Economics

Topic: Petroleum And The Nigeria Economy

Table Of Contents

• Petroleum Definition
• Petroleum And Crude Oil And It’s Formation
• Development Of The Petroleum Industry
• Contribution Of Petroleum To Nigeria Economy (Positive Contribution And Negative Contribution)

Definition Of Petroleum

Petroleum is dark brown naturally occuring liquid oil found in layers of rock formations and refined to produce fuel.

Petroleum And Crude Oil And It’s Formation

The word ‘Petroleum’ is derived from the latin word ‘petra’ and ‘oleum’ which means mineral or rock oil. It was formed millions of years ago from the bodies of carbon rich small fish and other tiny animals called ‘diatoms’ that lives in the sea.

In ancient times when the diatoms died, they sank and decayed, after exposure to het and pressure in the earth crust. Their residue was covered by layers of mud & silt. With time, they sank further down into the earth’s crust and preserved between hot and pressured layers and gradually transformed into reservoirs. Changes in the earth’s crust caused the mud of the sea to be pressed down and made into hard rock.

With time, other rocks were formed up above the oil rocks and the oil was lost in rocks deep under the ground. The oil remains trapped deep in the earth until it was drilled.

Development Of The Petroleum Industry

The first discovery of oil in the world began in the 16th century in Russia. The villagers found it floating on the water surface in River Ukrita. This was gathered for use as medicines and lubricants in ‘1597’. The oil they gathered from the river was delivered to Moscow. Until ‘1846’ that the first oil was drilled ay ‘Bibi Aybat’ near Baku in Russia. This began the modern day oil industry.

In Africa, oil was first discovered in Egypt in ‘1865’. By ‘1901’ it had been discovered in commercial quantity. However, in Nigeria, the development of the petroleum industry began with the explosion activities of the ‘German Bitumen Corporation’ in South-Western part of the country before the first world war.

The search for it became more persistent and intense to the ‘Anglo-Dutch Consortium Shell D Arcy’, the fore-runner of shell petroleum development corporation of Nigeria in ‘1937’ and ‘Mobil’ exploration Nigeria incorporated in ‘1955’.

In 1956, the first oil discovered in commercial quantity was made by shell in olobiri in the now Bayelsa State. It’s production started in 1958 at 5134 barrels per day. Further discovered at ‘Afam’ and ‘Bornu’ and other oil fields established Nigeria as the 6th oil producing Nation and the largest in Africa.

Since then, other foreign multi national oil companies- Sefra (Now ELF), AGIP, MOBIL, etc and many indigenous oil companies from 1990 have joined in exploration & production of crude petroleum in Nigeria.

The first offshore found was by Gulf at okon field off the coast of now Delta State. In 1963, more of shore wells have been drilled by many oil companies including the indigenous oil companies and production keeps rising. The oil production states in Nigeria are River state, Imo, Abia, Ondo, Bayelsa, Delta, Edo, Akwa-Ibom, recently oil reserves have been found in Anambra and Lagos State. All these states are popularly known as ‘Niger Delta Area’ in the southern part of Nigeria.

Nigeria joined ‘OPEC’ in may 1971 as it is with member. Following some opec’s resolution, the Nigeria government represented by the Nigerian National Petroleum Corporation (NNPC) entered into joint ventures agreement between 55% and 60% participating share with the international oil companies operating in the country between 1971 and 1979.

However, crude oil export had been on the increase as Nigeria ranks as the world’s 9th largest exporter. Since then, the price of oil and quantity percentage has been increasing and now, it’s the main story of the Nigerian Economy.

1. The first refinery was in 1962 at Alesa Eleme near Port Harcourt.

2. The second refinery was at Warri.

3. The third refinery was at Kaduna.

4. The fourth refinery was also at Alesa Eleme adjacent to the first one.

The current processing capacity of the refineries in the country is pat at 445,000 barrels per day. The 1st, 2nd and 4th refineries is based on availability of raw materials while the 3rd is on political/government consideration.

As at now, these refineries are facing a lot of problems like:

1. Lack of turn around maintenance (TAM)

2. Pipeline Vandalization

3. Fire outbreak

4. Corruption, etc and producing below 30% of the installed capacity.

Contribution Of Petroleum To Nigeria Economy

Positive Contribution

1. Largest Foreign Exchange Earner

It earns more foreign exchange than any other sector about 90% of Nigeria foreign exchange is from petroleum which has increased the country’s foreign investments etc.

2. Increase In Government Revenue

The government earns more money from royal, oil petroleum, profit tax & company income tax with which it provides infrastructural facilities like road, water, electricity etc for the people.

3. Development of lost communities.

4. Attraction of foreign investment.

5. Human Capital Development

It helps on the training, skill acquisition, workshop, offering of scholarship both at home and abroad by the oil companies.

6. Provision of raw materials.

7. Provision Of Domestic Energy/Power Requirement

Petroleum has provided it’s products like kerosene, gasoline, diesel oil etc, which serves as source of energy.

8. Employment generation.

Negative Contribution

Any that has advantage equally have disadvantage, that is it’s negative contribution, These include:

1. Neglect of agriculture.

2. Corruption

Huge revenue from oil created the illusion of wealth which fueled fraud and embezzlement of government funds by officials through free and careless award of contracts, inflation of project costs, kick backs etc.

3. Inflation

Increase revenue from oil has resulted to high rate of spending by government and individuals which result to excess money in-circulation. Thereby causing inflation.

4. Environmental pollution.

5. Rural urban migration.

6. Increased Demand/Consumption Of Imported Goods

The oil broom increased people’s purchasing power which influenced their consumption pattern in the preference for expensive foreign goods as to boost their ego in the the society.

7. Mono-Product Economy

One easy revenue and foreign exchange derived from petroleum other sectors of the economy have benn neglected leading to the country becoming a mono-cultural economy. This makes the economy very vulnerable to international manipulations of oil quota allocation supply and prices fluctuation.

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