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.