1.1 Background to the study
Nigeria is a major exporter of crude oil this of this commodity has been highly manifested in the nation’s economy. Starting from the early 70’s, the petroleum industry has become the dominant industry in the economy following quickly after the agriculture the dominant industry before the discovery of crude oil. It has dictated the pace of economic, political, social and cultural progress in the country.
Crude oil, a commodity otherwise referred to as “black gold” is of strategic importance in the world, particularly since the second half of the twentieth century as noted by Mikelson (1972), Tugendhat and Hamilton (1975), Nwankwo (1979), OPEC bulletin (1984). It is both the most important source of energy and the largest internationally traded commodity. Thus, as Tugenhat and Hamillton (1975) have observed, out civilization depends on oil more than any other single commodity.
The search for oil in Nigeria was dated back to 1903 when the colonial government set up mineral survey corporation, No significant result was achieved. In 1907, oil seeped was observed at Aruromi resound Abeokuta province which led to a German company, Nigerian Bitumen Company to obtain license to exploit oil deposits. The Nigerian oil industry is 105 years old this year because the very first attempt to find oil in Nigeria was made in 1908. Fifteen wells were drilled between 1908 and 1914 without success. By 1937, the second attempt was made and this time by an Aglo-Dutch consortium called Shell D’Arey. Unfortunately, the outbreak of the Second World War interrupted the attempt. By 1947, Shell D’ Arey came back as Shell BP Petroleum Development Company of Nigeria and drilled two exploratory wells between 1951 and 1955. Commercial oil discovery was made at OLOIBIRI FIELD in 1956 and in 1958 Nigeria was exporting about 17,000 barrel of oil per day (BOPD). Between 1961 to 1962, the right to explore oil were granted to other companies like Texaco Tenneco, Gulf (Chevron), Satrap (Elf) and Agip.
Initially, all crude oil produced in Nigeria was exported without being processed. Most of the by-product of petroleum was imported because Nigeria had no refinery. By 1965, the first oil refinery was commissioned in Nigeria at Port-Harcourt. Nigeria joined organization of petroleum exporting countries (OPEC) in 1971. This same year, that Shell BP, GULF (Chevron), Mobile, Satrap (Elf) and Agip acquired 35% equity interest in commercial discovery. In 1973, Nigerian National Oil Company (NNPC) was established by merging the activities of NNOC and department of petroleum inspectorate (DPI). Thereafter, in 1978 Warri refinery was commissioned and the third refinery, the Kaduna refinery was established in 1980.
The Port Harcourt refinery is the oldest refinery with capacity of 35,000 barrels of crude oil per day. It produces petroleum gases (LPG), Gasoline (Petroleum) for cars dual purpose kerosene (DPK) for cooking, automotive gas oil (AGO) or lorries and fuel oil two grades which are low power point (LPPO) and high power point (APPO).
The Warri refinery processes two domestic crude oil from Chevron Escravo crude oil and Shell’s Ughelli quality control center crude and produces the same type of products as Port-Harcourt. It has a capacity of 100,000 barrels of oil per day. It has been updated to about 200,000 barrels per day now. A forth refinery was established in Eleme in Port-Harcourt in 1989 with about 150,000 capacity of barrels per day. It has been updated to about 300,000 barrels per day. Now Nigerian supplies about 1.9 million to 2.0 million barrels per day since 2009 to 2010, according to Network news from Radio Nigerian presented by the (OPEC). In general development, there is nothing short of truism that there have rapid charges in the spheres of economic and social life of Nigeria due to the emergence of oil in national lives. This discovery of oil has systematically submerged agricultural sector which used to provide the bulk of our revenue. This sector has been neglected for oil sector. Today the oil sector contributes about 86 percent of the federal government revenue, accounts for about 90 percent of the country’s foreign exchange earnings and constitute over 25 percent of the nation’s Gross Domestic Products. Also the previous impact of the good work of the petroleum trust fund (PTF) cannot be over emphasized.
Structurally and otherwise, the oil boom of the 1970’s helped significantly in transforming Nigeria from an ordinary third world black country to an appreciate position both in term of development, infrastructure, international politics et cetera. It is the first and only producer in West Africa and the second most producer in West Africa, it is only to Libya. Among the major world producers with an output of 110 million tons in 1974. it was placed sixth. Because of its limited internal market, it exports largest proportion of its output. To facilitate exportation, pipelines have been laid to connect the major oil wells with the ports of Bonny and Escravos. Today, urban and rural development in parts of the country can be traced to the oil wells located in the remote villages of the country where oil continues to gush out day and night. It is the oil of these villages that has brought sky crappers, express roads, development of federal capital territory (FCT) fly over and other physical structures to cities and towns, which are from the gushing wells. But the villagers from whose ancestral land and territorial waters the black gold oil is mined, there is a sad tale full of sound and lury signifying something neglect.
Furthermore, with the over growing contribution to Gross Domestic product, one should not consider it as an over statement by saying that the Nigerian economy is highly dependent on the oil sector for its economic activities and hence concluded that crude oil is now the mainstay or power of the Nigeria economy. Now as a result crude oil being the mainstay or power of the Nigerian economy it have influence its expenditure profit outlined by the president in the proposal of its budgeting which #841 billion is for recurrent expenditure while expenditure will go to priority sector such as education (11%) health (70%), Power (5%), water (2%) and security (15%). The provision of 2 percent for agriculture and agriculture research institutes. (The leader 2005-130) Christmas Edition.
1.2 Statement of the Problem
Nigeria’s position as Africa’s biggest oil producer in the OPEC according to Syngn (1986) no doubt which makes Nigeria oil sector accounting for almost all the countries exports have earned billions of dollars from its oil export is currently considered as the thirty six poorest country in the world, out of the hundred and fifty six nations as reported by radio Nigerian through their network news at 7am on 4th
sep. 2012. (FRCON…2012). Earnings from oil sector alone in 1974 and 1990 as a result of Arab League was between Israel and Palestine and gulf war about 17 billion Nigeria were relies over then. Yet, many of the citizens above fifty five percent (55%) are living below poverty line. There is lack of infrastructural facilities; her educational system is at the verge of collapse because of underfunding and mismanagement. The health sector has nothing good to write home about, the cost of life and standard of living are becoming more difficult nowadays, policies has taken over every place and industrial and agricultural sector were neglected “inefficiencies” and operating problems in the downstream sector are causing a financial looses of equipment to above ten percent (10%) of Gross Domestic product (GDP) every year due to “bribery and corruption” (world bank and Nigeria).Therefore, even in the oil sector and its associate revenue, a question is then asked, where are we going? What will be our future and how will I look with all the potentials of the oil sector or revenue, is oil responsible for the boom or doom of the Nigeria economy, how are we going to turnover present curses to better our situations. In this work, I hope to meet the challenges of providing some successions as a solution to these problems.
The researcher formulated the following research questions to guide the study.
1.4 Purpose of the Study
The main purpose of the study was to determine the impact of the oil sector on the Nigerian economy: Specifically, the intends to;
1.5 Significance of the Study
These will also analyze oil sector as a mono-cultural product base of the Nigeria economy, knowing how much have being earned, the amount invested in other sector of the economy to boost the economic activities and its resultant multiplier effect. Again the advantages as well as the disadvantages of the oil sector will also be discussed.
Finally, in our bid to find a way of bearing in mind the burdens of the backwardness of our economy, there is still believes that with a good policies and implementation strategies, what remains of our oil sector is to transform it technologically and economically for a better tomorrow and towards greater Nigeria.
1.6 Scope of the Study
The scope of this research work is to evaluate the assessment of oil sector on Nigeria economy. As such the work will cover important aspects of oil industry and its assessment on the Nigerian economy, using Delta State as case study.
1.7 Limitations of the Study
The main limitation of this research study is that some of the data needed were not readily available and the unwillingness of NNPC officials to easily disclose information needed for the study and also public biased mind which may not give room for logical conclusion to be drawn.
These also therefore limited to crude oil impact alone, on the economy this is used in representing the impact of the industry (as a whole) on the economy. This study had also compelled to the use of data from secondary sources due to the time constraints that incapacitated the search for data via primary sources. But the comparism would be made by the use of various secondary sources for the purpose of verification.
1.8 Definition of Terms
1.9 Organization of the Study
This research work is organized in five chapters, for easy understanding. Chapter one is the introduction, which consist of the background to the study, statement of the problem, purpose of the study, research questions, significance of the study, scope of the study etc. Chapter two is the review of the related literature, the theoretical framework, conceptual framework and other areas concerning the subject matter. Chapter three is the research methodology which covers the research design and methods adopted in the study. Chapter four concentrates on the data collection, analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made by the researcher.