The Nemesis Called Oil And Gas (1) By Nasir Ahmad El-rufai
Friday, 14 October 2011 09:13 Written By Nasir Ahmad El-Rufai


Nasir Ahmad El-Rufai

That Sunday was like every other one, but the impact of a single event that happened would change the destiny of Nigeria forever.  It was the day Shell D’Arcy found oil in Oloibiri, in present day Bayelsa State.  The year was 1956; but the story began 20 years earlier in 1936 when Shell D’Arcy was granted sole rights to explore for hydrocarbons all over Nigeria.  Prospecting began in 1937 but the company’s activities were interrupted by World War II.

After the war, it teamed up in 1947 with British Petroleum to form Shell-BP unit in Nigeria.  In 1958 production began and the quantity of crude oil export was about 5,100 barrels per day (bpd), which doubled a year later and increased to 20,000 bpd in the 1960 when Nigerian was granted independence. Output increased rapidly to 50,000 bpd (1961) and over 1 million bpd in 1970. The first Obasanjo administration created the NNPC in 1977 and that year saw the then highest ever output of 2.09 million bpd under the ministerial leadership of Muhammadu Buhari.

By the time of the Shagari administration in 1980, production had come down slightly but was still in excess of  2 million bpd. It has remained there since. By 1999, the World Bank estimated that Nigeria had earned about $300 billion from oil rents in the previous 25 years! Between 1999 and 2011, the country netted nearly another $300 billion in oil exports, taxes and income from condensates, gas to liquids and liquefied natural gas. Some estimates are even higher, nearing $1 trillion in current dollars.

That steady increase in oil production put the country as the 14th largest producer of oil in the world but the 8th largest exporter. Many Nigerians will be shocked to learn that Russia produces more oil than Saudi Arabia, and the USA, China, Canada and Norway produce more oil than Nigeria. But they do not export theirs in crude form, but choosing to add value through refining, processing and beneficiation into gasoline and other petrochemicals for internal consumption and export. With an estimated crude oil reserves of 40 billion barrels and some 184 trillion cubic feet (tcf) of gas, we are more of a gas than an oil-blessed nation - the 5th largest gas reserves in the world.  The capacity to leverage these natural resources for the betterment of our nation and its people is in the hands of our leaders.

The discovery of crude oil was supposedly a blessing of nature expected to accelerate the development and growth of the Nigerian economy.  Our oil revenues provided avenues to invest in the future through massive infrastructure build-out, educating our people, ensuring their health and well-being,  and equality of opportunity for all. That was the dream and promise of Oloibiri through the lens of our founding fathers. Whether that expectation has been actualized 55 years after is a question requiring deep pondering.

What went wrong with the dream of Oloibiri? What was the vision of the industry's founding fathers and how did we deviate from it? What can we do to diversify away from our oil-dependency? What reforms do we need to implement to put our oil and gas on a path of growth, indigenisation and maximum benefit to our nation?



As part of our exploration of the real sector in search of employment opportunities for our rapidly increasing and youthful population, for the next couple of weeks, we will analyze the oil and gas sector of the Nigerian economy. The objective is not only to restate its importance in our national lives, but open up the black box of the sector a little bit for our readers to understand this tool for our national development, which has also turned out, so far - to be our nemesis.

This is because most of our problems as a country can be traced to our mismanagement of these two natural resources. And what we do going forward can convert this blessing into a greater curse, or the reverse. Like most things in life, it is about the choices our leaders make today that determine the future of millions.

The oil and gas sector accounted for about 16 percent of our GDP in 2010 - the third largest after agriculture and wholesale and retail trade, but employs less than 0.15 percent of the population, due to its technology-intensive nature and the procurement practices of the international oil companies (IOCs). The industry has capacity to employ more people, and with the enactment of the Nigerian Content Development Act in 2010, more will be expected in this regard.

The founding fathers of the modern Nigerian oil industry are probably Head of State Yakubu Gowon, Shettima Ali Monguno, Philip Asiodu, Olusegun Obasanjo, Sunday Awoniyi and Muhammadu Buhari. Their vision of the 1970s led to creation of the NNOC which became the NNPC in 1977. Their desire was to create a Nigerian-owned and managed oil industry via the instrumentality of the NNPC. They saw joint ventures as temporary measures to enable Nigerians acquire the education, expertise and exposure necessary to take control of the commanding heights of the economy, including the petroleum industry. Everything was well-thought out. For instance, the Petroleum Technology Development Fund (PTDF) was established in 1973 to train manpower for the industry.

The Malaysians took similar steps by creating the Petroleam Nasional Berhad (Petronas), which holds exclusive ownership rights to all oil and gas exploration and production projects in Malaysia. Unlike the NNPC, Petronas has since its incorporation grown to be an integrated international oil and gas company with business interests in 31 countries. It was ranked as the 80th largest corporation in the world in 2009 and the 13th most profitable. It has even bid for and acquired oil blocks in Nigeria. NNPC is still a passive partner in an array of joint ventures, entirely dependent on treasury funding!

The Nigerian economy is heavily reliant on oil and gas exports - oil and gas account for about 96% of foreign exchange earnings and 86% of the total revenue of the Federal Government. Compared to other oil-producing nations, Nigeria's excessive dependence on oil is a clear and present danger that we have gone awfully wrong. Take Indonesia which was at the same level of development (and oil-dependence) as Nigeria in the 1960s, oil now accounts for less than 10 percent of its GDP, 25 percent of government revenue and only 15 percent of exports. This over-dependence on oil exports for both foreign exchange and revenues is partly responsible for our poor programme implementation, continuous boom-bust cycles and abandonment of development projects.

The other problem with oil goes beyond government revenue-dependency. It is the impact of 'easy money' on the incentive structure in the society. Oil and gas are natural resources that are, as we say in Nigeria, "just there". Unlike agriculture and industry that require real hard work to earn the fruits of one's labour, oil and gas are gifts of God, and we have the IOCs to organize, finance, extract, transport and sell them, without any labour on our part!.  A few statistics here will suffice. Out of 896 million barrels of oil we produced in 2010, 531 million barrels were produced by NNPC-IOC joint ventures in which the NNPC contributes financially but not technically or managerially, 317 million were produced under production sharing contracts in which the NNPC contributes nothing, and only 45 million barrels were produced under service contracts and by independents. Only these miniscule 45 million barrels were produced with some significant Nigerian participation!

As a country therefore, we do little or nothing every month except meet in Abuja to share out what Shell, Exxon-Mobil, ChevronTexaco, ENI, Elf and other oil companies tell us is our share through the NNPC! We can only believe what they and NNPC tell us because we are not involved enough to question what they say or do. The relative ease of 'earning' this money has created a 'national rentier mentality' within the Nigerian elite and even the common man. Our nation got "oil-rich" without working, so each one of us can get rich overnight without working!  The impact of this on our thinking as a people, our response to incentives and the mentality of the young generation can only be imagined.

Every activity has become subordinated to the capturing of easy rents from oil and gas. The best and brightest no longer joined the public service and academia willingly, but the oil industry. Oil became the only game in town, and the acquisition of political power by hook or by crook, was the fastest way to be a player. The overconcentration of government efforts and attention on the oil and gas sector has led to the neglect of the non-oil sector making the entire economy fragile as any slight disruption in the oil sector puts the country's economy and polity in crisis, both gasping for breath.

The oil and gas sector has contributed to our challenges in yet another profound way. The rapid accumulation of oil revenues and build-up of healthy foreign reserves led to an overvalued exchange rate. This made imports much cheaper and exports more expensive and therefore less competitive. The results were the collapse of our export agriculture, reduced food production and more imports of cheaper Asian rice for instance, and capital flight - the rush to take monies out of the country. In 1980, the Shagari administration earned about $24 billion from oil exports, enjoying the benefits of the Iranian crisis when oil prices hit nearly $40 a barrel. Then 80 kobo would buy you one US dollar, and everything became cheaper to import than make in Nigeria. A couple of years later, Nigeria's debt crisis surfaced which took us 23 years to exit from.

Once again, our oil and gas industry is at a crossroads. NNPC is perceived as corrupt, opaque and dysfunctional. Its financial solvency and stability are questionable. Its true participation in the industry insignificant, and its unchecked power not matched with responsibility. Operationally, its best refinery (Warri!) operated at 43 percent capacity in 2010, and the proposed withdrawal of the 'fuel subsidy' faces resistance from people that no longer believe an administration that promises to spend at least 70 percent of the budget running government instead of more investments. The reform of the petroleum sector has stalled with the dilution, and delay in passing the Petroleum Industry Bill since 2008! Where do we go from here

http://www.nigeriavillagesquare.com/nasir-el-rufai/the-nemesis-called-oil-and-gas-1.html

Historian.

A number of issues here are important and should tickle the minds of patriotic Nigerians.

I read and luvd this article on this day newspaper today, I will try to highlight the salient points he raised. Enjoy

Ovularia:

The Nemesis Called Oil and Gas (1)
Friday, 14 October 2011 09:13 Written By Nasir Ahmad El-Rufai


Nasir Ahmad El-Rufai

That Sunday was like every other one, but the impact of a single event that happened would change the destiny of Nigeria forever. It was the day Shell D’Arcy found oil in Oloibiri, in present day Bayelsa State. The year was 1956; but the story began 20 years earlier in 1936 when Shell D’Arcy was granted sole rights to explore for hydrocarbons all over Nigeria. Prospecting began in 1937 but the company’s activities were interrupted by World War II.

After the war, it teamed up in 1947 with British Petroleum to form Shell-BP unit in Nigeria. In 1958 production began and the quantity of crude oil export was about 5,100 barrels per day (bpd), which doubled a year later and increased to 20,000 bpd in the 1960 when Nigerian was granted independence. Output increased rapidly to 50,000 bpd (1961) and over 1 million bpd in 1970. The first Obasanjo administration created the NNPC in 1977 and that year saw the then highest ever output of 2.09 million bpd under the ministerial leadership of Muhammadu Buhari.

By the time of the Shagari administration in 1980, production had come down slightly but was still in excess of 2 million bpd. It has remained there since. By 1999, the World Bank estimated that Nigeria had earned about $300 billion from oil rents in the previous 25 years! Between 1999 and 2011, the country netted nearly another $300 billion in oil exports, taxes and income from condensates, gas to liquids and liquefied natural gas. Some estimates are even higher, nearing $1 trillion in current dollars.

That steady increase in oil production put the country as the 14th largest producer of oil in the world but the 8th largest exporter. Many Nigerians will be shocked to learn that Russia produces more oil than Saudi Arabia, and the USA, China, Canada and Norway produce more oil than Nigeria. But they do not export theirs in crude form, but choosing to add value through refining, processing and beneficiation into gasoline and other petrochemicals for internal consumption and export. With an estimated crude oil reserves of 40 billion barrels and some 184 trillion cubic feet (tcf) of gas, we are more of a gas than an oil-blessed nation - the 5th largest gas reserves in the world. The capacity to leverage these natural resources for the betterment of our nation and its people is in the hands of our leaders.

The discovery of crude oil was supposedly a blessing of nature expected to accelerate the development and growth of the Nigerian economy. Our oil revenues provided avenues to invest in the future through massive infrastructure build-out, educating our people, ensuring their health and well-being, and equality of opportunity for all. That was the dream and promise of Oloibiri through the lens of our founding fathers. Whether that expectation has been actualized 55 years after is a question requiring deep pondering.

What went wrong with the dream of Oloibiri? What was the vision of the industry's founding fathers and how did we deviate from it? What can we do to diversify away from our oil-dependency? What reforms do we need to implement to put our oil and gas on a path of growth, indigenisation and maximum benefit to our nation?



As part of our exploration of the real sector in search of employment opportunities for our rapidly increasing and youthful population, for the next couple of weeks, we will analyze the oil and gas sector of the Nigerian economy. The objective is not only to restate its importance in our national lives, but open up the black box of the sector a little bit for our readers to understand this tool for our national development, which has also turned out, so far - to be our nemesis.

This is because most of our problems as a country can be traced to our mismanagement of these two natural resources. And what we do going forward can convert this blessing into a greater curse, or the reverse. Like most things in life, it is about the choices our leaders make today that determine the future of millions.

The oil and gas sector accounted for about 16 percent of our GDP in 2010 - the third largest after agriculture and wholesale and retail trade, but employs less than 0.15 percent of the population, due to its technology-intensive nature and the procurement practices of the international oil companies (IOCs). The industry has capacity to employ more people, and with the enactment of the Nigerian Content Development Act in 2010, more will be expected in this regard.

The founding fathers of the modern Nigerian oil industry are probably Head of State Yakubu Gowon, Shettima Ali Monguno, Philip Asiodu, Olusegun Obasanjo, Sunday Awoniyi and Muhammadu Buhari. Their vision of the 1970s led to creation of the NNOC which became the NNPC in 1977. Their desire was to create a Nigerian-owned and managed oil industry via the instrumentality of the NNPC. They saw joint ventures as temporary measures to enable Nigerians acquire the education, expertise and exposure necessary to take control of the commanding heights of the economy, including the petroleum industry. Everything was well-thought out. For instance, the Petroleum Technology Development Fund (PTDF) was established in 1973 to train manpower for the industry.

The Malaysians took similar steps by creating the Petroleam Nasional Berhad (Petronas), which holds exclusive ownership rights to all oil and gas exploration and production projects in Malaysia. Unlike the NNPC, Petronas has since its incorporation grown to be an integrated international oil and gas company with business interests in 31 countries. It was ranked as the 80th largest corporation in the world in 2009 and the 13th most profitable. It has even bid for and acquired oil blocks in Nigeria. NNPC is still a passive partner in an array of joint ventures, entirely dependent on treasury funding!

The Nigerian economy is heavily reliant on oil and gas exports - oil and gas account for about 96% of foreign exchange earnings and 86% of the total revenue of the Federal Government. Compared to other oil-producing nations, Nigeria's excessive dependence on oil is a clear and present danger that we have gone awfully wrong. Take Indonesia which was at the same level of development (and oil-dependence) as Nigeria in the 1960s, oil now accounts for less than 10 percent of its GDP, 25 percent of government revenue and only 15 percent of exports. This over-dependence on oil exports for both foreign exchange and revenues is partly responsible for our poor programme implementation, continuous boom-bust cycles and abandonment of development projects.

The other problem with oil goes beyond government revenue-dependency. It is the impact of 'easy money' on the incentive structure in the society. Oil and gas are natural resources that are, as we say in Nigeria, "just there". Unlike agriculture and industry that require real hard work to earn the fruits of one's labour, oil and gas are gifts of God, and we have the IOCs to organize, finance, extract, transport and sell them, without any labour on our part!. A few statistics here will suffice. Out of 896 million barrels of oil we produced in 2010, 531 million barrels were produced by NNPC-IOC joint ventures in which the NNPC contributes financially but not technically or managerially, 317 million were produced under production sharing contracts in which the NNPC contributes nothing, and only 45 million barrels were produced under service contracts and by independents. Only these miniscule 45 million barrels were produced with some significant Nigerian participation!

As a country therefore, we do little or nothing every month except meet in Abuja to share out what Shell, Exxon-Mobil, ChevronTexaco, ENI, Elf and other oil companies tell us is our share through the NNPC! We can only believe what they and NNPC tell us because we are not involved enough to question what they say or do. The relative ease of 'earning' this money has created a 'national rentier mentality' within the Nigerian elite and even the common man. Our nation got "oil-rich" without working, so each one of us can get rich overnight without working! The impact of this on our thinking as a people, our response to incentives and the mentality of the young generation can only be imagined.

Every activity has become subordinated to the capturing of easy rents from oil and gas. The best and brightest no longer joined the public service and academia willingly, but the oil industry. Oil became the only game in town, and the acquisition of political power by hook or by crook, was the fastest way to be a player. The overconcentration of government efforts and attention on the oil and gas sector has led to the neglect of the non-oil sector making the entire economy fragile as any slight disruption in the oil sector puts the country's economy and polity in crisis, both gasping for breath.

The oil and gas sector has contributed to our challenges in yet another profound way. The rapid accumulation of oil revenues and build-up of healthy foreign reserves led to an overvalued exchange rate. This made imports much cheaper and exports more expensive and therefore less competitive. The results were the collapse of our export agriculture, reduced food production and more imports of cheaper Asian rice for instance, and capital flight - the rush to take monies out of the country. In 1980, the Shagari administration earned about $24 billion from oil exports, enjoying the benefits of the Iranian crisis when oil prices hit nearly $40 a barrel. Then 80 kobo would buy you one US dollar, and everything became cheaper to import than make in Nigeria. A couple of years later, Nigeria's debt crisis surfaced which took us 23 years to exit from.

Once again, our oil and gas industry is at a crossroads. NNPC is perceived as corrupt, opaque and dysfunctional. Its financial solvency and stability are questionable. Its true participation in the industry insignificant, and its unchecked power not matched with responsibility. Operationally, its best refinery (Warri!) operated at 43 percent capacity in 2010, and the proposed withdrawal of the 'fuel subsidy' faces resistance from people that no longer believe an administration that promises to spend at least 70 percent of the budget running government instead of more investments. The reform of the petroleum sector has stalled with the dilution, and delay in passing the Petroleum Industry Bill since 2008! Where do we go from here

http://www.nigeriavillagesquare.com/nasir-el-rufai/the-nemesis-called-oil-and-gas-1.html

How has this man suddenly become a sage? Only in Nigeria.

El-Rufai, NNPC isnt perceived has corrupt. It is CORRUPT. Her sister corrupt establishment is NDDC

^^^He used 'perceived' in order not to be put under the burden of proof.

@POST

This is another nonsensical drivel to either support deceitful acts by elite politicians from northern region of Nigeria or perpetuate the grand role of brainwashing certain group in Nigeria so they can feel relevant.

^^^^^

See sense ooooooooo, kai, can someone pass this on to GEJ.

chee el-rufai again.why e no write all this when e dey power himself or he dey too busy taking his own share

Interesting article by El-Rufai. Thanks for the highlights Mai-Suya.

I didn't know oil and gas is only 16% of gdp? Where did he get this # from? That # makes me happy.

As a country therefore, we do little or nothing every month except meet in Abuja to share out what Shell, Exxon-Mobil, ChevronTexaco, ENI, Elf and other oil companies tell us is our share through the NNPC!

^^
Economically, that's my country in summary.

El-Rufai is now pontificating because GEJ's sharing largesse hasn't reached him. His antecedents as FCT minister does NOT remove him from the rent-seekers he is currently castigating.

The turd is throwing tantrums like a 2 year old who has wet his pants because his source of free income is no more. I do NOT for one second believe this man means well for Nigeria and should keep his write-ups because we know he is only angling for a share of the spoils as he did as BPE director and FCT minister.

El-rufai, thank you for this exposition. No doubt, it is an intelligent write up. My simple question is this, why are you northerners interested in the oil in the Niger-Delta?

Now that you are through with the history of oil and gas in Nigeria, we want to be educated about agriculture (groundnut) and its contribution in the economic growth of Nigeria.

Interesting write-up.
Of course many bigoted people will refuse to see any sense in it and pick on the person of the messenger.
This shameful attitude, this deficit in concrete reasoning is the most painful reason the country refuses to develop.

DDN:

El-rufai, thank you for this exposition. No doubt, it is an intelligent write up. My simple question is this, why are you northerners interested in the oil in the Niger-Delta?

Now that you are through with the history of oil and gas in Nigeria, we want to be educated about agriculture (groundnut) and its contribution in the economic growth of Nigeria.

Very funny!

Things like this make my hrt bleed cos I knw Nigeria as a nation deserves better, I honestly feel 4 dis our dear country, I often wonder @ people who feel d only way dey can make sense is by downgradin sum1 els's thread/write-up or creating un-necessary attention by dier responses, sad.our primary aim sud b 2 c a better Nigeria of our drms, we can criticize yes but thr is no nid over doin it.Our can we salvage dis nation is what sud b our drive not launching unnecessary attacks thereby derailing a somewhat gud thread.

DDN:

El-rufai, thank you for this exposition. No doubt, it is an intelligent write up. My simple question is this, why are you northerners interested in the oil in the Niger-Delta?

Now that you are through with the history of oil and gas in Nigeria, we want to be educated about agriculture (groundnut) and its contribution in the economic growth of Nigeria.

may GOD bless you, your family and your generations unborn.
as much as i agree his points are valid, i really dont believe he means well with his latest critical stance.afterall, his antecedents while in office speak for themselves.he is part of our problem.

Simply one to bookmark!

@DDN and carrey
Could u guys take ur time and go thru elrufai's last two write ups in thisday newspapers before coming here to fill our space with ur bigotted rants.

bassette:

Things like this make my hrt bleed cos I knw Nigeria as a nation deserves better, I honestly feel 4 dis our dear country, I often wonder @ people who feel d only way dey can make sense is by downgradin sum1 els's thread/write-up or creating un-necessary attention by dier responses, sad.our primary aim sud b 2 c a better Nigeria of our drms, we can criticize yes but thr is no nid over doin it.Our can we salvage dis nation is what sud b our drive not launching unnecessary attacks thereby derailing a somewhat gud thread.

I would attack him because he does not mean well for Nigeria. He is just a disgruntled rent-seeker that is looking for relevance. Like an earlier poster posited, He should give us the history of groundnuts and why his kinsmen killed that industry.

No one derives joy in downgrading another but it irks anyone when people like him pretend to care about Nigeria. He is being disingenuous with his write ups and I do not blame you for your stance because if you watch his tactics and that of some other politicians in Nigeria you would understand our grouse. We know all he has written and No one especially a thief would like to be judged by another with a questionable past.

El-Rufai if he means well should publish his earnings throughout his stay as a favoured rent-seeker and justify the land he handed out to himself and his cronies before pontificating about an oil industry if properly managed he would have little contribution or benefit from.

I agree with u very well its jst pathetic that our leaders past and present only seem to make sense after they have stepped out of office which boils down to the fact that our govts have not been sincere in any way, I wonder, don't they think of the future??what happens to Nigeria a few years frm now or r we to 4get about d entity called 'Nigeria' and lead our individual lives under d false pretense of a 1 Nigeria??

ranlaen:

chee el-rufai again.why e no write all this when e dey power himself or he dey too busy taking his own share

While in Government, you are not allowed to write certain stuffs, the same reason you don't see Reuben Abati's write-ups in the Guardian anymore

I am not a fan of d GEJ administration because of obvious deficiencies and him being part of d system dat has put us in dis rot,but El Rufai again,give me a break;overnight d man now wants to b seen as a great thinker,when he specifically from his BPE days to his DISASTROUS administration of d fct;has bn part of dis gutter we find ourselves in,moreover there is nothing he so THESIScally feels he has said that is new.
He shd gv us a break because all his now predicable write-ups are nauseating to me.Anyway no one should b surprised,is it not d same country where d likes of a convicted felon,Alamesiegha are hero worshipped in his community and evn state?Shameful,annoying lot.

Dede1:

@POST

This is another nonsensical drivel to either support deceitful acts by elite politicians from northern region of Nigeria or perpetuate the grand role of brainwashing certain group in Nigeria so they can feel relevant.

Did you even read the tread.

Or just another GEJ sycophant.

Oilis a curse to Nigeria. ALso foreign aid. If we didn´t have t the foreign corporations wouldn´t be in our business. We would get the money from taxes and the government would do their job more often. Oil is a curse to Nigeria. If we didn´t have it, then we would develop our other parts of the economy.

Terrific write-up.

El-Rufai, thank you for sharing this with us. You have spoken the truth. And only the truth can set us free. Those of you who choose to feed problems while you starve opportunities, open your minds. Learn. Equip yourself with all the knowledge you can. Because, some time very soon as always, it is the pen that will emancipate you and not the sword. God help us all.

Nice 1. I actually learnt something from this write up. Thumbs up El-Rufai.