I. Background of the Study
The advent of oil industry can be traced back to 1908, when a German entity, the Nigerian Bitumen Corporation, commenced exploration activities in the Araromi area, West of Nigeria. These pioneering efforts ended abruptly with the outbreak of the First World War in 1914.
Oil prospecting efforts resumed in 1937, when Shell D’Arcy (the forerunner of Shell Petroleum Development Company in Nigeria) was awarded the sole concessionary rights covering the whole territory of Nigeria. Their activities were also interrupted by the Second World War, but resumed in 1947. Concerted efforts after several years and an investment of over N30 million, led to the first commercial discovery in 1956 at Oloibiri in the Niger Delta.
This discovery opened up the Oil industry in 1961 and was enhanced by the extension of the concessionary right previously a monopoly of Shell to the newcomers. The objective of the government in doing so was to have pace of exploration and production of Petroleum. Even now, more companies, both foreign and indigenous have won concessionary rights and are producing.
Today, Nigeria is the world’s 14th-largest producer of oil, producing about 2.2 million barrels of crude oil per day and earning more than $22 billion annually from oil exports; it should be a wealthy country. The oil money should be used to invest in broadening the base of its economy, building new roads and schools, creating foundations of a welfare system, and-at the very least-bringing wealth and opportunity to the thousands Nigerians who work for the oil industry and in related segments of economy.
But oil has proved to be the source of many of Nigeria’s biggest problems. It contributed to the civil war in 1967, and it continues to cause national tensions by pitting the interests of the six oil-producing southern states against those of nonoil states demanding a share of the profits. Income from oil exports has proved an irresistible lure to corrupt politicians and military leaders, and oil has caused major environmental problems as well.
References: - http://www.nnpcgroup.com/NNPCBusiness/BusinessInformation/OilGasinNigeria/ DevelopmentoftheIndustry.aspx
-Critical Issues: Oil and Nigeria; Comparative European Gov’t and World Politics (2013) I. Challenges
Ironically, economic development problems are among their worst in the oil-producing regions themselves, where little investment has been made in roads, electricity, safe water supplies, or telephones. Particular criticisms have been directed at the Dutch-British multinational corporation Royal Dutch/Shell, which produces most of Nigeria’s oil. But Shell points the finger of blame at the Nigerian federal government, which collects all of Nigeria’s oil revenues.
Much goes into paying salaries and overheads, and much of the rest has been siphoned off by corrupt officials. Little has been invested in Nigeria’s own oil refineries, which are now in such advanced state of neglect and disrepair that fuel shortages are common, and Nigeria must import 70 percent of its fuel needs. Meanwhile, the government—remembering that fuel price increases in the past have led to strikes—subsidizes fuel to keep the cost low.
Nigeria has other nonfuel mineral resources, such as tin, bauxite, iron ore, and gold, but it lacks the investment funds needed to develop these resources, and will attract little from abroad until foreign investors can be sure that there is no risk of losing their investments to corruption or another military government. Unlike many other African countries, Nigeria earns little from tourism.
Despite the fact that it has one of the most vibrant cultures on the continent, and a long and fascinating history, little has been done to preserve its heritage (most of its best artifacts were either taken by the British or have since been sold, usually illegally, for the profit of corrupt leaders), and there has been almost no investment in building the infrastructure that tourists demand, including hotels, roads, airports, and communication systems. Tourists are also put off by crime, corruption, and the challenge of even entering the country.
The petroleum industry in Nigeria is the largest industry and mean generator of Gross Domestic product (GDP) in the West African Nation. Inspite of the huge financial investment made by the Nigerian government in the oil and gas industry of the economy, it has not resulted in significant benefits for most Nigerians. The local content (LC) in the industry is still very low as over 60% of the major activities; e.g exploration, drilling, production, well intervention and service provision remain primarily controlled and managed by multi-national oil companies.
Only minor contract have been awarded to local contractors. Several challenges, ranging from infrastructural development, political stability, Good investment climate, project Financing, Transparency, High Educational Standards, Legal Policy, Resource Management, Research & Development, Fiscal Policy, Environmental Policy are some of the factor impeding the set target by the Federal Government to achieve 70% in 2010, its local content drive in the oil and gas industry.
A report last week from Amnesty International said energy companies operating in the oil-rich Niger Delta region weren't entirely up front about what's causing the "hundreds" of spills reported every year in the region. In a 66-page report, the rights group said oil companies, in particular Royal Dutch Shell, have made numerous claims about sabotage and oil theft that raise a series of questions. Now, lawmakers in OPEC member Nigeria are mulling legislation that would tighten penalties for oil companies responsible for the spills.
The cost, if passed, would be in the millions of dollars for the companies operating there. Amnesty, in its report, said the hundreds of oil spills reported in Nigeria every year are ruining the environment and putting human lives at risk. It said spills in the Niger Delta are the result of pipeline corrosion, maintenance issues, equipment failure, sabotage and theft.
Sweeping reforms to taxes and royalties, transparency, local participation and the Nigerian National Petroleum Corporation have been promised for four years in the Petroleum Industry Bill (PIB), but are still not on the statute books. According to one estimate, oil companies have held back as much as $40bn of investment whilst waiting to see what happens. 2012 could be the year though. The PIB has been approved by President Goodluck Jonathan’s cabinet, and now faces lawmakers. Analysts interviewed for the report suggest the bill will be watered down by vested interests, but it is still welcome.
As one industry figure quoted in the report says, “whether it’s good or bad, at least people will know what they are dealing with and can do the financial modelling.” The PIB may also provide a boost for indigenisation of the oil industry and efforts to tap unexploited potential in gas. Though measures to spur local ownership have been in play since the 1990s, currently only 5 per cent of production comes from independent Nigerian firms. This combined with an expansion in the use of Nigeria’s gas for domestic electricity generation could bring substantial benefits to Nigerian citizens.
Nigeria has made significant progress in reducing the militancy in the Niger Delta which crippled production at times during the past decade. Following an amnesty in 2009 which gave militants a wage of $400 per month (four times the minimum local government salary), attacks has dwindled. However, the sustainability of the programme is open to question, and the underlying problems of poverty, unemployment and environmental degradation remain.
Governments, at state and federal levels, have sustained the attitude of sharing revenue that accrues from the sector, but without paying due attention to reinvesting some of the income generated. No effort has been made to empower the locals; not even the government-owned oil companies have received the needed empowerment to take leading role in the industry.
These attitudes has been in the last five decades that made the country to be a spectator in its own territory, leaving the production and exploration aspects of oil and gas in the hands of foreign oil majors.
References: - https://archive.org/details/ChallengesFacingNigerianLocalContentInOilAndGasIndustry - http://oilprice.com/Energy/Crude-Oil/Serious-Oil-Problems-Uncovered-in-Nigeria.html -http://blogs.ft.com/beyond-brics/2012/07/24/challenges-ahead-for-nigerias-oil-and-gas-industry/ - http://allafrica.com/stories/201303040649.html
--Critical Issues: Oil and Nigeria; Comparative European Gov’t and World Politics (2013)
Minister of Petroleum Resource Mrs Diezani Alison-Madueke at the just concluded Nigeria Oil and Gas Conference, revealed some fresh efforts in reforming the nearly collapsed but very important oil and gas industry. In order to change the ugly trend, the minister said the government is giving priority in the area of local content participation; both at the upstream and downstream levels of the industry, among others. In her address titled, "Nigeria's Oil and Gas Strategy in the Next Five Years:
A New Dawn to Boost Investment and Production," the minister said the mandate of the ministry is to transform the oil and gas industry for increased benefit to the Nigerian nation and the Nigerian people through effective implementation of the national oil and gas policies on hydrocarbon exploration, exploitation, production, distribution and utilisation in accordance with international standards.
The minister cited some projects aimed at reviving the ailing industry, to include the transformation of the national oil company, the Nigerian Petroleum Development Company (NPDC), to medium size oil and Gas Company which resulted in the production increase from 50,000 to 140, 000 barrels of oil per day (bopd) by 2012. In addition, she said the reforms have repositioned NPDC as a dominant gas supplier to the domestic market with over 450 million metric standard cubic feet of gas per day (mmscfd) in the western Niger Delta. The latest being the completion and supply of 65-mmscfd from the Oredo Gas Handling Facility, GHF, into the gas network in 2012.
In developing regulations, the government would choose the path of reducing the economic cost of regulations to both the regulator and the regulated as long as safety and the environment are not compromised. She said that what the next five years present to the industry is a great opportunity that at first glance appears very challenging but allows for great accomplishments. Some of these challenges include organisational start-up, institutional strengthening and human capacity development.
"The challenge is, however, tempered by the opportunity for Nigeria to improve its current production ranking and resource base globally and in addition, receive its commensurate share of revenue," the minister told the participants. On the downstream sector, the minister made some pronouncements which include that the refineries' performances have drastically improved. According to her, reconstruction of the Port Harcourt Refinery Jetty B which was destroyed by a fire resulting from activity of vandals was completed in the fourth quarter of 2012. Significantly, this was achieved with 100 percent local content, she said.
The other axis, the System 2A pipeline from Warri to Benin, has also been brought back into service after a long outage also due to the activity of vandals, while the System 2B pipeline which also experienced serious attacks, especially at Arepo, from criminal syndicates even leading to loss of life of PPMC maintenance staff, has received more attention and is now back in service. According to the minister, the expansion of the Escravos Lagos Pipeline System (ELPS) II, the major gas supply artery to the power plants was in top gear and would be completed I 2014.
The minister said that the Ajaokuta-Kano-Kaduna gas line is at advanced stage of design to supply gas to the northern part of the country for power generation and gas-based industries. Analysts at the conference noted that some of the projects and policies will face constraints, if there are no enabling laws in the industry that will give them legal backing. They, therefore, called for urgent passage of the PIB by the National Assembly. On the issue of finance, Mr Herbert Wigwe, the Group Managing Director of Access Bank Plc., said that companies without a good governance structure and the necessary financial security would find it difficult to get funds from banks.
He, however, said that financial institutions should assist the country’s oil and gas companies so as to ensure the growth of the sector. Wigwe, nonetheless, stressed that the purpose for financing of any project ought to be explicit, particularly if the funds were to be used to finance oil exploration. He assured stakeholders in the oil and gas sector that Nigerian banks were capable of funding the sector’s projects.
Nevertheless, Mr Markus Droll, the Vice-President of Shell Upstream International, Nigeria and Gabon, said that Nigeria had the potential to remain the leading oil and gas producer in Africa if the perceptible challenges were addressed. Droll urged participants in the Nigerian oil and gas industry to re-double their efforts to remain competitive and secure an investment climate that would attract more capital.
All the same, Dr Oluwole Oluleye, Executive Secretary, Petroleum Technology Development Fund (PTDF), said that the Fund had taken measures to address some of the challenges, particularly those relating to the development of human capacities. “If we keep on building capacity that is not engaged in the industry; we will continue to face the problem of youth restiveness in the host communities and this could result in revenue losses,’’ he said. He noted that PTDF had trained a lot of professionals for Nigeria’s oil and gas industry, adding, however, that international oil companies should also key into the efforts of the Fund, especially in the area of capacity building.
There is the need to restructure the educational system in the country in order to graduate a productive workforce. It is unacceptable for Nigeria to have thousands of graduates and still need foreign trained graduates to work in the oil industry. There is the need to find ways to minimize workers' strikes or ‘work-to-rule' culture in universities through policy changes. This type of behaviour has negative impact on the quality of graduates from Nigerian universities. The federal government must take active role in environmental protection/enforcement.
A situation where a multi-national corporation operates in a manner that destroys the Nigerian environment without repercussion should not be allowed to continue. Also, there is the need to re-train the unemployed graduates to become productive workers. Nigerian graduates who lack the knowledge in areas of specialties needed by the country could be required to undergo short-term training programs in order to become productive. References:
- http://www.nigeriavillagesquare.com/articles/dennis-o-balogu/delineation-of-the-niger-delta-problems-and-proffered-solutions-2.html - http://allafrica.com/stories/201303040649.html?page=2 - http://www.peoplesdailyng.com/nigerias-oil-and-gas-industry-the-challenges-and-prospects/