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SubjectFree lesson

Petroleum and the Nigeria Economy

ClassNotes Team 6 MIN READUPDATED 5 JUL 2026

Economics S.S.S 3 First Term

WEEK 4

Petroleum and the Nigeria Economy

Performance Objectives

Student should be able to:

  1. State the growth of the petroleum industry in Nigeria.
  2. Discuss adequately the impact (positive and negative) of petroleum on the Nigeria economy
  3. Explain the role of N.N.P.C AND OPEC in the production and marketing of petroleum products.

Content

The advent of the oil industry can be traced back to 1908, when a German entity, the Nigerian Bitumen Corporation, commenced exploration activities in the Araromi area, West of Nigeria. These pioneering efforts ended abruptly with the outbreak of the First World War in 1914.


Oil prospecting efforts resumed in 1937, when Shell D'Arcy (the forerunner of Shell Petroleum Development Company of Nigeria) was awarded the sole concessionary rights covering the whole territory of Nigeria. Their activities were also interrupted by the Second World War, but resumed in 1947. Concerted efforts after several years and an investment of over N30 million, led to the first commercial discovery in 1956 at Oloibiri in the Niger Delta.

               
This discovery opened up the Oil industry in 1961, bringing in Mobil, Agip, Safrap (now Elf), Tenneco and Amoseas (Texaco and Chevron respectively) to join the exploration efforts both in the onshore and areas of Nigeria. This development was enhanced by the extension of the concessionary rights previously a monopoly of Shell, to the newcomers. The objective of the government in doing this was to the pace of exploration and production of Petroleum. Even now more companies, both foreign and indigenous have won concessionary rights and are producing. Actual oil production and export from the Oloibiri field in present-day Bayelsa State commenced in 1958 with an initial production rate of 5,100 barrels of crude oil per day. Subsequently, the quantity doubled the following year and progressively as more players came onto the oil scene, the production rose to 2.0 million barrels per day in 1972 and a peaking at 2.4 million barrels per day in 1979. Nigeria thereafter attained the status of a major oil producer, ranking 7th in the world in 1972, and has since grown to become the sixth-largest oil-producing country in the world.
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Contributions of petroleum to the Nigerian economy

Positive Contributions of petroleum to the Nigerian Economy:

1. Source of government revenue: Petroleum has contributed greatly to the major source of revenue available to the government.

2. Infrastructural development: Money generated from the petroleum industry has helped developed infrastructures in the country.

3. Generation of employment: The petroleum industry has aided the creation of job opportunity for citizens of the country.

4. Improvement of balance of payment: The exportation of petroleum to foreign countries has contributed greatly to the improvement of balance of payment

5. Major source of energy: Petroleum remains the major source of energy in the country. e.g. petrol, diesel and kerosene.

Negative Contributions of petroleum to the Nigerian economy

1. Environmental pollution: Oil exploration has led to serious environmental pollution of the land, air and water, especially in the Niger Delta region of the country.

2. Development of mono-economy: As a result of the discovery of oil, Nigeria is now a mono economic country, i.e. it now relies solely on crude oil as her major source of revenue.

3. Neglect of agricultural and other sectors: Agriculture, which used to be a major source of revenue to the nation, has been neglected. Other sectors no longer have relevance in the economy of Nigeria.

4. Rural-urban migration: It has also led to the movement of able-bodied men and woman from rural to urban centre in search of nonexistent jobs.

5. Political instability: The discovery of crude oil has led to political instability in the country.

6. Economic instability: Crude oil price can collapse any time which can spell doom for the nation.

The Nigerian National Petroleum Corporation (N.N.P.C)

The Nigerian National Petroleum Corporation (NNPC) is the state oil corporation which was established on April 1, 1977. In addition to its exploration activities, the Corporation was given powers and operational interests in refining, petrochemicals and products transportation as well as marketing. Between 1978 and 1989, NNPC constructed refineries in Warri, Kaduna and Port Harcourt and took over the 35,000-barrel Shell Refinery established in Port Harcourt in 1965.

In 1988, the NNPC was commercialized into 12 strategic business units, covering the entire spectrum of oil industry operations: exploration and production, gas development, refining, distribution, petrochemicals, engineering, and commercial investments.

The roles of Nigerian National Petroleum Corporation (N.N.P.C) in the Exploration, Production, Refining, Marketing and Distribution of petroleum products.

1. Exploration of oil: NNPC is charged with the responsibility of oil exploration in the country. They have the authority to search for the presence of oil in any part of the country.

2. Petroleum refining: The NNPC is charged with the responsibility of supervising the refining of petroleum to get its products like petrol, diesel and kerosene.

3. Regulatory functions: The NNPC was set up to regulate the activities of the oil company in Nigeria, e.g. issuance of licenses for oil exploration, oil prospecting and operation of filling stations.

4. Petroleum production: The NNPC is responsible for the sinking and controlling of its oil well to produce crude oil.

5. Marketing petroleum products: The organ is the cooperation responsible for the distribution and marketing of petroleum products.

6. Oil policy implementation: The NNPC is also an organ through which the government implements its oil policies.

Organization of petroleum exporting countries (OPEC)

The Organization of the Petroleum Exporting Countries (OPEC) is a group consisting of 14 of the world’s major oil-exporting nations. OPEC was founded in 1960 to coordinate the petroleum policies of its members and to provide member states with technical and economic aid. OPEC is a cartel that aims to manage the supply of oil to set the price of oil on the world market, to avoid fluctuations that might affect the economies of both producing and purchasing countries. Countries that belong to OPEC include Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela (the five founders), plus the United Arab Emirates, Libya, Algeria, Nigeria, Gabon, Ecuador, Indonesia, Libya, Qatar. The organization’s secretariat is in Vienna, Austria.

The roles of Organization of petroleum exporting countries (OPEC) in the Exploration, Production, Refining, Marketing and Distribution of petroleum products.

1. To coordinate & unify the petroleum policies of member countries and to determine the best means for safeguarding their individual and collective interests;

2. To seek ways and means of ensuring the stabilization of prices in international oil markets to eliminate harmful and unnecessary fluctuations; and

3. To provide an efficient economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the petroleum industry

4. It fixes and allocates production quota to member nations.

5. Encouragement of member nations to participate in the oil exploration.