Nigeria has a total of 159 oil fields and 1481 wells in operation according to the Department of Petroleum Resources. The most productive region of the nation is the coastal Niger Delta Basin in the Niger Delta or “South-south” region which encompasses 78 of the 159 oil fields.
Nigeria is the largest oil and gas producer in Africa. Crude oil from the Niger delta basin comes in two types: light, and comparatively heavy – the lighter around 36 gravity and the heavier, 20–25 gravity. Both types are paraffinic and low in sulfur.[1]
History of oil exploration
The history of oil exploration in Nigeria dates back to 1903 when Nigerian Bitumen Corporation conducted exploratory work in the country, at the onset of World War I the firm’s operation were stopped. Due to the lack of technological and financial resources by small oil companies, large oil companies took over the exploration of commercial oil in the country. Thereafter, licenses were given to D’Arcy Exploration Company and Whitehall Petroleum but neither company found oil of commercial value and they returned their licenses in 1923.[2] A new license covering 920,000 square kilometres (357,000 square miles) was given to Shell D’arcy Petroleum Development Company of Nigeria, a consortium of Shell and British Petroleum (then known as Anglo-Iranian). The company began exploratory work in 1937. The consortium was granted license to explore oil all over the territory of Nigeria but the acreage allotted to the company in the original license was reduced in 1951 and then between 1955 and 1957. Drilling activities started in 1951 with the first test well drilled in Owerri area. Oil was discovered in non-commercial quantities at Akata, near Eket in 1953.[2] Prior to the Akata find, the company had spent around 6 million pounds on exploratory activities in the country. Shell-BP in the pursuit of commercially available petroleum found oil in Oloibiri, Nigeria in 1956. Other important oil wells discovered during the period were Afam and Bomu in Ogoni territory. Production of crude oil began in 1957 and in 1960, a total of 847,000 tonnes of crude oil was exported. Towards the end of the 1950s, non-British firms were granted license to explore for oil: Mobil in 1955, Tenneco in 1960, Gulf Oil and later Chevron in 1961, Agip in 1962, and Elf in 1962. Prior to the discovery of oil, Nigeria (like many other African countries) strongly relied on agricultural exports to other countries to supply their economy. Many Nigerians thought the developers were looking for palm oil.[3] But after nearly 50 years searching for oil in the country, Shell-BP discovered the oil at Oloibiri in the Niger Delta. The first oil field began production in 1958.[4]
After that, the economy of Nigeria should have seemingly have experienced a strong increase. However, competition for the profits from oil created a great level of terror and conflict for those living in the region. Many citizens of Nigeria believe that they haven’t been able to see the economic benefits of oil companies in the state. Additionally, Nigerian government officials have remained majority shareholders in the profits created by the production of Nigerian oil, leading to government capturing of nearly all oil production, and citizens are not seeing socioeconomic benefits, and insist that oil companies should compensate people.[3]
Production and exploration
Satellite image of Niger Delta
As of 2000, oil and gas exports accounted for more than 98% of export earnings and about 83% of federal government revenue, as well as generating more than 14% of its GDP. It also provides 95% of foreign exchange earnings, and about 65% of government budgetary revenues.
Nigeria’s proven oil reserves are estimated by the United States Energy Information Administration (EIA) at between 16 and 22 billion barrels (2.5×109 and 3.5×109 m3),[5] but other sources claim there could be as much as 35.3 billion barrels (5.61×109 m3). Its reserves make Nigeria the tenth most petroleum-rich nation, and by the far the most affluent in Africa. In mid-2001 its crude oil production was averaging around 2,200,000 barrels (350,000 m3) per day.[6] It is expected that the industry will continue to be profitable based on an average bench mark oil price of $85-$90 per barrel.[7]
Nearly all of the country’s primary reserves are concentrated in around the delta of the Niger River, but off-shore rigs are also prominent in the well-endowed coastal region. Nigeria is one of the few major oil-producing nations still capable of increasing its oil output. Unlike most of the other OPEC countries, Nigeria is not projected to exceed peak production until at least 2009.[8] The reason for Nigeria’s relative unproductivity is primarily OPEC regulations on production to regulate prices on the international market. More recently, production has been disrupted intermittently by the protests of the Niger Delta’s inhabitants, who feel they are being exploited.
Nigeria has a total of 159 oil fields and 1481 wells in operation according to the Department of Petroleum Resources.[9] The most productive region of the nation is the coastal Niger Delta Basin in the Niger Delta or “South-south” region which encompasses 78 of the 159 oil fields. Most of Nigeria’s oil fields are small and scattered, and as of 1990, these small unproductive fields accounted for 62.1% of all Nigerian production. This contrasts with the sixteen largest fields which produced 37.9% of Nigeria’s petroleum at that time.[10]
As a result of the numerous small fields, an extensive and well-developed pipeline network has been engineered to transport the crude oil. Also because of the lack of highly productive fields, money from the jointly operated (with the federal government) companies is constantly directed towards petroleum exploration and production.
Nigeria’s petroleum is classified mostly as “light” and “sweet”, as the oil is largely free of sulfur. Nigeria is the largest producer of sweet oil in OPEC. This sweet oil is similar in composition to petroleum extracted from the North Sea. This crude oil is known as “Bonny light”. Names of other Nigerian crudes, all of which are named according to export terminal, are Qua Ibo, Escravos blend, Brass River, Forcados, and Pennington Anfan.
As recently as 2010, Nigeria provided about 10% of overall U.S. oil imports and ranked as the fifth-largest source for oil imports in the U.S. However, Nigeria ceased exports to the US in July 2014 because of the impact of shale production in America; India is now the largest consumer of Nigerian oil.[11]
There are six petroleum exportation terminals in the country. Shell owns two, while Mobil, Chevron, Texaco, and Agip own one each. Shell also owns the Forcados Terminal, which is capable of storing 13 million barrels (2,100,000 m3) of crude oil in conjunction with the nearby Bonny Terminal. Mobil operates primarily out of the Qua Iboe Terminal in Akwa Ibom State, while Chevron owns the Escravos Terminal located in Delta State and has a storage capacity of 3.6 million barrels (570,000 m3). Agip operates the Brass Terminal in Brass, a town 113 kilometres (70 miles) southwest of Port Harcourt and has a storage capacity of 3,558,000 barrels (565,700 m3). Texaco operates the Pennington Terminal.[12]
Offshore
Oil companies in Africa investigate offshore production as an alternative area of production. Deepwater production mainly involves underwater drilling that exists 400 metres (1,300 ft) or more below the surface of the water. By expanding to deep water drilling the possible sources for finding new oil reserves is expanded. Through the introduction of deep water drilling 50% more oil is extracted than before the new forms of retrieving the oil.[13]
Angola and Nigeria are the largest oil producers in Africa. In Nigeria, the deepwater sector still has a large avenue to expand and develop. The Agbami oilfields hit full production in 2005, at 250,000 barrels (40,000 m3) a day. Operated by Chevron’s Star Deep and a company called Famfa, Agbami is only one off-shore concession; there are others named Akpo, Bonga and Erha.[14] The amount of oil extracted from Nigeria was expected to expand from 15,000 barrels per day (2,400 m3/d) in 2003 to 1.27 million barrels per day (202,000 m3/d) in 2010.[13] Deepwater drilling for oil is especially attractive to oil companies because the Nigerian government has very little share in these activities and it is more difficult for the government to regulate the offshore activities of the companies.[13]
The deepwater extraction plants are less disturbed by local militant attacks, seizures due to civil conflicts, and sabotage.[13] These advancements offer more resources and alternatives to extract the oil from the Niger Delta, with less exposure to conflict than the operations on land. An open-air market for illegal crude oil operates off the Niger Delta, called the Togo Triangle.[15]
Natural gas
Natural gas reserves are well over 5,300 km3 (187×1012 cu ft), the gas reserves are three times as substantial as the crude oil reserves. The biggest natural gas initiative is the Nigerian Liquified Natural Gas Company, which is operated jointly by several companies and the state. It began exploration and production in 1999. Chevron is also attempting to create the Escravos Gas Utilization project which will be capable of producing 4,500,000 m3 (160×106 cu ft) per day.[16] gas reserves. In 2008, the government prepared a Gas Master Plan that was intended to promote natural gas production and encourage the supply of natural gas to domestic power stations so as to help alleviate the country’s electricity shortages.[17] There is also an export gas pipeline, known as the West African Gas Pipeline, in the works but has encountered numerous setbacks. The pipeline would allow for transportation of natural gas to Benin, Ghana, Togo, and Cote d’Ivoire. The majority of Nigeria’s natural gas is flared off and it is estimated that Nigeria loses 18.2 million US$ daily from the loss of the flared gas.[16]
Downstream
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Nigeria’s total petroleum refining capacity is 445,000 barrels (70,700 m3) per day, however, only 240,000 barrels (38,000 m3) per day was allotted during the 1990s. Subsequently, crude oil production for refineries was reduced further to as little as 75,000 barrels (11,900 m3) per day during the regime of Sanni Abacha. There are four major oil refineries: the Warri Refinery and Petrochemical Plant which can process 125,000 barrels (19,900 m3) of crude per day, the New Port Harcourt Refinery which can produce 150,000 barrels (24,000 m3) per day (there is also an ‘Old’ Port Harcourt Refinery with negligible production), as well as the now defunct Kaduna Refinery. The Port Harcourt and Warri Refineries both operate at only 30% capacity.[12] The Dangote Refinery, expected to open in the early 2020s, will have a 650,000 barrels (103,000 m3) daily capacity.[18]
It is estimated that demand and consumption of petroleum in Nigeria grows at a rate of 12.8% annually.[12] However, petroleum products are unavailable to most Nigerians and are quite costly, because almost all of the oil extracted by the multinational oil companies is refined overseas, while only a limited quantity is supplied to Nigerians themselves.
Current manufacturing
Nigeria is Africa’s largest oil producer and has been a member of the Organization of Petroleum Exporting Countries since 1971. The Nigerian economy is heavily dependent on the oil sector, which, accounts for over 95 percent of export earnings and about 40 percent of government revenues, according to the International Monetary Fund. According to the International Energy Agency, Nigeria produced about 2.53 million barrels (402,000 m3) per day, well below its oil production capacity of over 3 million barrels (480,000 m3) per day, in 2011.
Nigeria is an important oil supplier to the United States. For the last nine years, the United States has imported between 9-11 percent of its crude oil from Nigeria; however, United States import data for the first half of 2012 show that Nigerian crude is down to a 5 percent share of total United States crude imports. According to the International Energy Agency, in 2011, approximately 33 percent of Nigeria’s crude exports were sent to the United States, making Nigeria its fourth largest foreign oil supplier.
Although total crude imports into the United States are falling, imports from Nigeria have declined at a steeper rate, according to the International Energy Agency. The main reasons underlying this trend are that some Gulf Coast refiners have reduced Nigerian imports in favor of domestically-produced crude, and that two refineries in the U.S. East Coast, which were significant buyers of Nigerian crude, were idled in late 2011.
As a result, Nigerian crude as a share of total United States imports has fallen to 5 percent in the first half of 2012, down from 10 and 11 percent in the first half of 2011 and 2010, respectively, according to the International Energy Agency. According to the CIA World Factbook, Nigeria’s main export partners are the United States, India, Brazil, Spain, France, and the Netherlands. Shell has been working in Nigeria since 1936, and currently dominates gas production in the country, as the Niger Delta, which contains most of Nigeria’s gas resources, also houses most of Shell’s hydrocarbon assets.
History and politics
See also: History of Nigeria and Niger Delta
An Ethno-linguistic map of Nigeria.
Prior to its official amalgamation into the Colony and Protectorate of Nigeria by the military forces of the British Empire in 1914, the territory of Nigeria was a loose collection of autonomous states, villages, and ethnic communities. Many of these established themselves as pillars of art, trade, and politics in West Africa as late as the 19th century; four of these cultural entities, the Hausa-Fulani, the Igbo (sometimes spelled Ibo), the Yoruba and the Efik grew extremely prominent in the region before the arrival of foreigners, dictated British colonial policies, and dominate national politics in Nigeria to this day.
The modern Hausa and Fulani societies in northern Nigeria are the cultural successors of the Sokoto Caliphate, a theocratic state founded by Muslim reformer empire-maker Uthman dan Fodio in 1817. Geographically isolated in the north, the Caliphate was governed by Islamic laws as prescribed by dan Fodio’s Kitab al-Farq and maintained greater links commercially and culturally to North Africa and the Arab states than to West Africa and the Atlantic.
By contrast, the Yoruba, the Igbo and the Efik in the south had regularly experienced contact with Europeans since at least the 16th century. A minority of southerners converted to Christianity even prior to the establishment of permanent British control, but the majority followed traditional indigenous religions, worshipping myriad deities with vast domains spanning both cosmic and terrestrial spheres.
Coastal Nigerians established thriving trade both regionally and abroad, fashioning the coast into a hub for products like palm oil, a good sought after by rapidly industrialising Europe, while also serving as key source for the slave trade prior to its international banning (the region came to be known as the Slave Coast as a result).
The Niger Delta region, which is roughly synonymous with the Niger Delta province in location and the contemporary heart of the petroleum industry, is and was a zone of dense cultural diversity and is currently inhabited by roughly forty ethnic groups speaking an estimated 250 dialects. Some of the more relevant ethnic groups in the western part of the Niger Delta region include the Ijaw, Itsekiri, and Ogoni. The Ijaw (sometimes spelled Ijo), the fourth most populous tribe in Nigeria and by far the largest in the Delta region, lived during late medieval times in small fishing villages within the inlets of the delta; however by the 16th century, as the slave trade grew in importance, Ijaw port cities like Bonny and Brass developed into major trading states which served as major exporters of fish and other goods regionally. Other states such as those of Itsekiri domain of Warri sprang up at this time as well.[19]
The eastern Niger Delta region has the Efik people (Annang / Efik / Ibibio who are all related with a common language and ancestors who were all referred to as Efik or Calabar people in early Nigerian history). Their capital city of Calabar, located at the coastal southeast of Nigeria (eastern Niger Delta) served as the major trading and shipping center during the pre-colonial and colonial period. Calabar also served as the first capital of Nigeria and the point of entry of Western religion and Western education into southeastern Nigeria. The combined population of the Ibibio, Annang, and Efik people is the fourth largest language group in Nigeria.
Colonial legacy (1800s–1960s)
See also: Colonial Nigeria
Even before the consolidation of British control over all of present-day Nigeria’s borders in 1914 from the protectorates of Southern and Northern Nigeria, British forces had begun imposing drastic political and economic policies on the Nigerian people which would lead to important consequences in the future. Originally this was done primarily through the government-owned Royal Niger Company. The company was crucial in securing most of Nigeria’s major ports and monopolised coastal trade; this resulted in the severing of the ties which had linked the area to the flourishing West African regional trade network, in favour of the exportation of cheap natural resources and cash crops to industrialising nations. Most of the population eventually abandoned food production for such market-dependent crops (peanuts and cotton in the north, palm oil in the east, and cocoa in the west).[19] From the beginning, divide and rule tactics were employed by both traders and administrators, highlighting ethno-religious differences and playing groups against one another. After 1914, the north was permitted a system of indirect rule under authoritarian leaders, while in the south the British exercised control directly.[19]
Interest in Nigerian oil originated in 1914 with an ordinance making any oil and mineral under Nigerian soil legal property of the Crown. By 1938 the colonial government had granted the state-sponsored company, Shell (then known as Shell D’Arcy) a monopoly over the exploration of all minerals and petroleum throughout the entire colony.[19] Commercially viable oil was discovered by Shell in 1956 roughly 90 kilometres (56 mi) west of the soon-to-be oil capital of Port Harcourt at Oloibiri, now in Bayelsa State; initially a 50–50 profit sharing system was implemented between the company and the government. Until the late 1950s concessions on production and exploration continued to be the exclusive domain of the company, then known as Shell–British Petroleum. However, other firms became interested and by the early 1960s Mobil, Texaco, and Gulf had purchased concessions.[10]
In October 1960 Nigeria gained full independence from Britain with the British monarch continuing to preside as Head of State, but the country quickly altered its relationship with its former colonizers by declaring Nigeria a republic of three federated states (the Eastern, Western and Northern Regions). But the flaring of ethnic tensions assured that this new republic would be short-lived, as on 15 January 1966, a small group of army officers consisting mostly of southeastern Igbos, staged a successful coup d’état against the civilian government. The federal military government which assumed power under General Aguiyi-Ironsi was unable to quiet ethnic tensions or produce a constitution acceptable to all sections of the country. In fact, its efforts to abolish the federal structure exacerbated the growing unrest and led to another coup, led by largely northern officers in July of the same year. This second coup established the regime of Major General Yakubu Gowon. Subsequently, the massacre of thousands of Igbo in the north prompted hundreds of thousands to return to the southeast, where increasingly strong Igbo secessionist sentiment emerged under the leadership of the Igbo military governor Lieutenant Colonel Chukwuemeka Odumegwu Ojukwu.
With tensions stoked between the Eastern region and Gowon’s federal government, on 4–5 January 1967, in compliance with Ojukwu’s desire to meet for talks only on neutral soil, a summit attended by Gowon, Ojukwu and other members of the Supreme Military Council was held at Aburi in Ghana, the stated purpose of which was to resolve all outstanding conflicts and establish Nigeria as a confederation of regions. The outcome of this summit was the Aburi Accord, the differing interpretations of which would soon cause Ojukwu to declare Biafran independence and plunge Nigeria into civil war.
Implications and causes of civil war (1966–1970)
See also: Biafra and Nigerian Civil War
Map showing the location of the secessionist Republic of Biafra within Nigeria.
Igbo secessionism arose in part from the pogroms in the North that were aimed at Eastern people, most specifically, the Igbo. However, since the southeast encompassed most of the petroleum-rich Niger Delta, the prospect emerged of the Eastern Region gaining self-sufficiency and increasing prosperity. The exclusion of easterners from power caused many in the east to fear that oil revenues would be used to benefit areas in the north and west rather than their own. The desire to accrue profits from oil revenues combined with ethnic tensions acted as a catalyst for the Igbo-spearheaded secession. Additionally, despite his denials in later years, it appears that Ojukwu’s insistence on secession at the time was heavily influenced by his knowledge of the extent of the area’s oil reserves.[20] Recent evidence has suggested a tax battle waged by American oil companies contributed to the regional and ethnic tensions that would lead to the outbreak of war. It was also during this period that, again thanks to the Americans, the opacity and concomitant corruption of Nigerian oil began to crystallise.[21] However, evidence from leaked US State Department documents have proven that Britain, through Shell-BP,[22] still held the most influence over the Nigerian oil industry at the time the war broke out.[22] The United States declared neutrality, with US Secretary of State Dean Rusk stating that “America is not in a position to take action as Nigeria is an area under British influence,”[22] but nevertheless provided military assistance to the Nigeria government.[22]
On top of scores of deaths, the war had a largely negative impact on the oil industry. Strife caused production of crude to drop significantly, particularly in Biafra. Total crude output decreased from 420,000 barrels per day (67,000 cubic metres per day) in 1966 at the start of the war, to only 140,000 barrels per day (22,000 cubic metres per day) in 1968. Shell alone saw a drop from 367,000 barrels per day (58,300 cubic metres per day) in 1966, to 43,000 (6,800) in 1968. And in addition to concerns about production, oil companies began experiencing uncertainty as to the future of their investments depending on who prevailed in the war. This led to relations between oil companies and the federal government becoming strained, with the government at one point accusing the oil company Safrap (now TotalFinaElf, but Elf until 1974) of favouring Biafra and enlisting the aid of France for the Biafran cause. Shell, the other major holder of concessions in the southeast, was concerned but placated and limited politically by Britain’s staunch support of the Nigerian government in the war effort.[citation needed]
Despite oil’s prominent role in national affairs, up to this time, the Nigerian federal government had only limited involvement in the oil industry, and the government confined its financial involvement in the oil industry to taxes and royalties on the oil companies. The companies were subsequently able to set their own price on the petroleum they extracted, and dominated petroleum to such a point that laws governing the oil sector were having a negative effect on Nigerian interests. However, even during the conflict with Biafra would force changes to the relationship between federal government and the petroleum industry. Gowon’s military government instituted the 1969 Petroleum Decree which dismantled the existing revenue allocation system that had divided revenue from oil taxes equally between federal and state government, instead favouring an allocation formula in which the federal government controlled the dispensation of revenues to the states.[citation needed]
After the loss of over 2,000,000 lives, the war concluded in 1970 and resulted in a victory for the Nigerian state, as the secessionist regions were subsequently brought back into the Nigerian fold.[10] However, the former Eastern Region had been split into two new states, Rivers and South-Eastern (now Cross River) in order to discourage lingering ideas of independence.
