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Development of the Petroleum Industry in Nigeria

Nigeria’s oil industry began in 1908 when a German company, The Nigerian Bitumen Corporation (NBC), was granted license to exploit hydrocarbon deposits, around Araromi east of present day Lagos State.

This area has since been recognised as part of the tar sand belt of the Dahomey Basin. The Germans were unlucky, as their pioneering work was halted by the outbreak of the war between Britain and Germany – the First World War (1914-1919). With Nigeria being under British territorial control and Germany losing the war, the Bitumen company did not resume its search at the end of the war. Royal Dutch – Shell began oil exploration in Nigeria, precisely around Warri in present day Delta State in 1937. The activities of the company were soon disrupted by the second world war, but the company resumed operations in 1946; this time in partnership with British Petroleum (BP).

Shell – BP assumed the pioneer position vacated by the Nigerian Bitumen Company (NBC) in search of petroleum in Nigeria and soon the entire country became its oyster.

Shell – BP monopolised the field before independence. As the then colonial government law said; only British subjects and those companies which had principal places of business in Britain or in its dominions, and whose chairmen or whose majority shareholders and directors were British subjects could be given grants to search for and produce oil.

Shell discovered the first oil in 1956 after 19 years of search. Oil production began in 1958, when the Oloibiri field in the present day Bayelsa State went on stream at 51,000 barrels of oil per day (BOPD).

By 1964, the proportion of crude oil in total export was 15.2 per cent, shooting up to 33.1 per cent in 1966. By 1970, oil was contributing 58.1 percent of Nigeria’s foreign exchange earnings; 87.2 per cent in 1972, and 95.1 percent in 1984. The best period in the history of oil in Nigeria was between 1972 and 1983 when total production was 2.5 million barrels per day and sold at about $40 per barrel.

Following the collapse of oil prices in 1981/82, Nigeria experienced rising inflation, currency overvaluation, capital flight, debt crises and domestic absorption (consumption expenditure) exceeding the Gross Domestic product (GDP). The level of external reserve then was too inadequate to meet domestic demand. Nigeria is still facing serious economic crisis. For instance, formostpartofthe1990s, GDP grew by less than 3 percent, inflation rose to 50 per cent in1993 and still moved sharply to73 per cent in1995. External debt too rose from $4.1 billion at the end of 1980 to $28 billion at the end of
December, 1999.

However, crude oil production has increased over the years in response to government policies and market forces. From 760.1 million barrels in 1980 to 776 million barrels in 1998. The country’s medium-term target is to increase production to 2.5 million barrels from around 1.9 million barrels (Edem -1997).

The depressed oil market in the 1980s and 1990s, and the residual supplier role of OPEC in the market, coupled with the disruption of field operations in some oil producing communities in the Niger Delta resulted in a significant drop in Nigeria’s production and export levels. For example, crude oil export rose persistently between 1970 and 1979 by 139.5 million barrels. Export value was high averaging 96.3 per cent in total production. Total production between 1992 and 1998 averaged 84.5 per cent. Export volume picked in 1997 at 807.7 million barrels.