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Nigeria's Oil Imbroglio and the Case Against Imports

by:Wingoil     2020-06-22
Africa's largest oil producer suffered one of its worst fuel shortages earlier this year when a supply interruption caused chaos and disruption across its cities. The situation was the outcome of oil marketers embarking on a months-long suspension of imports in protest against unpaid government subsidies. Although import shipments resumed in May after Abuja started paying off millions of dollars in subsidy arrears, fuel supplies took more than a month to return to normal. This is the curious fate befallen on the world's eight largest crude producer with know reserves in excess of 36 billion barrels. Despite the enviable description, Nigeria is forced to import almost 85% of domestic fuel needs largely due to mismanagement of its four state-owned refineries. Together with increasing vandalism and violence in the Niger Delta, this has led to huge production shortfalls that cost the country over $16 billion between 2005 and 2007 alone1. The losses amount to an estimated 20% of Nigeria's combined production capacity of 2.5 million barrels per day. Moreover, the government has to pay oil companies the difference between import costs and the regulated retail price to make oil more affordable locally. 'This is clearly a dysfunctional state of affairs,' the Nigerian Minister of State for Petroleum O Ajumogobia conceded during a conference in the capital in February this year2. Nigeria faces a paradoxical energy crisis of critical proportions - a circumstance that's best exemplified by recent developments with the state-owned Port Harcourt and Warri refineries. The Nigerian National Petroleum Corporation (NNPC) announced late in July that the two units had shut down after running out of crude oil due to damages in feeder pipelines. Although Niger Delta militants entered a two-month ceasefire in August, more than half of the country's crude production capacity remained unachieved in the first half of this year. In fact average capacity utilisation at the four refineries was less than 19% in the first half of 20093, according to official figures. Even without these shortfalls, the country's domestic refining capacity is far short of demand and patently incapable of meeting the requirements of its 148 million people. Nigeria's historic overdependence on oil starting from the 1970s resulted in the gradual destruction of agriculture and small manufacturing. By 2002, export of non renewables accounted for 98% of export earnings and 83% of total revenue4. The decline of non-oil sectors that accompanied Nigeria's mounting petrodollar profits resulted in massive poverty and mass migration to cities. The stalling of economic diversification led to the disintegration of infrastructure and social services. Despite the massive oil infrastructure and significant exports, the Nigerian per capita income at the beginning of the new millennium had fallen below the level registered at independence in 1960.
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