Overview

Nigeria has a population of over 110 million people and an abundance of natural resources, especially hydrocarbons. It is the biggest oil producer in Africa and one of the biggest in the world. The Nigerian economy is largely dependent on its oil sector, which supplies 95% of its foreign exchange earnings. Nigeria contains estimated proven oil reserves of 22.5 billion barrels and produces 90 million tons per year (2 million bpd) of crude oil. Most of this is produced from the prolific Niger River Delta. Despite problems associated with ethnic unrest, border disputes and government funding, Nigeria’s wealth of oil makes it most attractive to the major oil–multinationals, most of whom are represented in Nigeria, with the major foreign stakeholder being Shell.

Nigeria is a member of OPEC and its 4th largest producer. Its crude oils have gravity between 21•API and 45•API. Its main export crudes are Bonny Light (37•) and Forcados (31•). About 65% of Nigeria’s oil is above 35•API with very low sulphur content. Nigeria’s OPEC quota is 1.89 million bbl/d.

Nigeria also contains an estimated 124 Tcf of proven natural gas reserves mainly from onshore fields and the swampy areas of the Niger River Delta. Due, mainly, to the lack of a gas infrastructure, 75% of associated gas is flared and 12% re–injected. Nigeria has set a target of zero flare by 2010 and is providing incentives for the production and use of gas.

The government through its 100% state-owned national oil company, Nigerian National Petroleum Corporation (NNPC) has had an all-encompassing control over the industry through its shareholding in all the companies involved and in the setting of wholesale and retail prices.

Upstream

The upstream oil industry is the single most important sector in the country economy, providing over 90% of its total exports.

Oil is produced from five of Nigeria’s seven sedimentary basins: the Niger Delta, Anambra, Benue Trough, Chad, and Benin. The Niger Delta, the Onshore and Shallow Offshore basins can be considered fairly well to well explored. Ventures here are low risk and the basins contain about 80% of producing wells drilled in Nigeria. During the later 1990s exploration focus turned to high-risk ventures in the frontier basins of the deep water offshore with encouraging success. These ventures are becoming increasingly attractive with developments in deepwater exploration and production technology.

Down Stream

The downstream oil industry in Nigeria is another key sector in the country economy. The country has four oil refineries with a nameplate capacity of 445 000 bbl/d and there are eight oil companies and 750 independents — all active in the marketing petroleum products. Problems such as fire, sabotage, poor management, lack of turn around maintenance and corruption have meant that the refineries often operate at 40% of full capacity, if at all. This has resulted in shortages of refined product and the need to increase imports to meet domestic demand.

Nigeria has a robust petrochemicals industry based on its substantial refining capacity and natural gas resources. The petrochemical industry is focussed around the three centres of Kaduna, Warri and Eleme.

Sector Reform History

Until 1960, government participation in the oil industry was limited to the regulation and administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the Nigerian National Oil Corporation (NNOC) was established, later becoming Nigerian National Petroleum Corporation (NNPC) in 1977. This giant parastatal, with all its subsidiary companies, controls and dominates all sectors of the oil industry, both upstream and downstream.

Deregulation of the downstream energy sector remains a stated government aim. But this is likely to depend on the still heavily subsidised prices being allowed to rise to international levels. Many Nigerians regard oil as a gift from God and their natural right to enjoy on the cheap, a sentiment that will make any government rethink its commitment to more realistic prices by risking its future.

In November 1999, Obasanjo announced that the market for petroleum prices would be deregulated which would offer the country debt relief. He noted that all petroleum prices would be fully deregulated and domestic crude allocation to the NNPC would be paid for at export parity with immediate effect. This would have an immediate effect on pump prices. Outcries by the National Labour Congress and the public have led the government in December 1999 to state that it had no immediate plans to end the fuel subsidy and to defer price increases.

In April 2000, the Nigerian government set up a committee to investigate reform in the oil and gas sector with a focus on the deregulation and privatization of the NNPC. Under the privatization programme seven subsidiaries are to be sold. These are all downstream companies and include the refineries, the Eleme Petrochemicals Company Ltd, the Nigerian Petroleum Development Company and Hyson Nigeria Ltd.

The former Secretary-General of OPEC, Dr Rilwanu Lukman, is a Nigerian national and Petroleum Advisor to the President.

The Ministry of Petroleum Resources regulates the petroleum industry in Nigeria. The government retains close control over the industry and the activities of the NNPC, whose senior executives are appointed by the ruling government.