Nigeria has a population of over 110 million people and an abundance of natural resources, especially hydrocarbons. It is the 10th largest oil producer in the world, the third largest in Africa and the most prolific oil producer in Sub-Saharan Africa. The Nigerian economy is largely dependent on its oil sector which supplies 95% of its foreign exchange earnings.

The upstream oil industry is Nigeria’s lifeblood and yet it is also central to the ongoing civil unrest in the country, which gained worldwide publicity with the trial and execution of Ken Saro Wiwa, and eight other political activists in 1995. At issue remain the equitable sharing of the country’s multi-billion annual oil revenues amongst its population (who, in some areas, rank amongst the poorest in the world) and the environmental responsibilities of the oil multinationals. The civilian government of Obasanjo has committed itself to sorting out the problems within the oil industry.

The upstream oil industry is the single most important sector in the economy. Nigeria contains estimated proven oil reserves of 22.5 billion barrels and produces 90 million tons per year (2 million bpd) of crude oil. Most of this is produced from the prolific Niger River Delta. Despite problems associated with ethnic unrest, border disputes and government funding, Nigeria’s wealth of oil makes it most attractive to the major oil-multinationals, most of whom are represented in Nigeria, with the major foreign stakeholder being Shell. During the 1990’s Nigerias deep and ultradeep areas have become the focus of major exploration with encouraging success.

Nigeria also contains an estimated 124 Tcf of proven natural gas reserves mainly from onshore fields and the swampy areas of the Niger River Delta. Due, mainly, to the lack of a gas infrastructure, 75% of associated gas is flared and 12% re-injected. Nigeria has set a target of zero flare by 2010 and is providing incentives for the production and use of gas.

Nigeria’s downstream oil industry is also a key sector including four refineries with a nameplate capacity of 445 000 bbl/d. Problems such as fire, sabotage, poor management, lack of turn around maintenance and corruption have meant that the refineries often operate at 40% of full capacity, if at all. This has resulted in shortages of refined product and the need to increase imports to meet domestic demand. Nigeria has a robust petrochemicals industry based on its substantial refining capacity and natural gas resources. The petrochemical industry is focussed around the three centres of Kaduna, Warri and Eleme.

Until 1960, government participation in the oil industry was limited to the regulation and administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the Nigerian National Oil Corporation (NNOC) was established, later becoming NNPC in 1977. This giant parastatal, with all its subsidiary companies, controls and dominates all sectors of the oil industry, both upstream and downstream.

In April 2000, the Nigerian government set up a new committee on oil and gas reform to deal with the deregulation and privatisation of NNPC. Seven subsidiaries of NNPC are due to be sold including the three refineries, the Eleme Petrochemicals Company Ltd, the Nigerian Petroleum Development Company and the partially owned oil marketing firm, Hyson Nigeria Ltd.

Nigeria is a member of OPEC and is its 12th largest producer. The former Secretary-General of OPEC, Dr Rilwanu Lukman, is a Nigerian national and Petroleum Advisor to the President.

The petroleum industry in Nigeria is regulated by the Ministry of Petroleum Resources. The government retains close control over the industry and the activities of the NNPC, whose senior executives are appointed by the ruling government.


The upstream oil industry is the single most important sector in the country’s economy, providing over 90% of its total exports.

Oil is produced from five of Nigeria’s seven sedimentary basins: the Niger Delta, Anambra, Benue Trough, Chad, and Benin. The Niger Delta, the Onshore and Shallow Offshore basins can be considered fairly well to well explored. Ventures here are low risk and the basins contain about 80% of producing wells drilled in Nigeria. During the later 1990s exploration focus turned to high risk ventures in the frontier basins of the deep water offshore with encouraging success. These ventures are becoming increasingly attractive with developments in deepwater exploration and production technology.

Nigeria is a member of OPEC. Its crude oils have a gravity between 21·API and 45·API. Its main export crudes are Bonny Light (37·) and Forcados (31·). About 65% of Nigeria’s oil is above 35·API with a very low sulphur content. Nigeria’s OPEC quota is 1.89 million bbl/d.


The downstream oil industry in Nigeria is another key sector in the country’s economy. The country has four oil refineries and There are eight oil companies and 750 independents all active in the marketing petroleum products. Cross-border smuggling is an ongoing problem and there are frequent reports of large scale corruption in the distribution and marketing chain. The government through its 100% state-owned national oil company, Nigerian National Petroleum Corporation (NNPC) has had an all encompassing control over the industry through its shareholding in all the companies involved and in the setting of wholesale and retail prices.

In April 2000, the Nigerian government set up a committee to investigate reform in the oil and gas sector with a focus on the deregulation and privatisation of the NNPC. Under the privatisation programme seven subsidiaries are to be sold. These are all downstream companies and include the refineries, the Eleme Petrochemicals Company Ltd, the Nigerian Petroleum Development Company and Hyson Nigeria Ltd.

Deregulation of the downstream energy sector remains a stated government aim. But this is likely to depend on the still heavily subsidised prices being allowed to rise to international levels. Many Nigerians regard oil as a gift from God and their natural right to enjoy on the cheap, a sentiment that will make any government rethink its commitment to more realistic prices by risking its future.

In November 1999, Obasanjo announced that the market for petroleum prices would be deregulated which would offer the country debt relief. He noted that all petroleum prices would be fully deregulated and domestic crude allocation to the NNPC would be paid for at export parity with immediate effect. This would have an immediate effect on pump prices. Outcries by the National Labour Congress and the public have led the government in December 1999 to state that it had no immediate plans to end the fuel subsidy and to defer price increases.


There are risks associated with investment in Nigeria. These can be grouped into three main categories, political activity and civil unrest, border disputes and government underfunding. There is also the continuing problem of corruption within the system.

Political activity and civil unrest.

The issue at the basis of most civil unrest is the equitable sharing of the country’s annual oil revenues among its population and the question of the environmental responsibilities of the oil multinationals. Although all multinationals have been targeted in the disputes, Shell has been the main target. Civil unrest has resulted in over 700 deaths since Obasanjo’s take over and resulted in the shut in of terminals and flow stations. The situation is exacerbated by corruption within the industry and the government. Abasanjo has committed his government to resolving the problems and cleaning up the industry and the government in terms of corruption.

Border disputes

In the complex boundary delimitations of the Niger Delta area, border disputes are common. Nigeria is currently in dispute with both Cameroon and Equatorial Guinea over borders relating to oil finds in the Gulf of Guinea. Cameroon and Nigeria each claim the Bakassi Peninsula located in the Gulf of Guinea and which is believed to contain significant reserves of oil. In February 1994, Cameroon submitted the dispute to the International Court of Justice (ICJ) for settlement, and Nigeria later followed with its own suit to the ICJ. The ICJ began formal hearings in March 1998 but no decision had been reached by mid 1999.

Nigeria is in dispute over Equatorial Guinea’s sole ownership of the Zafiro oilfield in Block B from which Mobil began producing in 1996. Elf holds the concession OML 102 in Nigeria, just 3.5km north of Equatorial Guinea’s Block B. Nigeria and Elf contend that the seismic evidence indicates that Zafiro is part of an oilfield that straddles the international boundary between the two countries. In 1998, Elf announced the Ekanga discovery based on two wells drilled in OML 102. Equatorial Guinea claims that the wells were drilled in their territorial waters in Block B. Nigeria has called for a determination of the boundary and the establishment of a joint field operation. Negotiations have met with little success so far.

Government underfunding

A recurring problem in the upstream sector is the inability of the NNPC to meet its funding obligations to the JVs. Under JV terms, the NNPC shares costs with its foreign partners. Since 1993, budgetary constraints on the NNPC have resulted in it being unable to meet its JV commitments leading to cut backs in exploration and production. The government is seeking to diversify funding for the industry and alternative funding schemes have been approved for Shell’s EA project and are being considered for Elf’s development of the Amenam field.

Shaun Bakamoso

Greetings. I'm Shaun Bakamoso, and I'm thrilled to be your guide through the dynamic world of business news in South Africa here at mbendi.co.za. With a passion for staying informed and a keen interest in the ever-evolving landscape of business, I've dedicated myself to providing you with timely, insightful, and comprehensive coverage of the latest developments impacting the South African economy. bakamoso@gmail.com / Instagram