from Africa in Transition

Nigeria’s Oil Industry

July 03, 2014

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Sub-Saharan Africa

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The Nigerian Daily Independent recently published remarks by Mutiu Sunmonu, the managing director of Shell Petroleum Development Company of Nigeria (SPDC). The remarks provide insights into Nigeria’s oil industry.

Sunmonu said that Nigeria lost over three hundred thousand barrels of crude a day to oil theft, “deferment,” and illegal refining in 2013. Sunmonu confirmed that the federal government takes over 98 percent of the revenue generated by oil producing firms in Nigeria. So, the three hundred thousand barrels per day represent a loss to the Nigerian government of billions of dollars.

On the highly controversial issue of oil spills, Sunmonu said that “third party interference” (involving sabotage, illicit tapping of pipes to extract oil, etc.) accounts for 75 percent of oil spillage incidents. Illegal refining of oil and the transport of illegal oil also results in the discharge of oil into the environment. Sunmonu attributed about 15 percent of the spills to “operational spill,” caused by corrosion, equipment failure, or human error. He said that incidents of oil spills resulting from sabotage and theft increased from 137 in 2012 to 157 in 2013. Whatever the cause, Sunmonu said Shell had cleaned up 85 percent of sites that had been identified in 2013 as being in need of “remediation.”

Sunmonu’s remarks highlight that it is the Nigerian government that remains the overwhelming beneficiary of oil production, and that its revenue is most negatively impacted by interruption in oil production no matter the cause. This governmental dependency on the oil sector emphasizes the risks the federal government faces should the Niger Delta, where the oil is located, become unstable.