CHAPTER ONE
INTRODUCTION
1.0 YEARLY SALES OF PETROLEUM
The search of oil in Nigeria started as early as 1937, but the discovery was not until 1956. The sole of petroleum products began in December 1957, managed by a consortium of Royal Dutch Shell and British Petroleum BP Now known as Shell Petroleum Development Company SPDC. G.A, Aga (1993) stated that Nigeria was the second oil producing nation in Africa after Libya and sixth in the world.
In May 1971, the Nigeria National Oil Company was established under the company and Allied matter Act of 1958 as applicable then. NNOC was the government Agency Mandated by law to engage in all phases of oil production and sales, NNOC was later in 1977 amalgamated into a full flex ministry of petroleum to form the Nigeria National Petroleum Corporation (NNPC), which is in partnership with several oil company from different countries operating in Nigeria. Before October 1965, Nigeria Crude Oil was refined overseas and all the processed oil needs were imported. The first refinery plant came into operation in 1965 located at Alesa Eleme near Port-Harcourt. Later Warri and Kaduna Petro-chemical refineries were established in 1978 and 1980 respectively. Similarly, Pipeline and Products Marketing Company Ltd (PPMC) Enugu Depot was commissioned in 25 August 1975 by the then military Governor of the old Anambra State; Colonel D.S. Abubakar. The last was the second refinery in Port-Harcourt. It is however worthy to note that NNPC has several subsidiary company e.g. Pipeline and Product Marketing Company (PPMC).
1.1 Discovery of Crude Oil in Nigeria
Oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half a century of exploration. The discovery was made by Shell-BP, at the time the sole concessionaire. Nigeria joined the ranks of oil producers in 1958 when its first oil field came on stream producing 5,100 bpd. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies. In 1965 the EA field was discovered by Shell in shallow water southeast of Warri.
In 1970, the end of the Biafran war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production. Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977; a state owned and controlled company which is a major player in both the upstream and downstream sectors [Blair1976, pp. 98-120]. Following the discovery of crude oil by Shell D’Arcy Petroleum, pioneer production began in 1958 from the company’s oil field in Oloibiri in the Eastern Niger Delta. By the late sixties and early seventies, Nigeria had attained a production level of over 2 million barrels of crude oil a day. Although production figures dropped in the eighties due to economic slump, 2004 saw a total rejuvenation of oil production to a record level of 2.5 million barrels per day. Current development strategies are aimed at increasing production to 4million barrels per day by the year 2010. Petroleum production and export play a dominant role in Nigeria's economy and account for about 90 % of her gross earnings.
This dominant role has pushed agriculture, the traditional mainstay of the economy, from the early fifties and sixties, to the background. While the discovery of oil in the eastern and mid-western regions of the Niger Delta pleased hopeful Nigerians, giving them an early indication soon after independent economic development was within reach, at the same time it signaled a danger of grave consequence: oil revenues fueled already existing ethnic and political tension and actually "burned" the country. This tension reached its peak with the civil war that lasted from 1967 to 1970. As the war commenced, the literature reflected the hostility, the impact, and fate of the oil industry. Nigeria survived the war, and was able to recover mainly of the huge revenues from oil in the 1970s. For some three years an oil boom followed, and the country was awash with money.
Indeed, there was money for virtually all the items in its developmental plan. The literature of the postwar years shifted to the analysis of the world oil boom and bust, collectively known as the "oil shock." Starting in 1973 the world experienced an oil shock that rippled through Nigeria until the mid - 1980s. This oil shock was initially positive for the country, but with mismanagement and military rule, it became all economic disaster. The larger middle class produced by the oil boom of the 1970s gradually became disenchanted in the 1980s, and rebellious in the 1990s. The enormous impact of the oil shock could not escape scholarly attention. For almost twenty years (1970s 1990s), the virtual obsession was to analyze the consequences of oil on Nigeria, using different models and theories. A set of radical-oriented writers was concerned with the nationalization that took place during the oil shock as well as the linkages between oil and an activist foreign policy.
Regarding the latter, the emphasis was on OPEC, Nigeria's strategic alliance formation within Africa, the vigorous efforts to establish the Economic Community of West African States (ECOWAS), and the country's attempts to use oil as a political weapon, especially in the liberation of South Africa from apartheid. If many had hoped that oil would turn Nigeria into an industrial power and a prosperous country based on a large middle class, they were to be disappointed when a formally rich country became a debtor nation by the 1980s. The suddenness of the economic difficulties of the 1980s "bust years" had an adverse effect on class relations and the oil workers who understood the dynamics of the industry. As if to capture the labor crisis, writings on oil workers during this period covered many interrelated issues, notably working conditions, strikes, and state labor relations. To be sure, labor issues were not new in the 1980s, since the left-oriented scholars had made a point of exposing labor relations in the colonial era. What was new after 1980 was the focus on oil workers, unions, and class conflict [OPEC annual report 1983].
1.2 The Performance of Oil Sector in Nigeria
The Nigerian oil sector can be categorized into three main sub-sectors, namely, upstream, downstream and gas. The most problematic over the years has been the downstream sector, which is the distribution arm and connection with final consumers of refined petroleum products in the domestic economy. The incessant crisis in supply of products culminated in the decision by Government in 2003 to deregulate the downstream sub-sector. However, the manner of its implementation has been controversial because it ignores the economic realities in Nigeria.
Oil production by the joint venture (JV) companies accounts for about 95 % of Nigeria’s crude oil production. Shell, which operates the largest joint venture in Nigeria, with 55 % Government interest (through the Nigerian National Petroleum Corporation, NNPC), produces about 50 % of Nigeria’s crude oil. Exxon Mobil, Chevron Texaco, ENI/Agip and TotalfinaElf operate the other JV’s, in which the NNPC has 60 % stake. The over-dependence on oil has created vulnerability to the vagaries of the international market, as observed in the preceding section that show the contribution of oil to some macro-economic variables. In particular, the place of oil in the mind of the average Nigerian has become more profound since the deregulation of the downstream segment of the Nigerian oil industry in 2003. The contradiction is more glaring now with the recent rise in crude oil prices at the global markets, which meant more external earnings for Nigeria, but also increased the expense burden on imported refined petroleum products! It is such contradictions that make the Nigerian economy appear strange at times, as policies seem to ignore what appears obvious to do. As such, policies designed to address the deficiencies and defects in the structure end up being poorly articulated and/or implemented because of regional, political or rent-seeking selfish interests. Obviously, it is the same rent-seekers that continually sabotage the reinvigoration of the domestic refineries, making Nigeria to depend on importation ofrefined products to meet the domestic need. At present, Nigeria has four refineries, with a combined installed refining capacity of 443,000 barrels per day (bpd). These four refineries are:
1. The first Port Harcourt Refinery was commissioned in 1965 with an installed capacity of 33,000 bpd and later expanded to 60,000 bpd.
2. The Warri Refinery was commissioned in 1978 with an installed refining capacity 100,000 bpd, and upgraded to 123,000 bpd in 1986.
3. The Kaduna Refinery was commissioned in 1980 with an installed refining capacity of 100,000 bpd, and upgraded to 110,000 bpd in 1986.
4. The second Port Harcourt Refinery was commissioned in1989 with 150,000 bpd processing capacity, and designed to fulfil the dual role of supplying the domestic market and exporting its surplus. The combined capacities of these refineries exceed the domestic consumption of refined products, chief of which is premium motor spirit (gasoline), whose demand is estimated at 33 million litres daily. The refineries are however, operating far below their installed capacities, as they were more or less abandoned during the military era, skipping the routine and mandatory turnaround maintenance that made products shortages that gave strength to the argument for deregulation of the downstream oil subsector in Nigeria. The monetization of oil revenue has been a major factor in liquidity management in Nigeria. Measuring liquidity as the narrow and broad money definitions by the CBN, the early 1990s saw increases that were dampened by 1995 up until the civilian administration came on board in 1999. The new Government maintained disciplined fiscal operations for about one year and thereafter, the floodgates were opened. Since then, the CBN has been battling to keep liquidity in check, in order to ensure that it does not create adverse effects on the three key macroeconomic prices (i.e., interest rate, exchange rate and inflation rate).
The greatest challenge is when Nigeria generates more revenue from crude oil sales than it budgeted, like now. Such excesses have always been monetized, creating market distortions and inflationary pressure [Biodun Adedipe 2004]. The same argument goes for deficit fiscal operations in comparison to the GDP. The pattern of this ratio indicates the optimism that accompanies increase in oil revenue and makes Government to engage in frivolous spending or unnecessary projects. Deficit spending invariably makes Government resort to borrowing from the Central Bank through the instrument of Ways and Means Advances, which later convert into shortterm debt instruments that are quite expensive to service at market rates. At this point, there is sufficient ground to examine how economic policy formulation has been impacted or induced by petroleum oil in Nigeria. As much as possible, major economic policies since Nigeria gained political independence would be examined vis-а-vis the state of the oil sector. This should provide adequate basis for making a few specific recommendations on how to reduce the dependency. Importation inevitable, Importation not withstanding, there have been persistent product.
1.3 NIGERIAN NATIONAL PETROLEUM CORPORATION (ITS ROLE IN SALE OF PETROLEUM PRODUCTS)
The NNPC‟s role in Oil Industry is so much that it cannot handled it alone. This is the reason for the establishment of subsidiary company like pipeline and Products Marketing Company Ltd (PPMC). The Nigerian National Petroleum Corporation manages the affairs of the oil industry in Nigeria, while the PPMC under the corporation is in charge of sales of petroleum products. Government policy on oil matter such sales is been conveyed by the Petroleum Products Price Regulatory Agency (PPPRA) currently headed by Alhaji Gbalamosi. NNPC therefore, works in conjunction with PPPRA to implement government policy such as prices of petroleum products. Nigerian National Petroleum Corporation carries out its function as such in both local and international.
1.4.1 AIM AND OBJECTIVES OF THE STUDY
- The aim of this project work is to forecast for Sales of petroleum
- 2. The specific objectives are to;
- *Test the stationarity of the data.
- *Fitting of trend
- *Fit an appropriate model to the data.
- *Use selected model for forecasting.
1.4.2 DISCRIPTION OF DATA
This data used in this project is a secondary data and it was collected from sales department of Balewa fuel station Oshogbo, Osun State. The data involved the amount entry per year from 1988-2011.
CONCLUSION OF CHAPTER ONE
This chapter discussed the yearly sales of petroleum in Oshogbo, discovery of crude oil in Nigeria and the aim and objective of the study and the description of the data.
