Crude oil is the means of income for many countries that have it in abundance. Nigeria is no exception, as the country has depended on the “black gold” to generate income for decades. For a while, it seemed that the era of crude oil was fizzling out as many countries, especially in the West, were turning to solar as a source of energy. Prices of oil plummeted and many countries, including Nigeria, suffered the effects.
Then came the Russian/Ukraine war which resulted in oil crisis in Europe. It was an unexpected blessing in disguise for oil-rich countries who have taken advantage of the war to hike prices of the precious black commodity. Unfortunately, Nigeria is yet to join the profitable train as the country is dealing with internal issues that include oil subsidy, oil theft and oil bunkering.
So what is crude oil and its impact in the Nigerian economy? These and more you find out as we progress in this article.
What is crude oil?
Investopedia defines crude oil as a naturally occurring liquid petroleum product composed of hydrocarbon deposits and other organic materials formed from the remains of animals and plants that lived millions of years ago. According to the online publication, “these organisms were covered by layers of sand, silt, and rock, subject to heat and pressure, and eventually turned into a type of fossil fuel that is refined into usable products.” The products include gasoline, diesel, liquefied petroleum gases, and feedstock for the petrochemical industry.
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Crude oil is a non-renewable source of natural resources which means it cannot be replaced, and at the rate the world consumes it, it may become unavailable soon.
Discovery of crude oil in Nigeria
Crude oil in Nigeria was first discovered at Oloibiri, a small and remote creek community in Ogbia LGA of Bayelsa State on January 15, 1956. Shell Darcy made the discovery and it became the first commercial oil discovery in Nigeria which launched the country into the limelight of the Petro-State.
History of crude oil in Nigeria
As previously stated, crude oil was first discovered in Oloibiri, present-day Bayelsa State, in 1956. However, the search for oil in Nigeria began in 1908 when a German company, Nigerian Bitumen Corporation unsuccessfully explored for oil in Araromi and Okitipupa in present-day Ondo State after drilling about 14 wells. Then World War I happened and the company halted all explorations.
In 1937 and 1938, Shell D’Arcy, later Shell BP, received the first licence to explore for oil which was initially unsuccessful. Their activities were also hampered by World War II and prospects of discovering oil in the country looked gloomy. However, Shell eventually discovered oil in commercial quantities in Oloibiri in 1956. By 1958, Nigeria joined the ranks of oil producers when its first oil field came on stream producing 5,100 bpd.
After 1960, other foreign oil companies were granted exploration rights in onshore and offshore areas adjoining the Niger Delta. In 1965, Shell discovered the EA field in shallow water southeast of Warri. Between the 60s and 70s, Nigeria had attained a production level of over 2 million barrels of crude oil a day.
After the Nigerian-Biafran civil war in 1970 which coincided with the rise of global oil prices, Nigeria joined the rest of the oil-rich countries to reap instant riches from its oil production. In 1971, Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC).
The Nigerian National Petroleum Company (NNPC) was established in 1977. NNPC is a state-owned and controlled company which is a major player in both the upstream and downstream sectors.
However, oil production slumped in the eighties due to economic problems in the country. But the situation turned around in 2004 which saw a record level of 2.5 million barrels per day.
Today, Nigeria predominantly depend on crude oil exports as the major source of revenue, eclipsing all the other sectors of the economy. However, production has brought many problems in the country with the introduction of militancy in the Niger Delta region due to oil spills and other hazards, oil theft, bunkering which has affected production and, in extension, the nation’s economy.
Nigerian crude oil production today
Nigeria crude oil production has sadly dropped to 900,000 barrels per day (b/d) as at August, 2022 from 1 million b/d recorded in July. This is according to data collected from OPEC’s released Monthly Oil Market Report for September. Nigeria’s crude grade, Bonny Light, dropped by 10 per cent within the space of one month where it sold for $117/b in July and dropped to $106/b in August.
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Meanwhile, Bonny Light is a light-sweet crude oil grade produced in Nigeria, an important benchmark crude for all West African crude production. It is usually $1+ higher than international crude grade, Brent.
Nigerian crude oil export statistics
Latest data from the National Bureau of Statistics’ Foreign Trade Statistics for the second quarter of 2022 has shown that Nigeria’s crude oil revenue jumped to N11.5tn in the first six months of 2022. According to the report, this was a 83% increase in crude oil earnings from N6tn recorded in the first half of 2021.
Crude oil also ranked as the most exported commodity in the country, with 80% of the country’s total export. Hence, NBS put Nigeria’s total trade in the first half of 2022 at N26tn which comprises of N13tn and N13tn in the first and second quarters of the year, respectively. The total export trade for the first half of 2022 stood at N14tn, with N7tn and N7.4tn export recorded in the first and second quarter respectively.
Nigeria crude oil price
Below is a list of crude oil price in Nigeria according to the Central Bank of Nigeria (CBN). Note that pricing is done in USD.
| Date | Crude Oil Price |
|---|---|
| 10/7/2022 | 102.560 |
| 10/6/2022 | 98.910 |
| 10/5/2022 | 97.950 |
| 10/4/2022 | 97.310 |
| 9/30/2022 | 92.400 |
| 9/29/2022 | 93.020 |
| 9/28/2022 | 92.010 |
| 9/27/2022 | 89.370 |
| 9/26/2022 | 88.200 |
| 9/23/2022 | 88.890 |
Nigeria oil reserves
According to the National Petroleum Investment Management Services (NAPIMS), Nigeria’s reserves are estimated at 28.5 billion barrels, with an average productivity of about 2.5 million barrels per day. This means the country hosts the world’s 10th largest reserves.
Conclusion
Crude oil production and prices in Nigeria are volatile. This means Nigeria’s dependence on oil revenue for the economy is no longer sustainable. Plans should be made to reactivate the other sectors of the economy, particularly Agriculture, to help the country escape from the current economic woes.
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