Nigeria’s Oil And Gas Industry: Challenges, Prospects At The Dawn Of A New Era

Nigeria’s oil and gas industry has been a significant contributor to the country’s economy since its discovery in 1956 in Oloibiri, Bayelsa State, Nigeria.

After the discovery of crude oil in Oloibiri, the industry was leapt into an international business entity by the first oil export in 1960, and the emergence of the Nigerian National Oil Corporation (NNOC) which was established in 1963 to manage the crude oil fortunes. This later gave birth to the Nigerian National Petroleum Corporation (NNPC) and now the Nigerian National Petroleum Company limited, (NNPCL) after the enactment of the Petroleum Industry Act, (PIA) of 2021 in Nigeria.

As the livewire of the nation’s economy, the oil industry has generated immense revenue, stimulated economic growth, and provided employment opportunities for millions of Nigerians.

The oil and gas industry is also the backbone of Nigeria’s economy, accounting for approximately 90% of the country’s foreign exchange earnings. The industry’s contribution to the country’s Growth Domestic Product of about 5.5% and average daily production of over 1.5 million barrels per day in 2024.

Various infrastructure projects, including roads, bridges, and public buildings have been funded with the revenue from the sector. The industry has also attracted foreign investments, stimulated economic activity, and contributed to the country’s overall development.

However, the industry’s impact on the economy is not without its challenges.
Pipeline vandalism and crude oil theft (oil bunkering) were rife in the Niger Delta area of Nigeria.

The Federal government has continued to tackle the security challenges headlong through various measures making way for some level of stability in the oil rich region.

The Federal government also introduced measures such as the amnesty programme to militants groups, thereby restoring confidence, security and stability in the oil rich region.
Over-reliance on oil exports, however, has led to the Dutch disease phenomenon, hindering the diversification of the economy.

Corruption and mismanagement also resulted in significant revenue losses, estimated in billions of dollars.

Environmental degradation, particularly in the Niger Delta region, has devastated communities and affected the ecosystems.

The passage of the Petroleum Industry Act (PIA) in 2021 marked a significant milestone in the reforms carried out by the Federal Government. The Nigerian Petroleum Development Company (NPDC) was established, and investment in gas infrastructure, such as the Abuja, Kaduna, Kano gas pipeline, increased the gas delivery policy of government while marginal oil fields development also received significant boost.

On subsidy payment in the industry, which was a huge burden on government, the Nigerian President, Bola Ahmed Tinubu, on May 29, 2023 on assumption of office announced the removal of subsidy on petrol, allowing market forces to determine prices.
This policy change aims at the reduction of financial burden on government and also to free up resources for the development of critical sectors of the nation’s economy. It’s expected that the removal of subsidy on petrol would also bring about market-driven prices which will promote responsible consumption and investment in refining capacity.
Recently, the Dangote Refinery commenced operations, marking a significant milestone in Nigeria’s oil and gas industry. The refinery, with a capacity of 650,000 barrels per day, is expected to reduce importation of petroleum products.

With the commencement of operations at the Dangote Refinery, Nigeria will no longer rely heavily on imported refined petroleum products and it is expected that there will be an increased domestic production and export of the petroleum products to the world.

In the area of job creation, thousands of jobs are being created which will contribute significantly to Nigeria’s GDP growth.

The refinery has significantly position Nigeria as a major refining hub in Africa.
The Naira-for-Crude policy of the federal Government is an initiative aimed at reducing the pressure on foreign exchange reserves. The policy involves selling crude oil to local refineries, including Dangote Refinery, in Naira, the Nigeria’s currency, instead of dollars and it’s expected to slash foreign exchange demand by 40% to fund imports of finished products. The implementation of this policy has been approved with effect from October 1.

Nigeria’s oil and gas industry has been a double-edged sword, bringing immense benefits and significant challenges. The removal of subsidy on petrol and the commencement of the Dangote Refinery marks a new era for the industry. With careful management, Nigeria can harness the potential of its oil and gas resources to drive economic growth, development, and prosperity for all.

It’s expected that the petroleum industry act of 2021 will continue to serve as a tool for more foreign direct investments in the oil and gas sector to the benefits of the oil rich Niger Delta region and Nigeria’s accelerated development.