A background on Nigeria and its oil

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Nigeria is one of the many countries in Africa with a wide variety of natural resources. The Nigerian government lists all public-owned sites where raw materials are extracted. It is not surprising to see how blessed the territory is with exceptional quality and quantity of metals, oils and gasses. What may wake one’s curiosity is why a large part of the population is underfed and lives in poverty.

Administrative structure

Although many claim that Nigeria has a greater potential for natural gasses, the most important natural resource is crude oil. Nigeria is not only the largest producer of crude oil in Africa (up to 2.5 million barrels per day), but also the 6th oil-producing country in the world.

Nigeria produces only high-value, low-sulphur content, light crude oils, which renders its production paramount for international markets (light crude oil produces a higher quantity of gasoline than its heavier counterparts). The Department of Petroleum Resources - the Nigerian public statutory body for the industry - claims the African giant has a total of 252 oil fields (of which 79 are offshore) and thousands of operating wells. Nigeria has almost 40 billion barrels of proven oil reserves, according to OPEC (against 266 billion in Saudi Arabia, over 300 in Venezuela – a record-setter –, and only 35 in the US), but the overall production is estimated to have a potential of 10-15 times as many, and this is mainly due to the lack of exploration and obsolete methods of drilling. The first vein was discovered only in 1956, which is (relatively speaking) not long ago.

Nigeria has an extensive and complicated network of public and private bodies that govern these precious resources. The most important authority is the Nigerian National Petroleum Corporation (NNPC): this body serves as corporation through which the federal government regulates the internal market. However, it is also through the NNPC that it participates in the country's oil industry. Founded 40 years ago as the result of a merger between the Ministry and corporations, its functions vary from simple regulation to joint venture with foreign multinationals. It also acts as a watchdog on Nigerian private oil companies. 

The Nigerian Petroleum Development Company (NPDC) was set up 30 years ago as a subsidiary of the NNPC. NPDC works as the main actor in the expansion of the production capacity, both onshore and most recently offshore, and benefits from a certain degree of freedom when it comes to unearthing new deposits and whole fields. Lacking the most sophisticated know-how, the NPDC often seeks to liaise with multinationals. One of the most important and historical partnerships was established for instance with Agip Energy (a brand of the Italian state-owned Eni) to thoroughly exploit the Okhono offshore field. However, the most prominent company is the Anglo-Dutch Shell, which controls two exportation fields for a volume of more than 13 billion barrels.

The most important commercial asset

Indeed, the figures are impressive. Notwithstanding massive investments and attempts to diversify the portfolio, last year oil and gas production accounted for more than 35% of the Nigerian GDP. It is astonishing to notice that oil is practically the one and only export, at least in terms of turnover: 98% of Nigerian export revenues come from the oil and gas industry. Ninety-five percent of oil reserves are drilled out from the Niger Delta, but in recent years offshore fields are blooming, especially on the western coast. The deep-water sector is not yet as developed as it could be, largely due to poor research. Offshore drilling is particularly attractive to foreign companies in that the Nigerian government has been slow in regulating these activities, but also because offshore plants are out of reach for local rebel attacks.

Unlike most of the OPEC countries, Nigeria has been forced for years now to limit its own production, adjusting it to international market demands. The reason is that other producers are struggling to keep up the same levels, and Nigeria actually serves as a “regulatory country”, complying with demands as requested (although this has translated into a recession for a second year in a row). Production, however artificially limited, exceeds that of third countries, thus contributing to keeping prices affordable. And Nigeria could go even beyond that threshold, but it would put the revenues of other oil producers in jeopardy. The figures tell the story: an OPEC agreement limited oil production from 2012 from 2.1 billion barrels per year to 1.45 billion barrels in 2017.

Social issues

For years, international regulation has weighed on local workers who see their potential disrupted by other countries’ needs. Discontent gave birth to several insurgency movements, especially in the Niger Delta. The most well-known group of rebels calls itself the “Delta Avengers” and operates as a modern Robin Hood: they take advantage of the many leaks in not-so-modern infrastructures to reverse black gold onto the black market. The place where illegal demand meets illegal offer is called the “Togo Triangle” and is one of the largest black markets in the world. This clearly endangers the overall production, but provides the poor with revenues. In fact, in recent years the Delta has seen a huge internal migratory movement of young people seeking an easy job in the petroleum industry, thus contributing to the insurgence of modern slums in the region. The rebels firmly demand that multinational companies are kicked out from Nigeria, and that the country renegotiates its role in OPEC; they also have accused these firms of costly environmental damage, along with taking revenue away from locals.

Because oil is indeed the most important commercial asset, the federal government has been trying to regulate it as much as possible. Two weeks ago, the negotiations for a new deal with OPEC came to an agreement, exempting Nigeria (and Lybia) from a cut on the production. This will probably give a new boost to the Nigerian economy, as the Ministry seeks to add another 10% to the production, but OPEC is also said to set targets as of 2019. As Nigeria does not possess the capital or the expertise to be fully sufficient in the exploitation, it is somehow forced to revert to international companies, which are detrimental to the overall well-being of the population. The African giant seems to have the capacity to be one of the most important international actors in the oil sector, and yet struggles to exploit its full potential.




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