This huge amount of money is yet to be recovered since counter allegations
have been made.
As per the reports published by House of Representatives Committee it has
recognized that the shadowy Nigerian National Petroleum Company is ranked in the world as
the least transparent company, being the key culprit. The company was single handedly
accountable for around half of the siphoned subsidiary funds and was found not to be held
responsible to anyone or authority. Around seventy-two fuel importers, some with the
allegedly close links to senior officials were also singled out. There was also an instance
where the payments amounting to $6.4 million flowed from state treasury to 128 times inside
the 25 hours to unknown entities.
2.2: Oil Pilfering and Pipeline Damage:
Oil theft can be considered as nefarious commercial craft that is related with the
criminal gangs and militants crude from pipelines for the local refining where the stole crude
are then where they are sold to produce more money (Oyewunmi & Oyewunmi 2016). While
pipeline canalisation is regarded as the determined or a deliberate act of damaging the
pipeline with the main objective of stealing crude oil and other related petroleum products.
Nigeria presently uses pipeline as the means of transporting oil from one place to
another within the nation, the pipeline can be considered as inappropriately secured which
makes it prone to constant attack by vandals. In Nigerian petroleum industry the scope of oil
theft can be divided in two parts, the small scale and the large scale. At small scale, the illegal
refineries which is located in the Niger delta involves crude that are stolen by small traders
(Nwagbara & Brown, 2014). While large scale comprises of siphoning oil from the pipeline
on land or within water and resulting it in a small barges, through which it is transported to
bigger ships in the gulf of guinea which carries the stolen stuff to international refineries.

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The oil and vandalisation is viewed as the major problems in Nigerian Petroleum
Industry since it lowers the revenue which is needed for the nation and impacts the
international image of the nation. Nigeria can be viewed as the nation which is exclusively
dependent on the petroleum as the means of economic development and oil is viewed as the
basis of economic life (Onyi-Ogelle, 2016). The act of oil theft and pipeline canalisation is
viewed as main threat to the survival of Nigeria as a nation.
Oil theft and pipeline vandalisation is viewed as practice that is adopted by rich and
poor, the rich steal oil for their private purpose and produce them in private refineries to
ultimately sell it for their own benefit. The poor seeks to destroy the pipeline by transporting
the petroleum and stealing the petrol for their private use (Odetunde & Ufodiama, 2017). The
oil theft and pipeline vandalisation can be considered to have encouraged because of the
flourishing black market, higher rate of bribery and corruption, foreign buyer of stolen crude
and inadequate funding and resources to battle the oil theft and pipeline vandalisation.
Figure 2: Figure representing Pipeline Vandalisation in Nigeria

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Source: (Adewale & Mustapha, 2015)
2.3: Government Underfunding:
Nigeria is perceivably as the nation that is blessed with petrol. The Nigerian
Petroleum Industry has been very much vibrant ever since the discovery of crude oil in 1986
by the Shell Group (Adewale & Mustapha, 2015). Nevertheless, in spite of the vibrancy of
this segment over the past years, but recently it is noticed that there are several challenges
and vices which has caused ambiguities in the smooth organisation of the sector, thereby
hindering the growth and expansion of the sector.
A regularly faced problem in the Nigerian Petroleum Industry is the inability of the
government through the NNPC and national oil company to meet the obligations of funding,
particularly to the joint venture operations (Nwapi, 2016). The participation of the federal
government, with the help of NNPC over the years has represented a lack of financial ability
to fund the projects of Joint Venture among the NNPC and IOC.
The present slump in the price of crude oil in the global market has aggravated the
situation since it has lowered the revenue for government, weakened its capacity of raising
fund for joint venture projects (Appel et al., 2015). As per the chairmen of Lagos Chamber of
Commerce and Industry and Managing Director for Nigeria Mid-Africa the level of funding
has not been very much adequate and has hindered the operations in order to pursue the
drastic amount of growth opportunities within the crude oil exploration for the nation.
The federal government through the Nigerian National Petroleum Corporation is
facing the challenge of funding that is inhibiting the sectorial growth. The arrangement for
joint venture between the NNPC and international oil companies currently accounts for
greater than 60 per cent of the Nigeria’s crude oil production however the NNPC has
regularly defaulted in the payment of its counterpart funding obligations (Onoh, 2017).

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Certainly, the activities of the petroleum oil sector in Nigeria have been hampered greatly and
it is grounded by the challenges that is faced by Nigerian government.
2.4: Inadequate and lack of maintenance refineries status:
The Nigerian Petroleum Industry suffers from the issues of refineries which is
regarded as the core factor in lack of adequate level of output in crude oil. According to the
reports, for more than twenty years the equipment have remained same as it has neither
changed nor it has been maintained (Ajonbadi, 2015). There is a rising apprehensions that the
sharp drop in the functionalities of domestic refineries might endanger the future of the
chemical market which is valued at about $110 million.
Figure 3: Figure representing refinery Status of Nigerian Petroleum Industry
Source: (Otene et al., 2016)

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Figure 4: Figure representing refinery Status of Nigerian Petroleum Industry
Source: (Senoo & Armah, 2015)
2.5: Oil spillage/Gas Flaring causing environmental pollution:
Environmental pollution can be defined as the substances and activities where both
the human and the natural causes pollution and degradation of numerous components in the
environment. These components mainly comprises of the soil, fresh water, biodiversity,
atmosphere and physical environment (Otene et al., 2016). Oil spills are generally considered
accidental or intentionally releasing petroleum hydrocarbon in the air, sea, and land because
of the human activity. Oil spills are held as common occurrences in Nigeria, they happen
because of the wide number of causes resulting in corrosion of pipeline and tanker. Oil spill
has created major effect on the environment. Where oil spills happen in a highly populated
area, it destroys the crops and aquacultures by contaminating the ground water and soils.
Consuming the dissolved oxygen through bacteria feeding on the hydrocarbons also
results in death of fish. The largest contributor of the oil spills is the rupturing or leakage of

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the production infrastructures which is old and lacks constant inspection as well as
maintenance.
Sabotage is considered as the greater contributor of the oil spillage, it mainly happens
because of the bunkering where the pipeline is illegally tapped by the saboteur. At times
during the extraction of oil, pipeline are damaged and demolished. At times the damaged
pipeline goes unnoticed for several days and repairs of those damaged pipelines takes much
longer. More gas is flared in Nigeria than anywhere else across the world (Senoo & Armah,
2015). In Nigeria several oil spill degradation has been ongoing threat. For instance, Oil
Giant Shell pays an amount of E55m (around N15 billion) as the compensation resident of
Bodo area of Rivers state where no oil spills happens in august and December. The smoke
released damages the people that are living nearby. The flare which is released creates an
impact on the livelihood and exposes them to the increase in the risk of premature deaths,
illness in child respiratory system and cancer.
Nigerian regulations in the Petroleum Oil Industry is weak and enforcement is stern
which in all essential is self-regulating in the industry. The provision and legal statutory
obligation prevents the environmental pollution and punishes those that breaches the
provision.
2.51: Factors effecting on health:
Oil spills and gas flaring has numerous impact on health. Some of the most important
harmful effects are perinatal, infant mortality, disorder in respiratory system, allergy,
malignancies, cardiovascular disorder, rise in the stress oxidative and numerous other
harmful effects (Wilson, 2014). The industrial machine that is used in production can result in
some irreversible loss of hearing.

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2.52: Global warming:
This is regarded as the constant build-up of greenhouse gases in the atmosphere in the
Petroleum Oil Industry. This gases that comprises of the carbon dioxide, methane, nitrous
oxid and chloroflurocarbon, blocks some of the heat radiated from the earth to result in the
greenhouse effect (Konne, 2014). There are certain important causes that has resulted in the
increase in the greenhouse gases are the burning of fossil fuel for energy and transport, the
cutting down of trees in forest or deforestation has led to the reduction in the carbon dioxide
absorption and usage of techniques which pollutes.
2.53: Effects on the atmospheric layer:
The depletion in the ozone layer is considered as another dimension of problem that
results in the oil spillage, most importantly the flaring that results in atmospheric pollution.
Ozone is considered as the highly vital component in the atmosphere that protects the life of
human as well as other life that lives on earth from the harmful effects of the short wave
length ultra violet heat from the sum. The constant accumulation of CFCs arising from gas
has resulted in thickness of ozone layer to be reduced drastically. This ultimately contributes
to the climatic change and depletion in the ozone layer. As per the studies conducted by
Kingsley-Akpara & Iledare, (2014) ultra violet radiation creates an impact on certain vital
organs of human beings, this namely includes human immune system, skin and eyes.
2.54: Effect on Ocean:
When an oil spill happens on water, it spreads immediately. There is also an
evaporation of gaseous and liquid components. There may be certain components which gets
dissolve in water and even oxidize while some undergoes bacterial changes and eventually
sinks into the bottom through gravity. The soil then gets contaminated due to the gross effect
on the terrestrial life (Juliet, 2015). The fishing industry is considered as the noteworthy
sector in the sustainability of Nigeria since it offers Nigerians with the much required protein

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and nutrient for the people. Oil pollution creates an effect on the fish population and creates
an effect on the farmers which remain dependent on the fish for supporting their family.
2.55: Inconsistencies in the oil price in international market:
The volatility in price of commodities that is made in Nigerian Oil and Gas Industry is
making reference to the sudden changes which characterizes the price of these commodities.
The volatile oil prices is mainly due to the causative link in fixing the price of oil by collusion
in the OPEC cartel and the unrest in the Middle East on numerous occasions (Andrews et al.,
2015). Whenever, an OPEC meeting approaches, the volatility in oil price drifts upwards and
as a result the frequency of these types of meetings in the recent times has been an important
factor. Disagreement on the production quotas and members mistrust have contributed to
volatility.
In addition to this, just like the stock or bond, the laws of demand and supply results
in oil price to change. When the supply exceeds demand, the price fall and the opposite is
considered true. The decline in the price of oil is largely because of the decline in demand for
oil in China and Europe together with the steady supply of oil from the OPEC nation. The
additional supply results in sharp price fall (Ingelson & Nwapi, 2014). The Nigerian industry
is the exporter as well as importer of refined petroleum products that has the sustenance
currently on the mono-economy. The volatility in the price of oil tends to exercise a positive
impact on the growth rate of GDP of net-oil exporting nation and a negative impact on the
net-oil importing country.
3.0 Factors effecting economy of Nigeria
3.1 Corruption
Corruption in Nigeria has become one of the most concerning issue for the economy.
There are multidimensional effects of corruption in an economy. It affects business

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investment, public finance and living standard of people living in the nation. The latest
scandals of corruption related to Nigerian economy have showed evidence of considerably
large sum of money to be stolen or that have been misappropriated. There are different
channels through which dynamic effects of corruption can occur (pwc.com., 2020) Lower
effectiveness of governance mainly due to smaller tax base and inefficient allocation of
government expenditure leading to underfunding of government spending. Tax revenue
collected in Nigeria is only 8% of GDP. This is the lowest in comparison to different other
countries. Because of highly corruptive economic environment the economy accounts a weak
investment particularly in terms of Foreign Direct Investment. This also adversely affects
formation of human capital. Because of corruption a relatively less number of people
especially the poor get access to proper education and health (Daudu, 2017). One report
published PWC have found that by 2030 corruption will cost nearly 37% of GDP of Nigeria.
In 2014, the cost of corruption was equivalent to nearly $1000 per person. This is projected to
be increased by $2000 per person by the time 2030. The boost in average income with a
decline in level of corruption could improve the living standard of people living in the nation.
Figure 1: Dynamic effect of corruption
(Source: pwc.com., 2020)

22OIL AND GAS
Corruption has a disproportionate effect on household and businesses. In a corrupt
economic environment, rich people end up paying lower proportion of tax while poor people
are unable to get public goods. In the field of business, big businesses raise entry barriers and
Small and Medium enterprises get limited credit access.
Figure 2: Comparison of loss in GDP due to corruption in comparison to Ghana
(Source: pwc.com., 2020)
Figure 3: Comparison of loss in GDP due to corruption in comparison to Columbia
(Source: pwc.com., 2020)

23OIL AND GAS
Figure 4: Comparison of loss in GDP due to corruption in comparison to Malaysia
(Source: pwc.com., 2020)
Studies show that Nigeria’s GDP in 2014 could have been higher by USD 113 billion
if corruption level was same as Ghana (Umeokwobi Richard, 2019). In corruption was at the
level of Colombia, then GDP could have been higher by 93 billion. GDP could have
increased by USD 113 billion if corruption was at the level of Malaysia.
3.2 Oil theft and pipeline vandalism
Two of most challenging issues hindering growth of oil and gas industries of Nigeria
are oil theft and pipeline vandalism. Pipeline vandalism and oil theft especially in the delta
region are imposing increasing challenge for the country to address. Arable lands in the
affected regions such as Imo River, Okordia-rumuekpe and Adibawa flow stations have been
destroyed because of oil theft and pipeline vandalism. This imposes a higher agricultural cost
on agricultural products because these products need to be transported from one region to
another which are not affected by pipeline vandalism (Adishi & Hunga, 2017). Oil theft and
pipeline vandalism have negatively affected Nigeria’s earnings from foreign exchange. This
hampers revenue generation of the country leading to a budget deficit. As reported by
Managing Director of Shell Petroleum Company, Mutiu Sumonu, because of oil theft there is

24OIL AND GAS
an annual loss of 5 billion dollars. There are various reasons for oil theft and pipeline
vandalism in Nigeria. One reason is high unemployment rate. High unemployment
particularly among the young people becomes a major factor encouraging people to engage in
criminal activities such as oil theft and pipe line vandalism. For some people oil theft is an
illegal way to accumulate money (Njoku, 2016). The militants in the Nigerian Delta empower
these individual to get illegal access to oil and gas and engage in pipeline vandalism.
Corruption and bad governance is another factor responsible for such menace in Nigeria.
There are several economic consequences of oil theft and pipeline vandalism. There are
several economic consequence of oil theft and pipeline vandalism. The economy has to bear a
financial loss because of the events. People living in region where these events are more
prevalent bear cost in terms of lost in arable lands that can be used for fishing, farming and
agricultural purpose because of pipeline vandalism. Oil theft and pipeline vandalism are
responsible for environmental damage in the affected regions. Economic studies have found
these events as responsible for Nigerian current economic crisis. Oil theft and pipeline
vandalism also affects foreign direct investment. Oil bunkering, oil theft, pipeline vandalism
has caused withdrawal of some of the invested funds by foreign investors (Okoli, 2019). FDI
has found to decline significantly in Delta region of Nigeria, a region particularly exposed to
the risk of Oil theft and pipeline vandalism.
3.3 Government underfunding
In every nation government has the responsibility to provide people with basic
necessities. Government mainly invest in providing public goods. In order to ensure a good
living standard for people government spends money on providing health and education
facilities. Proper spending on health and education is very important for formation of human
capital which contribute to higher productivity and economic growth. These two important
sectors however are seriously running with insufficient government spending in Nigeria

25OIL AND GAS
(Okuwa & Campbell, 2017) It is the responsibility of both Federal and State government to
properly fund university education system. Despite several intervention program, the state of
educational facilities in Nigeria remains at a poor state. Universities in Nigeria are decaying
at a faster pace. Facilities required for ensuring a good quality of education are lacking. There
exists significant inadequacy in terms of number of lecture halls, student hostels, laboratories,
library space and journals and books and office spaces needed for developing educational
structure (Agha & Ugu, 2019). One report produced by World Bank in 2009 stated Nigeria
seriously lack equipment needed for teaching, learning and research. One main reason for
poor structure of university education in Nigeria is the decline government funding for
universities.
Figure 5: Percentage of budget allocation for education in Nigeria
(Source: Agha & Ugu, 2019).
This restricted efficient functioning of universities in their roles of providing learning
and research opportunities. Education is a key input for making a nation rich in human
capital. Poor education structure and lack of university education hampers the process of
human capital. Besides physical capital also plays a critical role to boost productivity and
output (Omoleke & Taleat, 2017). Because of poor access to education the nation suffers

26OIL AND GAS
from inadequacy in the supply of human capital hampering future economic growth of the
nation.
Another sector in Nigeria suffering from government underfunding is health care
sector. Despite government’s intervention in some of the major areas of healthcare such as
vaccination program, polio eradication, malaria, HIV/AIDS, tuberculosis, child health and
maternal health the sector remains highly dependent on funding from external sources such as
foreign donors. Under current budget, government of Nigeria allocates only $5 per person in
the nation. Because of dependency on external sector health care financial is subject to high
volatility.
Figure 6: Source of in Nigerian health care sector
(Source: Uzochukwu et al., 2015)

27OIL AND GAS
Figure 7: Percentage of total budget allocated to health sector of Nigeria
(Source: Uzochukwu et al., 2015)
Once the foreign money shifts away the health care sector needs a local replacement
which finally leads to great suffering for patients. The economy has already undergone such
instances. Oyo State situated in Southwest Nigeria suffered from shortage of anti-malaria
drug during October, 2018. As foreign funding in Nigeria has already started to fall and
shortfall of government funding for health care sector, the overall state of the sector becomes
poor. Poor health condition further imposes an obstacle for development of human capital
and hinders further growth.
3.4 Poor refineries status
The condition of local refineries in Nigeria began to decline since first half of 1990
after closure of Nigerian National Petroleum Corporation (NNPC) accounts in the
commercial banks and transfer of its autonomy to the central government.

28OIL AND GAS
Figure 8: Average capacity utilization for the three refineries in Nigeria from 1997 to
2005
(Source: Ogbuigwe, 2018)
As implied from the above figure there is an overall decline in capacity utilization in
the oil refineries of Nigeria. The poor state of oil refineries is a result of number of different
factors. Firstly, poor governance has been identified as one of the significant factor causing
poor performance of the existing refineries. The refineries are solely owned by government
and there is no independent control over their funds. The process of getting approval for
refineries is time consuming and has to undergone several process making it difficult to run
the refineries reliably (Ogbuigwe, 2018). A second factor that contribute to poor refineries
condition is the lack of turnaround of maintenance of the existing refineries. Since 2008, no
major turnaround in the maintenance has been initiated in these refineries. Because of
unnecessary delay in turnaround maintenance performance of the refineries falls. Another
factor leading to poor condition of refineries is the pipeline vandalization. There is a routine
vandalization of pipelines connecting oil supplies to the oil refineries and those channel

29OIL AND GAS
conveying the refined products from refineries (Okeke et al., 2016). This results in massive
revenue loss deteriorating the condition under-recovery of the crude oil cost
The poor state of oil refineries in Nigeria is responsible for a drastic setback for the
economy given inter-linkage of the sector to other industries as well. The fuel refineries are
set up to produce mainly five types of product. These are Liquefied Petroleum Gas or LPG
used as cooking gas, Premium Motor Spirit (PMS) used as petrol, Dual Purpose Kerosene
(DPK), Fuel oil and Automotive Gas Oil (AGO). Disruptive state of refineries affects supply
of these products causing disturbance for industries and household relying on these products.
Another consequence of poor status of local refineries is the growth of illegal refineries
(Ross, 2020). The working conditions in the illegal refineries are dangerous (Asawo, 2016)
Men and women working here has the responsibility to pump crude oils from the barges into
the open air pits or tanks, heat the oil to the boiling point and then passing the liquid through
the water-cooled pipes with points of condensation and evaporation. They need to be very
careful and ensure the waste product (gas) does not explode which can lead to big explosion.
The working state bears the risk of death and other health issues and pollution. These illegal
refineries are also responsible for oil theft in the region (Vidal, 2013). The authorities in
Nigeria has provided an estimation of nearly 150,000 barrels stolen oil in the delta region of
Nigeria.
3.5 Oil spillage/gas flaring causing environment pollution
Oil spill refer to the discharge of liquid petroleum hydrocarbon into environment
particularly into the marine ecosystem because of human activity. Gas flaring refers to the
event of burning natural gas which is associated with pumping of crude oil from the ground.
In regions where infrastructure is inadequate for utilizing natural gas, the technique of gas
flaring is adapted to dispose the natural gas. Both oil spillage and gas flaring are common

30OIL AND GAS
events in Nigeria. Both the evens have serious consequences on environment and health of
people.
3.5.1 Effect on health
Gas flaring adversely affects the human health through emission of air pollutant
hazardous for health discharge during incomplete combustion. These pollutants cause several
adverse impact on health. The adverse impacts are related to disease such as neurological
disease, cancer along with adverse effect on reproduction and human development. People
leaving nearby regions of the gas flaring also report problems such as damaging lungs, skin
problem and others. Hydrocarbon released during gas flaring are brings adverse changes to
the hematological parameters (Udok & Akpan, 2017). This negatively affects blood forming
cells giving rise to problem such as leukemia, pancytopenia and anemia. Like gas flaring oil
spillage has similar effect on human health exposing people to the risk of breathing problem
and different skin problems.
3.5.2 Global warming
Gas flaring is responsible for changing condition of climate having a serious
consequence both for Nigeria and for the rest of world. There is massive burning of fossils
fuel especially coal during gas flaring. Because of fossils fuel burning different green-house
gas are emitted which contribute to global warming. As reported by ‘Inter-government panel
on climate change’ the condition of global warming in twenty first century is worse than the
expectation (Abdulkareem et al., 2012). Gas flaring thus causes global warming by release of
main green-house gas that is carbon di oxide. Venting of gas which synonym for gas flaring
produces methane which is the second greenhouse gas. These gases today account for nearly
80 percent of global warning.
3.5.3 Effect on Atmospheric layer

31OIL AND GAS
The hazardous substances released during gas flaring cause erosion of ozone layers.
‘Greenhouse effect’ which is one of the most frightening phenomenon of modern data is
aggravated by gas flaring. Ozone layer is served as a blanket on earth’s surface protecting it
from direct heat of sun. The ozone layer helps to regulate temperature in the earth. Depletion
of ozone layer because of emission of greenhouse gases during gas flaring makes the earth
exposed to direct heat of sun (Elum, Mopipi & Henri-Ukoha, 2016). This is responsible for
increase in temperature on earth, a phenomenon called ‘global warming’.
3.5.4 Effect on ocean
Oil spillage in ocean has significant adverse consequences for fishing and fisheries
based on both coastal and deep water. As an immediate effect, it causes contamination and
mortality of fish and other marine species. It also destroys different food species into the
ocean harming the marine eco-system. It destroys different coastal and marine organic
substrate, interrupts the food chain of marine eco-system and hampers reproduction. By the
oil spill species such as mammals, amphibians and birds living near or in the ocean gets
adversely affected. The damaging effect on wildlife include toxic impact of ingestion, injuries
including smothering or worsening condition of thermal insulation, hazardous effect on
reproduction system (Ejiba, Onya & Adams, 2016) Ecological effect of oil spill in the long
term include interruption of food chain that is harmful for wildlife causing disappearance or
change of some species. Oil wastes cause pollution to coastal area that are attractive for
several recreational activities. Pollution of coastal areas has further negative effect on the
society and on the local economy.
3.5.5 Inconsistencies in the oil price in international market
Oil price in the international market is determined from global supply and global
demand of oil. Like any other market fluctuation in demand and supply adds to volatility in

32OIL AND GAS
global oil prices. The event of oil spill is related to supply of oil. Because of oil spill, there is
a loss of reserved oil affecting current and future supply of oil (Seiyaboh & Izah, 2017).
Because of the supply shortage price tends to increase. The final impact on international oil
price however depends on the state of global demand. If global demand decline with supply,
then oil price may not increase much. However, if global demand remains same or increases
then wasted oil due to oil spill causes oil price to increases. Oil spill thus hampering oil
supply adds to uncertainty in oil prices.

33OIL AND GAS
4.0: Solution and Recommendations:
Corruption in Government:
 There must be an effective oversight of the responsibility institution which is
considered important in stemming the corruption in oil sector of Nigeria.
 There should be repatriation of asset, the prosecuting of money laundering and
rooting the corporate corruption will help in making difference if pursued thoroughly
and will also act as the deterrent for others.
 There must be a public responsibility of the NNPC and other subsidiaries must be
encouraged to foster transparency in the sector.
Nigerian human resource:
 It is important for the Nigerians to make an effort in specializing their university
level furthermore so that their workforce can be trained properly and be competent in
their job. The reason is that if there is no able person then the service of expatriate
will be sought to hold office or fill up the vacancy.
Constant changes in the management of NNPC:
 The appointment of the GMD should be on the basis of fixed tenure system as this
will allow in constantly driving up the policy as it is applicable in other state owned
parastatals.
 The NNPC must have certain degree of autonomy from the federal government to
avoid the unnecessary interferences which will create an effect on their policy
development.
Oil theft and pipeline vandalisation:

34OIL AND GAS
 Awareness must be created among the public regarding the theft of oil and promoting
cooperation amid the public, stakeholders and international agencies.
 Supporting swift prosecution of the offenders and their backers that are found to give
warning in order to eliminate theft and vandalisation of pipeline.
Government underfunding:
 It is recommended that underfunding of government in joint ventures is required to be
addressed by exploring as well as implying alternative funding models to make sure
that sufficient resourcing of exploration initiative and rise in funding takes place for
sectorial growth.
5.0: Conclusion:
On arriving at the conclusion it can be stated that there cannot be any opposing fact
that Nigeria has huge amount of oil and gas history. It is potentially regarded as the one of the
biggest in the world. Irrespective, this industry is rather than attaining the lofty heights is
bedevilled by wide number of problems. The overall dependence on the Nigerian economy in
this sole product demands an urgency and speedy resolution of the issues because oil
produces more than 90 per cent of the nation’s revenue.
Preceding from the above paragraph despite the challenges, there are opportunities for
the investors that are interested to venture in the refining of petroleum products in Nigeria.
Despite the fact that if all the current refineries operates at maximum capacity, there is still
the existent of healthy demand for the petroleum products in Nigeria. By the year 2028, the
shortfall in the refinery capacity would rise by 550,000 bdsp based on the assumed growth
rate of 3 per cent per annum. In addition to this, Nigeria also supplies its petroleum products
in neighbouring African nations with the help of informal channels. Therefore, an investor
may target to formalize the Nigerian petroleum industry.

35OIL AND GAS

36OIL AND GAS
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