With 35 billion barrels of proven oil reserves now and another
5 billion in development, petroleum is the lifeblood of Nigeria's
economy, government and military.
oil sector already accounts for some 95 percent of export revenues,
76 percent of government revenues and about a third of its gross
domestic product, according to a 2006 brief by the World Bank
and information from the Nigerian Ministry of Petroleum Resources.
It is also an industry that has closely tied the United States
to the African nation. In 2007, Nigeria ranked as the United States'
fifth-largest oil supplier.
The Foreign Trade Division of the U.S. Census Bureau reported
that US imports from Nigeria, mostly oil, totaled almost $28 billion
in 2006. This number has risen almost $20 billion in five years.
Nigerian oil is classified as light sweet crude, which requires
less refining -- making it even more important to the United States.
Control of the industry
Nigerian law has historically barred foreign firms from owning
100 percent of oil enterprises and other businesses the government
deemed important to national security. However, President Olusegun
Obasanjo has introduced reforms to privatize the government-owned
and -subsidized oil operations, or parastatals, partly in an attempt
to attract more capital investment and foreign business partners.
In 2003, Obasanjo's administration announced the government would
be selling off the four state-owned oil refineries, all of its
petrochemical plants and its oil marketing company. The privatization
has been largely unsuccessful and the Los Angeles Times reports
that currently the four state-owned oil refineries are closed.
But the United States is not the only nation expressing interest
in Nigeria' resources. In 2006, China agreed to invest in refining
and power generation in Nigeria in return for four oil exploration
licenses. The government is reportedly seeking investments in
its oil refining programs from corporations that are seeking exploration
licenses often in exchange for assistance in developing power
and electricity operations. Domestic power is a top concern in
the 2007 presidential election.
A small number of domestic private oil businesses, such as Famfa
Oil Limited, have increased their stake in the oil sector, following
the Nigerian government's 1990 program to help boost indigenous
participation. Those companies, however, represent a much smaller
stake in Nigeria's petroleum industry than the multinational firms.
Otherwise, nearly all of Nigeria's oil production and development
projects are owned by joint venture operations between the government-owned
Nigerian National Petroleum Corp. and multinational corporations.
The biggest joint venture operation, the Shell Petroleum Development
Co. Ltd., accounts for more than a third of Nigeria's daily oil
production and reserves. The massive operation is partly owned
by the NNPC, which controls a 55 percent stake and the Netherlands-based
Royal Dutch/Shell Group of Companies, with a 30 percent interest.
Elf Petroleum, a subsidiary of the Paris-based TotalFinaElf, owns
10 percent, while Agip, a subsidiary of Italian energy giant Eni,
holds a 5 percent stake.
The Mobil Producing Nigeria Unlimited is the second-largest
joint venture operation, of which the NNPC owns 60 percent and
the Texas-based Exxon Mobil holds the remaining 40 percent.
Conflicts with indigenous communities
Nigeria's government took in more than $50 billion from oil exports
in 2006, but the petroleum industry generates few employment opportunities
or income for the majority of Nigerians, whose per capita income
falls below $400 per year, according to US Library of Congress
2006 statistics. Many Nigerians are forced to live off less than
$1 per day.
Most of Nigeria's oil fields are located in the swamps of the
Niger Delta, an oil-rich region that is also the main location
of ongoing social conflict and political violence.
The high unemployment and poverty levels in the Delta region
have exacerbated a long-running conflict between the indigenous
community and the oil companies. Some elements of the population
have turned to hostile activities like sabotage, kidnapping and
The use of foreign workers by the multinational petroleum corporations
is a point of contention, and militants responsible for some of
the attacks have warned all foreign workers to leave.
Shell reported that 17 employees were killed in 2006, and 60
foreign oil workers have been kidnapped in the first part of 2007.
Militants want more local control over the Niger Delta's vast
oil wealth, according to American University economist George
Ayittey's testimony before the House Committee on International
Relations in 2006.
In December 2006, a pipeline exploded in Lagos and killed more
than 250 people when thieves tapped into the pipeline to steal
fuel. The groups use the technique, called ''bunkering,'' to sell
oil on the black market to fund their activities, Ayittey said.
The NNPC reported more than 2,000 incidents of pipeline vandalism
in 2005, and the government lost some $41 billion in oil revenues
that year due mostly to vandalism. In March 2007 the government
created a commission to study the growing problem and has added
improving pipeline technology to its efforts to curb the violence
Native communities also have protested the environmental pollution
and damage they say has come from oil companies' development projects,
for which they rarely receive compensation, according to lawsuit
transcripts filed on their behalf. A militant group known as the
Movement for the Emancipation of the Niger Delta, which is reportedly
responsible for much of the violence in the region, has demanded
$1.5 billion in environmental damages from Shell Oil, which the
company has so far refused to pay.
Under Obasanjo, Nigeria has sought to alleviate friction between
indigenous communities and oil corporations. Obasanjo in 2000
declared a 13 percent revenue reallocation program for the communities
in the Niger Delta's oil-producing regions, up from the previous
3 percent allocation. Obasanjo also has implemented a quota on
the number of foreign workers that oil and gas companies can employ.
Still, conflicts between oil workers, corporations and local
populations continue to plague the country and its oil sector.