Petroleum, often referred to as “black gold,” has been the lifeblood of Nigeria’s economy for decades. Since its discovery in commercial quantities in 1956 at Oloibiri, in present-day Bayelsa State, petroleum has shaped Nigeria’s economic, political, and environmental landscape. Despite its potential, Nigeria’s oil sector is marred by controversies, infrastructural challenges, and debates about sustainability and equitable wealth distribution.
In this blog post, we delve into the journey of petroleum in Nigeria — from its early days of exploration to its status as a global oil player, the opportunities it has created, the challenges it faces, and the path forward in an era of energy transition.
A Brief History of Petroleum in Nigeria
Petroleum exploration in Nigeria began in the early 20th century, with Shell D’Arcy (a precursor of Shell Petroleum Development Company) spearheading early efforts. It wasn’t until 1956 that oil was discovered in Oloibiri, leading to commercial production by 1958 with about 5,000 barrels per day.
The boom of the 1970s, driven by the global oil price surge, transformed Nigeria into a key oil exporter. The establishment of the Nigerian National Petroleum Corporation (NNPC) in 1977 consolidated government control and investment in the sector.
Petroleum’s Role in the Nigerian Economy
Petroleum is the backbone of Nigeria’s economy:
- Over 90% of export earnings
- About 60% of government revenue
- Less than 10% contribution to GDP (due to overdependence on the sector and underperformance in manufacturing and agriculture)
Nigeria is a member of the Organization of Petroleum Exporting Countries (OPEC) and ranks among the top oil producers in Africa, alongside Angola and Algeria.
Key Oil-Producing States in Nigeria
The Niger Delta region is the heart of Nigeria’s oil production. Major oil-producing states include:
- Rivers
- Bayelsa
- Delta
- Akwa Ibom
- Edo
- Ondo
- Abia
- Imo
These states have seen both the benefits and adverse effects of oil exploration.
Challenges Facing the Petroleum Sector
Despite its significance, the Nigerian petroleum sector faces deep-rooted challenges:
1. Oil Theft and Pipeline Vandalism
Nigeria loses millions of barrels monthly due to illegal bunkering, oil theft, and vandalism — costing the economy billions of dollars annually.
2. Environmental Degradation
Communities in the Niger Delta have suffered from oil spills, gas flaring, and land degradation, resulting in polluted water bodies, poor air quality, and declining agricultural productivity.
3. Lack of Refining Capacity
Nigeria relies heavily on imported refined petroleum products, despite being a major crude oil producer. Its four government-owned refineries have operated below capacity for years.
4. Corruption and Mismanagement
The oil sector has long been plagued by corruption, lack of transparency, and inefficiencies in revenue management and project execution.
5. Global Energy Transition
The global shift towards renewable energy and decarbonization threatens the long-term viability of fossil fuels, creating uncertainty about Nigeria’s future dependence on oil.
Recent Developments and Reforms
Petroleum Industry Act (PIA) 2021
The PIA was signed into law to overhaul Nigeria’s oil and gas sector. Key provisions include:
- Creation of Nigerian National Petroleum Company Limited (NNPC Ltd.), now a commercial entity.
- Introduction of host community development funds.
- Improved fiscal framework to attract investors.
Dangote Refinery
Commissioned in 2023, the Dangote Petroleum Refinery in Lagos is one of the largest in the world (650,000 barrels per day capacity). It is expected to:
- Reduce Nigeria’s reliance on imported petroleum products
- Boost employment and local refining
- Conserve foreign exchange
Petroleum and Local Communities
Communities in the oil-rich Niger Delta have long protested against:
- Environmental pollution
- Neglect and underdevelopment
- Exclusion from decision-making
In response, there have been amnesty programs, community development projects, and the Host Communities Fund in the PIA. However, the effectiveness of these initiatives remains debated.
The Future of Petroleum in Nigeria
As the world gradually shifts toward cleaner energy sources, Nigeria faces a crucial choice:
- Diversify the economy (focus on agriculture, manufacturing, and digital economy)
- Invest in renewables (solar, wind, hydro, and bioenergy)
- Modernize oil operations (reduce flaring, improve refinery output)
- Increase transparency and local participation in the oil value chain
The government must position Nigeria as a competitive player in both fossil and non-fossil energy markets, ensuring a just energy transition that includes everyone — from international investors to local communities.
Petroleum has been a blessing and a burden for Nigeria. While it has brought enormous wealth, it has also contributed to inequality, corruption, and environmental crises. The ongoing reforms, including the PIA and new investments like the Dangote Refinery, offer a path to revival and sustainability.
However, to truly unlock the full potential of its petroleum resources, Nigeria must combine economic reforms with transparency, accountability, innovation, and inclusivity.
The future is not just about crude oil, but how wisely Nigeria manages it in the face of a changing global energy landscape.
