POLITICAL ECONOMY OF CRUDE OIL PRODUCTION AND NIGERIA’S DOWNSTREAM SECTOR

POLITICAL ECONOMY OF CRUDE OIL PRODUCTION AND NIGERIA’S DOWNSTREAM SECTOR

ABSTRACT

At inception, oil industry operations in Nigeria were limited to upstream and midstream activities comprising exploration, production, marketing and transportation of crude oil. Downstream refining activity commenced in 1965 as a joint venture between British Petroleum and Shell but with 50 percent equity participation by the Nigerian government. The technology of oil exploration and production, the transport and marketing infrastructure of Nigeria’s crude oil, as well as the construction and operation of the refinery, were all the exclusive preserve of the International Oil Companies (IOCs). Consequently, Nigeria’s crude was exported on Freight on Board (FOB) basis as against the more self-reliant Cost, Freight and Insurance (CFI) mode. Extant analyses of Nigeria’s downstream sector have attributed its underdevelopment to such factors as inefficiency, corruption, mismanagement, bureaucratic bottlenecks and excessive subsidizing. Such analyses failed to explore the implication of the production relations in the upstream for the development of the downstream sector. This study was therefore aimed at explaining: (i) the influence of IOCs’ dominance in crude oil production technology on the utilization and maintenance of oil refineries in Nigeria, (ii) the role of marketing of Nigeria’s crude oil on FOB basis in the relegation of CFI mode of crude oil marketing and transportation and (iii) the implication of lack of autonomy of oil industry regulatory institutions for effective regulation of Nigeria’s oil industry operations. The study was based on the ex-post-facto research design, secondary data sources, and the theory of regulatory capture. Content analysis was used to analyze the data. It found that: IOCs’ dominance in crude oil production technology undermined the utilization and maintenance of oil refineries in Nigeria; the marketing and transportation of Nigeria’s crude on FOB basis resulted in Nigeria’s low participation in global domestic crude oil transportation; and that lack of autonomy of oil industry institutions arising from excessive dependence on oil rents accounted for ineffective regulation of Nigeria’s oil industry. It then recommended the adoption of benign resource nationalism to holistically tackle the low indigenous capacity in Nigeria’s oil industry.