The Nigerian Oil Industry – An Overview

The Nigerian Oil Industry – An Overview

History of the Nigerian Oil Industry – The Nigerian National Petroleum Corporation is the government agency or a government owned company which is engaged with the responsibility for the public sector involvement in the oil industry. Its history goes back to the late fifties when the production of oil for export (in 1958) necessitated that government set up a machine for the co-ordination of the activities of the great importance to our national economy.

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The public sectors of the Nigeria oil industry started as a section in the mines division of the ministry of Lagos affairs in 1958.  it is originally known as one man unit.  The responsibilities of that unit increased very quickly as oil operations expanded greatly in scope, amounting to a victual explosion after the first crude oil export.

In 1963, with oil becoming relatively more significant in the national economy, the hydro carbon section of the mines and power, by this time, the senior staff strength had risen to four, excluding four trained engineers. Field officers were opened in Port-Harcourt and Warri I 1962 and 1997 respectively in order to cover field operations more effectively, and continued to increase significantly.  Twelve (12) years after its establishment, the public sector of the oil industry could only boast of a handful of well trained engineers who were government watch dogs. In the complex and highly development industry.  If had a large establishment on paper but was handicapped in a number of ways, including very impossibility competition from the private sector in the labour market.

Having made its impact felt all around, the department of petroleum resources was uplifted to a full fledged ministry in 1973, the ministry of petroleum resources and energy which in 1971 as an integrated oil company to expose, produce, transport process, refines, distribute and market crude petroleum and its refined products.

It was established to carryout government’s effective’s participation in the oil industry.

The cheque history of Nigerian National Petroleum Corporation ended with its eventual manager with the former ministry of petroleum corporation (NNPC), which came into being on 1st April, 1997, as a result of Decree No 3 of 1997.

This legal instrument establishing the corporation gave it a uique feature, that is the creation of an operation or commercial aim and a regulatory arm vested in the petroleum inspectorate.

This the role of government as progressed forms mainly regulatory to direct involvement in oil exploration and exploration.

NIGERIAN’S DEVELOPMENT AND OIL INDUSTRY

In 1960, when Nigeria got her independence, the ministry of Nigerian’s economy was agriculture.  By the end of the first decade of it existence, as a sovereign nation, agriculture was replaced by oil as the most important revenue earner for the country.  As can be seen form the World Bank report 1970 –1984, the contribution of petroleum to the total revenue of the country was over 70% on the average.  As a foreign exchange earner, it accounted for over 80% of Nigerian foreign exchange earning on the average between 1970 and 1084.

Because of huge revenue which the country derives from oil, government has been able to engage in many development projects which include the following:

Education:           Education is one of the areas where government has invested a lot of money.  Between 1970 and 1984, the number of primary and post primary institutions in some part of the federation has quadrupled. Within the same period, the number of universities has risen form five (universities of Ibadan, Nsukka, Ife, Lagos and Ahmodu Bello) to over 200 (including federal and state owned universities). Some colleges of education have been up graded to degree awarding institutions.  These developments are possible because of huge revenue derivable form oil.

INDUSTRY: Many industries leave been established since the era of oil boom. The iron and steel industry with firms in various parts of the country, the petro-chemical company and the various oil refineries are some of the industries that have been established.  They involve huge expenditure and with-out a lot of revenue coming from oil, some of these industries would not have been established as the amount of revenue form other sources cannot be enough to meet the revenue demand of these industries.  The employment opening which these industries create are high indeed.

PROVISION OF INFRASTRUCTURES AND SOCIAL AMENITIES:

The expansion of infrastructural facilities, social amenities and the provision of new ones are possible because of the increase in oil revenue which the federal government derives from oil.

The expansion and modernization of NEPA, the construction of good network of roads and flyovers in different parts of the country, the building of many general and teaching hospitals the provision of pipe borne water and other social amenities are possible because of huge amount of revenue which the federal government gets form oil.

Revenue from oil has helped the federal government to embark on many development projects which we cannot be enumerated.

The  Nigerian national petroleum corporation (NNPC) is the only indigenous oil company in Nigeria (as mentioned above) that engaged in prospecting for oil activities.  It carries out the policy directive of the government which respect to oil exploration and production.

OIL GLUT:

The price of oil and the resultant revenue which is derived form its have been on the decline since 1981 with the result that the federal government is finding it difficult to meet its financial commodities. In 1982, the  civilian government introduced what is called austerity measure”.  The aim of the measure was to revamp the economy through the reduction of the amount of expenditure on imports and the encouragement of local production of raw materials for industrial uses.

The fall on oil revenue and the subsequent reduction of the revenue form the oil sector can be regarded as a lesson in disguise for Nigerian government for one thin, it has shown the government that dependence on one source of revenue is not good for any country.  For another, it has shown that dependence on imported goods of all kinds cannot in any way help the country to develop.  The country is now trying to adjust its expenditure pattern to reflect economic realities of the time.

CONTRIBUTIONS OF THE PETROLEUM INDUSTRY

To Nigeria’s Economic (positive and Negative Effect) as follows:

One of the positive effect of petroleum industry to Nigerian Economy were

(a) Major Foreign Exchange Earner: Here the bulk of the foreign exchange coming into Nigeria is generated form crude oil export.  For instance in 1958, it was about N2 million while in 1974 it had jumped to N5366m.

(b)     Government Revenue: This comes in form of rests, Royalties licence fees, petroleum profit tax.  It rose form a mere N28,000 in 1958 to N2872 million I 1974.

© Creation of Employment: The various firms operating in the industry give employment opportunities to Nigerians.  The oil companies are known as some of the highest paying establishment in the country.

(d) Source of Fuel and power: The products from petroleum, like petrol, kerosene and diesel are needed as fuel by both individuals, and firms for domestic and commercial purpose.

(e) Attracting foreign investments: This is yet another positive effect which petroleum industry contributed to Nigerian’s Economy.

This trace the fact that many foreign firms have made great investment in the industry both in exploration and exploitation of the product. These include Mobil, Agip, Elf etc.

NEGATIVE EFFECT OF PETROLEUM INDUSTRY IN NIGERIA ECONOMY AS FOLLOWS:-

A.      Suppression of Agricultural Development: The discovery and exploitation of petroleum some how ledge to the abandoning of Agricultural efforts. This worsened the problem of rural –urban migration with the result that Nigeria became a net importer of food.

B. Uncertainties in government revenue’s: the nature of the world market in which petroleum is sold is ver volatile Hence the price of petroleum fluctuates widely leading to shortage in government expected revenues form that sector.  This happened during oil gulute and often led to austerity measure by the government.

C.      Uncertaintities in foreign exchange: since the country depends on petroleum as a major foreign exchange earner fluctuations always disorganize the country’s effort ot import both raw material and finished goods.

D.      Ecological problems: petroleum exploitation also leads to pollution of rivers, or the soil.  These have adverse effect on our economic life.

E.      Political Problems: The problem of revenue allocation basically arose rom how to share the revenue accruing from petroleum revenue.

Mr Augustine E. 1996 explains the function /Role of Nigerian National Petroleum Corporation (NNPC) as follows:

NNPC as a government owned company that represent them in the petroleum industry plays many vital roles in the area of prospecting, production, refining, marketing and management of petroleum product such as :-

i.        Oil exploration: NNPC employs the service of geologists and geoscientists to search the fields of the country to determine the presence of oil in a given place.  The corporation also determines the possibility of exploiting the petroleum product for he well being of the country.

ii.       Production of Petroleum: The NNP establishes industrial plats which pump out crude oil wherever it is found.  That is to say that the corporation builds its own oil wells in order to exploits the oil deposit.

iii.      Transportation of petroleum: There are pipelines and fleet of tankers vehicles which the NNPC maintains for the purpose of lifting crude oil form oil wells to refineries.  The refined petroleum products are conveyed at the various distributive out lets for sales.

iv.      Refining of Petroleum: The NNPC has refineries at Port Harcourt, Warri and Kaduna which through fraternal distillation process separate. Crude petroleum into many mixtures. The process involves intensive healing of the crude oil to enable the separation into mixtures.  Like petroleum diesel, kerosene and lubricating oil.  The by products of petroleum are also useful.

v.       Marketing function: The sales of the petroleum products is another role of the NNPC. It maintains subsidiaries which market the petroleum products in wholesale and retail levels.  The NNPC tankers are filling stations all over the country are used for this purpose of selling kerosene, cooking gas, petrol, Lubricating oil, diesel etc.

vi.      Implementation of oil Policy: The oil policy objectives of the federal government are achieved through the NNPC which is an agency of the government.  So it implements the government policy on oil production level transportation and determination of oil prices.

vii.     Enhances The Nigeria’s Image: The membership of Nigeria in open increase her political image in the international level.

viii.    Regulation of other Policies: The Federal Government also employs the service of NNPC to control the activities of the oil companies in Nigeria.  The NNPC controls issues concerning oil exploration license (OEL), oil prospecting licenses for the operation of filling stations in Nigeria.

ix.      NNPC also play an important role through initiating and building of petrol-chemical industry through co-operation with foreign investors.

PROBLEMS OF FUEL DISTRIBUTION IN NIGERIA

In the distribution of fuel round the country, there are a lot of problems, which hamper it effectiveness. Some of these problems will be explain bellow:

1.       One of the most inevitable problems that faced the distribution of fuel in Nigeria is when there is any fault in the refinery. That is when pipelines which are the major routes by which the refined fuel are being distributed to depots are not working effectively, the fuel which as refined will be stored there at the refinery because of this problem, there will be not means by in which those fuel will be distributed.

2.       Transportation: means of transportation of fuel is yet another problem that enhances the distribution of fuel in Nigeria.

Filling stations which were build in the rural areas because of bad road, find it difficult to transport fuel form the urban to rural areas.

Because of these difficulties in the transportation lead, to fuel scarcity. This traces the fact that some tankers will fail along the road which in some cases brings about damages of the fuel and vehicle also.

3.       Tanker drivers or middlemen also contribute to the problem of fuel distribution. When a tanker driver is asked to distibut4e fuel to Vertain Company (fuel station) because of zeal and greed to make quick money, the tanker drivers will just divert the fuel to some other route probably to the black marketers.

4.       Capital Inadequacy:  Inadequate of money in many ways contributed to problem of fuel distribution.  In the case of building filling station, the cost is very high there by discourage the intended investor to invest, which brings about problem in distribution because the refined fuel will remain in NNPC.

  NNPC AND DISTRIBUTION OF PETROLEUM IN NIGERIA

The marketing of petroleum product in Nigeria was begun in the early century by secondary vacuum oil company (the predecessor of mobile) which marketed sunflower – kerosene.

This later expanded I the mid seventies to include the seven major marketing companies,

i.        Mobil

ii.       AP

iii.      Total

iv.      Texaco

v.       National

vi.      Agip

vii.     And unipetroleum.

They completely controlled the marketing and distribution of refined petroleum products.

An eight company Eif marketing later Joined the group, as well as the independent marketers (enterprising Nigerians are encouraged to participate in petroleum product distribution) with the ensuring expansion of economic activities.  In the country, after the Nigerian civil war, the nation witnesses an unprecedented explosion I the demand for petroleum products in 1970’s.

The private marketing companies could no longer cope with this increased domestic demand for product and this resulted in severs shortage of petroleum product all over the country.  This is also constituted a major bottle neck to development in the country.

Government at this was therefore forced to point venture into petroleum products distribution and marketing to help solve the ensuring problems and ease the suffering of the consumers.  To facilitate the even distribution of petroleum product, government decided to construct a network of pipe line and storage depots all over the country for the effective distribution of products 137 1979, a  total of 2001 kilometers of pipe lines linking 16 storage deports to the refineries has be constructed all over the country.

Four “white” products were handled by this transportation and storage system namely:

a.       Premium motor spirit (Petrol)

b.       Five star motor spirit (Petro.)

c.       Deal purpose kerosene

d.       Automatic gas oil (diesel)

The marketing companies purchase these products at the NNPC depots and then to their various filling stations. In addition to these, depots and pipe line facilitate various pupation that is located on the pipeline routes to further enhancement of regular supply of petroleum product.

PROBLEMS OF FUEL DISTRIBUTION IN NIGERIA

In the distribution of fuel round the country, there are a lot of problems, which hamper its effectiveness. Some of these problems will be explained bellow:

1.       One of the problems of fuel distribution in Nigeria is when there is any pipelines which are the major routes by in which the refined fuel are being distributed to depots are not working effectively, the fuel which are refined will be stored there at the refinery because of ineffectiveness of pipelines.

Therefore, there will be no any means by which these refined fuel will be distributed.

2.       Transportation problem:       means of transportation is yet another problem which enhances the distribution of fuel in Nigeria.

In this case, filling stations which were built in the rural areas finds it difficult to transport fuel form the urban to rural areas because of bad road.

These also contribute to the fuel scarcity for those people living in that rural area.

  1. Tanker drivers or middlemen also contributed to problems of fuel distribution.  Where a tanker driver is asked to distribute fuel to certain people, because of greatness and the zeal to make quick money, will just divert the fuel to some other route probably to the black marketers.

 ECONOMIC EFFECT OF FUEL SCARCITY IN NIGERIA:

Fuel scarcity has caused a lot of problem to our society/economy in the sense that price of goods and services have risen so high that people find it difficult to afford. This is caused by the inability of the farmers in the rural areas to bring their farm product to the urban center because of the high cost of transportation.

That notwithstanding, there are people who strive to bring their farm product to the urban areas despite the high cost of transportation with the intention of selling them at a higher price in order to cover their expenses.  It is then, the entire population that suffers for it.

Fuel scarcity has also affected the entire nation and Enugu metropolis inclusively. This is because oil is a major source of income for the society and since there is fuel scarcity, the government cannot export enough oil to foreign countries.  Because of this, the government cannot get enough foreign exchange of the well being of the society as a whole.

Industrialists are not left out in this matter.  The price of raw materials has risen so high because of the cost of transportation and they increase their production cost and din order to cover this cost and make profit.  They usually increase the price of their products.

Individuals as a whole? Because of fuel scarcity, car owners increase the price of transportation because they find the difficult to buy fuel, even if it is brought, the price with is so exorbitant there by causing people to pay higher for transportation.

THE ROLE OF TASKFORCE ON THE MANAGEMENT OF FUEL SCARCITY

The task force is the team set up by the government to help maintain peace and order in the distribution of fuel in the filling stations.  This is because since the problem of fuel scarcity started, a lot of problems have risen making the less privileged not to buy fuel.

There are numerous roles performed by the task force when will enumerate bellow:

1.       Because of Insufficiency of fuel in the filling stations, buyers or consumers struggle for the fuel many a times, fight for it.  It is one of the duties of the task force to settle such cases and make sure that there is peace and order.

2.       The task force ensures that the tankers drives do not divert the fuel to black marketers.

3.       The roles of the task force involve making sure that car owners do not buy fuel with jerry can or anything else rather than their own car tanks.

4.       Regulation Role: Because of fuel scarcity, filling station owners increase the standard price of fuel I other to make too much gain, it is the duty of task force to see that these nonsense is stopped.

5.       Because of fuel scarcity, people formed the habit of giving bribe to the filling stations owners so that fuel will be sold to them at any quantity they want. This (continued until the introduction of task force to see that this nonsense is stopped.

5.       Because of fuel scarcity, people formed the habit of giving bribe to the filing station’s owners so that fuel will be sold to them at any quantity they want. This Continued until the introduction of task force which brought it to an end.

SCARCITY OF OTHER ESSENTIAL COMMODITIES AND ITS EFFECT

The essential commodity which is going to discuss its scarcity is electricity.  In our society today, most business cannot operate without the use of electricity for example, salons, printing press, duplicating countries, hospitals grinding mills etc.

In grinding mills for example, maize would be grinded, no matter the quantity at not more than the amount of N100 (hundred Naira). But  once there is no electricity, the mills operators will resort to using generators.  By the used of generators which is operated by fuel the price of which will be changed on the maize will be higher than when it is grinded by the use of electricity.  When the owner of the maize page higher amount for the grinding, supposing he/she uses the maize for business like to increase the amount he will sell the flour.

When there is no electricity, the people operating duplicating machines will use generation. Thereby increasing the amount charged for duplication.

For example in IMT, when there is electricity, students were charged N2.50 for photocopying but once the electricity, students were charged N2.50 for Photocopying but once the electricity is off, the amount changed will rise to N5, for one copy we can see form these research work, that the scarcity of electricity as an essential commodity will affect the people adversely.  In the sense that they will be forced to pay higher amount if they want to acquire goods or services from the electricity users when the electricity is not available.

 

—This article is not complete———–This article is not complete————
This article was extracted from a Project Research Work/Material Topic

THE ECONOMIC EFFECT OF FUEL SCARCITY IN NIGERIA

(A CASE STUDY OF ENUGU METROPOLIS)

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The Nigerian Oil Industry – An Overview

 

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