Oil Price Deregulation in Nigeria

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Oil Price Deregulation in Nigeria

By | July 2010
Page 1 of 13
Introduction
Nigeria is blessed with vast quantities of oil and is the sixth largest oil exporter in the Organization of Petroleum Exporting Countries (OPEC). This has generated billions of dollars in revenues over the last forty years since oil was found in Nigeria. As in most developing countries, this has not translated into an improved economy for the country. Instead through inefficiencies, corruption, abuse of natural monopoly powers, mismanagement, smuggling, bureaucratic bottlenecks and excessive subsidizing, the supply of refined crude oil (gas) in the country has virtually collapsed. The Nigerian oil industry is divided into two sectors; the upstream sector (deals with Exploration and Production) and the downstream sector, which deals with refining of crude oil for domestic consumption. In this paper, I intend to focus on the downstream sector as it has a great impact on the lives of all Nigerians. The government of Nigeria has decided to emulate other developing and developed nations by privatizing and liberalizing the country’s downstream sector which was hitherto managed by the Nigerian National Petroleum Corporation (NNPC) on behalf of the government. Refineries in Crisis

The first oil refinery built in the country is located outside Port Harcourt in the southern part of the country known today as the south- south region, and it started operations in 1965 with a capacity of 38,000 barrels per day (bpd). Since the first refinery was built in the country three more refineries were built to cater for expanding domestic needs over the last thirty years. In the 1990’s, with a fast growing population, the country was caught in the situation with domestic demand for gas far outweighing supply, and with corruption, smuggling and mismanagement, the refineries were operating at less than optimal levels. Turn Around Maintenance (TAM) was done on the refineries to improve capacity but this was not getting the desired effect and NNPC (State Owned...

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