A Review of the Nigerian Energy Industry

The eve of a 60th birthday: Nigeria’s oil & gas industry

Theft, fraud, opacity, pollution characterize Nigeria's years of oil production.
Theft, fraud, opacity, pollution characterize Nigeria’s years of oil production.

Chijioke Mama

17 February 2015, Sweetcrude, Lagos – Next year 2016, will mark the 60th anniversary of the discovery of oil and gas in commercial quantities in Nigeria. The years following full production, which commenced in 1958 (discovery was in 1956) inspired real optimism throughout the nation. Observers were very hopeful that the new nation which was still in its early formation stage – following independence in 1960 – would utilize its new found petroleum resources, to strategically reposition itself and build a very prosperous and enviable economy in Africa.

Almost sixty (60) years later and in spite of numerous circumstances in its favor (such as the high oil price and demand expansion that occurred in the previous decades) it is common notion that the petroleum resources in Nigerian have not been utilized to the benefit of majority of Nigerians. Nigeria attained the status of a major oil producer in 1972.

It ranked 7th largest producer in the world at that time, with a daily production capacity of 2 million barrels per day. It was during this same period, that the kingdom of Saudi Arabia began its giant developmental strides based on oil revenue. Many observers hoped that Nigeria will follow a path similar to Saudi Arabia’s. When the kingdom of Saudi Arabia was established in 1932 – like Nigeria – it was mainly an agricultural society, depending on farming and commerce, especially trade export.

But the discovery of oil in commercial quantities in 1938 changed that. Steady exports provided the funds to build the required infrastructure such as roads, airports, seaports, schools and hospitals. In 1970, Saudi Arabia introduced the first of a series of ongoing five-year development plans, which led to the building of modern and world class infrastructure with a level of sophistication that is comparable to many nations in the west. Like Nigeria, Saudi Arabia has for years been a hydrocarbon-dependent economy.

However, since the 1970s, the developmental achievements made in Nigeria have not been phenomenal. The state of infrastructure is still poor. The democratic governments of the recent years has made some laudable efforts towards infrastructural and human development but Nigeria still ranks very low in these indices (compared to many nations in the world) even more striking is her position relative to other nations with comparable resource endowment. Extractive industry governance and management practices has not been able to rise above the same problems that plagued it for decades; corruption, embezzlement, and byzantine bureaucracy that hampers efficiency.

Mentioning the tired piece of legislature called the Petroleum Industry Bill (PIB) in any media discussion has become stale and boring in Nigeria. That beautiful piece of policy (beautiful! for those who understand the concept and the technicalities) has suffered enormous politicization. Series of modifications and politically influenced dilution might have reduced it to a mirror of the same old legislature which it was created to replace. PIB arose from a genuine concern by stakeholders in Nigeria’s oil and gas industry to reposition the industry.

The industry is currently governed by an old and obsolete legislature and policy framework that no longer reflects the realities of today, both from a technical perspective and that of prevalent global standard management practices. The Petroleum Decree of 1966 which is currently in use – with its numerous disjointed amendments – was made for a nascent industry which has evolved in several ways since that time.

With a poverty level of about 71%, one of the worst among OPEC nations, Nigeria’s petroleum resources has benefited only a select number of people. The nature of the relationship between the state-owned oil and gas company – the Nigerian National Petroleum Corporation (NNPC) and the government, vis-a viz the numerous foreign and local concession owners is such that encourages massive profligacy and zero or minimal accountability.

In the recent months, accusations and counter accusations, surrounding the misappropriation of funds has been seen among various arms of government in Nigeria. Both locally and internationally, observers continue to question the level of transparency in the industry. All to the detriment of national development for a hydrocarbon based economy.
As more and more of the revenues from Nigeria’s petroleum resources are managed under conditions of secrecy and poor accountability, the average Nigerian is brought closer to the unpleasant truth; that despite being a citizen of an abundantly endowed nation, systemic corruption and confused system of administration dictates that the dividends will continue to elude them.

Political chicanery continues to block the efforts of some to execute a genuine restructuring of the industry, towards improved efficiency and better benefit for the average Nigerian. Hopes for the passage of the PIB might continue on a stealthy move towards oblivion. Recent global events, such as the continued fall in oil prices witnessed since July, 2014, will put even more pressure on an underperforming industry. For a hydrocarbon dependents economy such as Nigeria, the macroeconomic outlook is even gloomier for the citizens.

In this eve of a 60th birthday, Nigerians will contemplate if it is needful; to sing a song to an industry that has largely shunned its poor citizens.

*Chijoke K. Mama is a Senior Oil and Gas analyst based in Lagos. Chijioke.mama@yahoo.com | 070-6101-3333.
SourcesNigerian National Petroleum Corporation (www.nnpc.com) | Royal Embassy of Saudi Arabia (Washington DC) | Dr. E.O Egbogah: oil and gas sector reforms in Nigeria: what you should know

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