Tuesday, October 5, 2010

Oiling Nigeria, 50 years after

The Nigerian President, Dr. Goodluck Jonathan. 



Opinions are sharply divided on whether Nigeria has tolled the path of oil boom or oil doom in its 50 years’ sojourn as an independent nation. Legendary Energy Journalist, Adeola Yusuf periscopes how the country has faired in the midst of abundant energy resources as it celebrates the golden jubilee.

Looking specifically at the pro-oil boom decade (1960-70); the period of the oil boom (1971 1977), the period known as the time of structural adjustment (1986 - 1993) and the period of guided deregulation (1994 –till date), the story of Nigeria’s energy industry has been a mixed grill.
Up till today, it is still difficult to exaggerate the role of oil in the Nigerian economy. Since the first oil price shock in 1974, oil has annually produced over 90 percent of Nigeria's export income. In 2000 Nigeria received 99.6 percent of its export income from oil, making it the world's most oil-dependent country.
From 1970 to 1999, oil generated almost $231 billion in rents for the Nigerian economy, in constant 1999 dollars. Since 1974, these rents have constituted between 21 and 48 percent of GDP.
Yet remarkably, these rents have failed to raise Nigerian incomes and done little to reduce poverty. Although countyry’s poverty rates have never been well-measured, there is little indication that they have declined over the last three decades.

Like oil like electricity
Not minding the recent launch of roadmap for power sector reforms by President Goodluck Jonathan the electricity demand in Nigeria far outstrips the supply and the supply is epileptic in nature as the country celebrates 50 years of existence as an independent nation.
The country is faced with acute electricity problems, which is hindering its development notwithstanding the availability of vast natural resources in the country. It is widely accepted that there is a strong correlation between socio-economic development and the availability of electricity.

Looking back
Although electricity is older than oil discovery in Nigeria, the duo share a similar history.
The history of electricity in Nigeria dates back to 1896 when electricity was first produced in Lagos, fifteen years after its introduction in England. Despite the fact that its existence in the country is over a century, its development has been at a slow rate. In 1950, a central body was established by the legislative council, which transferred electricity supply and development to the care of the central body known as the Electricity Corporation of Nigeria, now defunct. Other bodies like Native Authorities and Nigeria Electricity Supply Company (NESCO) have licenses to produce electricity in some locations in Nigeria. There was another body known as Niger Dams Authority (NDA) established by an act of parliament.
For oil, cash cow for Nigeria’s economy, it was an an interesting start. Shell-BP was the sole concessionaire in Nigeria in 1956 when it made the first oil discovery in Oloibiri in the Niger Delta. This oil field came on stream in 1958. Following this, exploration rights to offshore and onshore areas adjoining the Niger Delta were made available to foreign companies. Nigeria achieved independence from Britain in 1960. After 1960 exploration rights were extended to other foreign companies.
In 1977, Nigeria established the Nigerian National Petroleum Company (NNPC) in 1977. The NNPC became the dominant player in the downstream sector and acquired a 57% stake in the upstream sector through joint venture agreements with all major international players.
In 1990, the Government offered for bidding a number of new concessions in the deep outer shelf of the Delta area. Water depths of some blocks extend to about 3,000m. In 1993, deep offshore blocks in water depths between 200 and 3,000m were awarded to local and international oil companies including BP/Statoil, Shell, Mobil, Elf, Agip and Exxon.. The exploration and development campaign began in 1995. To date, a number of sizeable discoveries as well as modest ones have been made. Some of the major commercial finds include Bonga (OPL 212), Agbami (OPL 216) and Erha (OPL 209) and by Elf in OPL 246. In the Niger Delta shallow continental shelf and onshore blocks, new discoveries have also continued to be recorded.
In 1998, the military government created 25 new deepwater oil concessions. The blocks designated OPL 317-325, OPL 251-265 are located in waters with depths between 6,600 ft and 16,500ft.

The oil, the economy
Oil has also had a deep influence on the Nigerian government. Since the early 1970s, the Nigerian government has annually received over half of its revenues - sometimes as much as 85 percent - directly from the oil sector. These oil revenues are not only large, they are also highly volatile - that is, they can fluctuate drastically in size from year to year, causing the size of government, and the funding of government programs, to fluctuate accordingly. For example, from 1972 to 1975, government spending rose from 8.4 percent to 22.6 percent of GDP; by 1978, it dropped back to 14.2 percent of the economy.
The Nigerian economy has according to A. H. Ekpo and 0. J. Umoh had a truncated history. In the period 1960-70, the Gross Domestic Product (GDP) recorded 3.1 per cent growth annually.
During the oil boom era, roughly 1970-78, QDP grew positively by 6.2 per cent annually - a remarkable growth. However, in the 1980s, GDP had negative growth rates. In the period 1988-1997 which constitutes the period of structural adjustment and economic liberalisation, the QDP responded to economic adjustment policies and grew at a positive rate of 4.0.
In the years after independence, industry and manufacturing sectors had positive growth rates except for the period 1980-1988 where industry and manufacturing grew negatively by - 3.2 per cent and - 2.9 per cent respectively.

The Mixed Grill
Chima Ibeneche, the Managing Director of Nigeria LNG Limited is one of those who believe that the story of Nigeria’s oil industry is a mixed grill. He opined in a chat with newsmen that though the petroleum industry had not adequately reflected the country’s need in terms of developing the key sectors, the industry had boosted the nation’s revenue earnings. 
Fielding questions in his capacity as the President of Nigerian Gas Association (NGA), Ibeneche said: “If you want to be negative, you can find millions of reasons why we should not celebrate the 50th anniversary of this country. No matter how critical we want to be of the government, its attempts on amnesty and post-amnesty programmes have cooled down the agitation and attacks on the oil and gas industry. Therefore, Nigeria’s production has increased considerably. So, there is something to celebrate there. 
 “The second point is that, step-wise, we have continued to indigenise the oil and gas industry. You may have noticed that recently the Nigerian oil and Gas Industry Content Development (NOGICD) Act was passed to build upon the administrative aspect to encourage people to use more Nigerian capacity in the oil and gas industry. 
“I think the benefits of this will unfold in the next decades. But it is apparent that the industry is becoming more indigenised and therefore, the deeper reasoning to use more Nigerians is already being learnt.”

Nigerian Content Act through NCDMC
In April, 2010, a new dawn beckoned in the oil business in Nigeria with President Goodluck Jonathan signing the Nigerian Content Act. Although it took the government about 50 years before taking this leap, the move, which led to the establishment of the Nigerian Content Development and Monitoring Board (NCDMB) was meant top give a new direction to the oil industry.
NCDMB had, in line with this, declared that one per cent of every contract awarded in the Nigerian oil and gas industry would be used to fund the Nigerian Content Act.
Acting Executive Secretary of the board, Ernest Nwapa who said this maintained that one percent of every contract would henceforth be paid into the Nigerian Content Development Fund, in accordance with the Nigerian Content Act, assented into law by President Goodluck Jonathan recently.

Gas flaring and Pricing Regime
 Lack of the infrastructure to produce and market associated natural gas had made oil companies to resort to gas flaring.  According to the National Oceanic and Atmospheric Administration (NOAA), Nigeria flared 532 billion cubic feet of natural gas in 2008, down from 593 billion cubic feet in 2007. While there were no current estimates as to the cost of flaring the natural gas, in 2007, the Nigerian National Petroleum Corporation (NNPC) claimed that flaring cost Nigeria $1.46 billion in lost revenue.  The Federal Government, which, sources said, had been working to end natural gas flaring for several years, has repeatedly postponed the deadline pushing the date forward as far as 2012.
But Alison-Madueke put the record on gas pricing regime straight during a press briefing recently: “I have outlined a focused 2 point agenda for gas. The first is expeditious implementation of the Nigerian Gas Master-Plan to attain used short term objectives and a few sustained medium term objectives. The second is Positioning Nigeria competitively in global gas export by securing the FID of Brass LNGG by the end of the year and refocusing effort on OKLNG and TSGP.”

Last Line
The focus should now be on how to make memorable, the second half of the century, which Nigeria has now stepped into. Depending on the side of the half someone finds himself, if he or she wants to be negative or positive, he or she can find millions of reasons to support his or her view on whether Nigeria is qualify to celebrate the 50th anniversary or not.

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