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Published On: Wed, Dec 24th, 2014

Analyzing defective polices in Nigeria’s oil sector and the current crisis

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The discovery of oil in Nigeria dates back to the 5th of June, in the year 1956 when Shell Petroleum Development Company of Nigeria Limited (SPDC), then known as shell-BP and other developers discovered oil at Oloibiri, in Bayelsa state, in the Niger Delta.

By Evelyn Okakwu

The discovery resulted from a pursuit for commercially available petroleum by Shell-BP. The company was reported to have drilled 28 wells and 25 core holes; (all of them dry), before striking oil at Oloibiri, that year.

From that time till date, the Niger delta has remained the domain of various events emanating from the exploration, production, and distribution of oil related products from Nigeria. With an onset of output; at 5, 100 barrels per day in 1956, Nigeria steadily rose to the 6th position on the production chart by global oil regulating body; the Organization of Petroleum Exporting Company (OPEC), in the mid-1970s, with shell exceeding the daily production mark of 1 million barrels per day. With the advent of oil, local and international observers had expected that Nigeria’s economy would blossom effectively, impacting on the masses.

However; reports have indicated that; “Competition for the profits that oil produces has created a great level of terror and conflict for those living in the region”. The activities of militants in the Niger Delta which resulted in decades of unrest, before it was controlled by the Federal Government through the amnesty program, was not unconnected to the actions of greedy petroleum industries, working closely with high powered members of the society.

Even the current turmoil in the North Eastern part of the country has also been associated to the negative effects of corrupt practices perpetrated by these leaders who have consistently hijacked the nation’s fortunes for selfish purposes.

In fact, as indicated by the free encyclopedia on petroleum industry in Nigeria; “It was amidst the oil boom of the 1970s that the political economy of petroleum in Nigeria truly became characterized by endemic patronage and corruption by the political elites, which plagues the nation to this day”.

Central and regional authorities took undue advantage of political positions to create a strong network of people whose interest has remained limited to ‘looking after their own needs’, thereby amassing the national treasury without economic analyses of effective and efficient ways to develop the petroleum industry.

Furthermore, some of the decrees made during this period, which was characterized by military dictatorship, include the following; Decree 1974; which increased the level of participation in oil ndustry by government to 55%. Decree 6 of 1975 increased federal government share in oil sector to

80%, with only 20% going to states.

And in 1976, another decree was promulgated which led to the first exploration and development venture by the Nigerian National Oil Corporation (NNOC) and drills to uncover commercial quantities of petroleum off-shore.

Decree 1978; this decree led to the creation of the Land Use Act which vested control over state lands in the hands of the military governors appointed by the federal military regime, and eventually led to Section 40; sub section 3 of the 1979 constitution which declared all minerals, oil, natural gas, and natural resources found within the bounds of Nigeria to be legal property of the Nigerian federal government.

Yet, rather than invest properly in the sector to maximize its resources and diversify the economy, previous reports indicated that; “The majority of Nigeria’s natural gas is flared off and it is estimated that Nigeria loses 18.2 million U.S. dollars daily from the loss of the flared gas”. Also, Petroleum exploration and production, online Nigeria portal reported that “Out of some 870 oil fields discovered in Nigeria, only

120 fields are currently producing. Most of the fields are not producing because the country has to abide by OPEC’s production quota of 1.8 million barrels per day to Nigeria”.

For decades; the U.S. remained the largest importer of Nigeria’s crude oil, accounting for 40% of the country’s total oil exports. Nigeria provided, until recently, about 10 per cent of overall U.S. oil imports and ranked the fifth-largest source for oil imports in the U.S.

Despite the huge sum of money invested in constructing refineries in Nigeria, decades of oil exploration and production passed with the country’s stake holders contending that the sector accounted for over 90 percent of the country’s revenue; while its GDP from petroleum could not clock 30 per cent per annum.

What this means is that with its refineries, Nigeria has not been able to ensure the final production of; at least half of the petroleum products within its shores. And now; with its largest market introducing its own substitute, Nigeria and indeed the world has had a bitter taste of petroleum marketing in recent times.

As earlier reported; since the rise of North American shale oil, oil supply has been in oversupply in the international crude oil market, resulting in a decline in price. Last week, the price came as low as $ 56 per barrel.

Addressing the current challenge; Speaker of Kwara State House of Assembly, Barrister AbdulRazak Atunwa stated that; “The federal government has not been prudent in the management of the resources, of Nigeria. And therefore within the past few months of the fall in the crude oil price, the economy is in trouble. “Any prudent financial manager will know that you must save for the rainy day; “The economy

has been mismanaged. We have been affected by corruption and leakages.

There has been malfeasances in office and all these trouble contribute to the financial gloom, which we are about to face”.

Although the Finance minister Dr. Okonjo Eweala maintained the pump price of N 65 per barrel while introducing the 2015 budgets, its certain that the only way to keep the price high; and thus sustain the

economy is by maintaining a high price in the international market. The only other alternative might also be to truly diversify the economy and reduce corruption.

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