It is difficult to overestimate the importance of crude oil in the Nigerian economy. What are the features of oil production today: its benefits and difficulties?
The oil industry is the backbone of the Nigerian economy. The benefits of crude oil in Nigeria are evident. It provides 90 percent of the country's export revenues. Nigeria is the first in Africa and the eighth in the world when it comes to oil export. Oil production brings about a billion investments in the country's economy as well as the development of related sectors of the economy and infrastructure. Besides, it supplies new jobs for Nigerian citizens and improvement of social and living standards in general.
When was oil discovered in Nigeria? It was discovered in 1956 at Oloibiri in the Niger Delta following half a century of oil exploration in Nigeria. Since 1907, several companies have attempted to discover oil of commercial value. But they failed. The case got off the ground when Shell and British Petroleum got the license. The company began its search work in 1937. At last the oil discovery in Nigeria was made by Shell-BP. The first commercial oil well was drilled in 1958.
The quality of Nigerian oil has the highest rate. Oil production is also carried out on the continental shelf, but mainly oil reserves in Nigeria are extracted in the low deltas of the Niger River.
According to the data for 2016 indicated on the official website of OPEC http://www.opec.org Nigeria has:
• Proven reserves of crude oil - 37.4 million barrels
• Production of crude oil – 1.4 million barrels
• Output of refined petroleum products - 53.5 thousand barrels per day
• Oil demand- 393 thousand barrels per day
• Exports of crude oil - 1, 738 barrels per day
• Petroleum products exports - 17.9 thousand barrels per day.
In recent years, oil producing companies have focused on oil produced in the sea. Nigeria extracts several types of oil of the highest quality - Forcados, Esquavos, Odudu, and Bonnie. For example, the cost of Bonnie on the world market is estimated at 10-15% higher than North Sea Brent oil.
Oil companies in Nigeria
Oil fields in Nigeria are explored by the enterprise NNPC (Nigerian National Petroleum Corporation), as well as oil TNCs. The implementation of control and financial functions is entrusted to NNRS. It has a small oil producing company among its subsidiaries. Thus, Nigerian companies provide slightly more than 1/5 of the oil amount per day extracted by such companies as Shell, Mobil, Chevron, Agip, Elf, Texaco, and Ashland.
Nigerian companies Consolidated Oil Limited and Dubri Oil Company Limited belong to private individuals. In their activities, they operate with the technical assistance of foreign partners.
In the oil sector of Nigeria, a policy of "nigeriazation" is carried out with the support of local companies. In 1999, the civil government came to power and withdrew the license for oil production from 16 oil companies at the time.
For new foreign oil companies in the country, there is no joint venture with NNPC. They can provide activities both as technical partners of Nigerian oil companies and on the conditions of division of products.
Oil consumption in Nigeria that required processing at local refineries is about 300 thousand barrels per day.
Oil boom in Nigeria
Nigeria is still working on plans to rebuild the oil industry. It has been seriously affected by the fighting and attacks on oil infrastructure facilities. As the Minister for Petroleum Resources Emmanuel Kachikwu said in an interview with Bloomberg TV at the beginning of the year, Nigeria will increase oil production to 2.2 million barrels per day towards the end of 2017.
However, the indicator for March of the current year for the oil production in the country was 1.27 million barrels per day. Such level of oil production was the lowest for Nigeria in several decades.
The plan to restore the oil industry will be implemented after all the repairs and maintenance of the oil infrastructure facilities has been completed. Therefore, it was planned that the Forcados main oil pipeline would be finished by the end of June, and the technical work at the Bonga field would be completed a month later.
At the same time, Kachikwu expressed the hope that OPEC and other oil-producing countries - not members of the cartel would be able to agree on an extension of the agreement to reduce oil production by the end of 2017. According to the Nigerian minister, it’s necessary to consolidate the normalization of the market and keep prices above $50 per barrel.
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In late November 2016 in Vienna, members of the oil cartel agreed to reduce oil production in the first half of the year 2017 by 1.2 million barrels per day. Later, 11 more non-OPEC countries joined the agreement. However, exceptions were made for several countries. In particular, Nigeria, where oil production fell for reasons beyond its control.
Keep in mind that this is not the first time that Nigeria announced a plan like this. As previously reported on BakuToday, in October last year, the Minister for Petroleum Resources said that before the end of 2016 Abuja would increase the extraction of black gold by 22%, (2.2 million barrels per day). Also, Nigeria planned to increase its presence in the international market. However, as we can see, these intentions are still unrealized.
Oil facilities in Nigeria are constantly being attacked. The situation in the country is unstable. The terrorist group "Boko Haram" is not making things any better. In the Niger Delta, the conflict (which began in the 1990s) between Nigerian government troops, oil companies’ mercenaries, and ethnic groups is still ongoing. This has led to the attacks oil pipelines, towers, and workers.
The primary investors in the economy of Nigeria are the US, UK, Germany, and China. In particular, Chinese investors are active in this country. Since the 1970s, China has been buying oil and gas from Nigeria. Also in 2006, China allocated one billion dollars to Nigeria for the development of railways, and the Chinese company China Railway Construction won a tender for the construction of a significant area controlled by Chinese representatives.
In the 2000s, Beijing, wishing to confront Western countries in the struggle for Nigerian oil, invested more than $ 4 billion in the development of the oil industry in Nigeria. The money was spent on the exploration of oil fields, to improve the transport infrastructure, medicine, and weapons of the Nigerian army. Later, the PRC purchased a controlling stake in the refinery. It produces more than 18,000 cubic meters of oil per day. And in 2005, PetroChina Corporation signed an agreement with Nigerian representatives for the supply of more than 30,000 barrels of oil per day to China.
Importance of crude oil in Nigeria today
Last month, Nigeria slightly increased average daily oil production, bringing it to 1.68 million barrels per day (b/d). It is reported by the Bloomberg agency as it concerns the Ministry of Petroleum Resources of the country.
The July index is almost 2% higher than the June figure. In the month before last, Nigeria produced an average of 1.65 million b/d (according to the Ministry’s data). But the International Energy Agency (IEA) in the July report released another statistics: in June the country produced 1.59 million b/d. It’s about 60,000 more than in May.
Even though Nigeria is a member of OPEC, like Libya, it is exempted from the need to reduce production under the Vienna agreements. The precise reason is that armed conflicts continue in both African countries. For six years, civil war has been going on in Libya, and the country is divided into two parts with autonomous governments. At the same time, terrorist groups operate in Nigeria. The largest of them is the Niger Delta Avengers. It often raids oil infrastructure facilities and destroys oil pipelines.
Nevertheless, the Nigerian authorities are gradually taking control of the situation. Oil production in the country is being restored to the planned levels, and Nigeria ideally wants to produce 1.9-2 million b/d. However, OPEC is not very happy with how this intention affects the world oil market.
In July, the oil cartel called Nigeria to talk. At the end of the month, the Oman Minister of Oil and Gas (one of the independent countries participating in the Vienna OPEC + deal) Mohammed Hamad al-Rumhi stated that Nigeria agreed to limit oil production at 1.8 million b/d as soon as the country reaches it.
Oil is Nigerian wealth and fortune and an opportunity to bring the country's economy and social standards to a better level. The primary task of the country is to manage it properly.
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