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  • Name: THE ROLE OF THE MINISTRY OF PETROLEUM RESOURCES IN THE MANAGEMENT OF OIL REGULATIONS IN NIGERIA.
  • Type: PDF and MS Word (DOC)
  • Size: [0.98 MB]
  • Length: [102] Pages

 

CHAPTER ONE

1.1 BACKGROUND TO THE STUDY

Petroleum is presently one of the most important and valuable natural resources of Nigeria. It is exploited in many ways that maximizes its benefits to the nation. Nigeria receives a fair share of profits derived by the mineral companies while also offering stable and attractive terms to investors(U.SEIA, 1997). According to Nigeria Extractive Industries Transparency Initiative (NEITI), in 2011, Nigeria is among the largest oil producers in Africa and among the top ten globally. Its effective pumping capacity is about 900 million barrels a year. Its recoverable reserves are estimated at about 34 billion barrels. In recent years, the oil sector has accounted for over 40% of GDP, 95% of export receipts, and over 80 percent of government revenue. The petroleum sector is dominated by Joint Venture operations between the Nigerian government and six (6) Major International Oil Companies – Shell, Mobil, Chevron, Agip, Elf, and Pan Ocean. Nigeria’s reserves of natural gas – an estimated 159 trillion standard cubic feet of proven reserves – are among the ten largest in the world, but gas production is less significant economically (NEITI 2009).

Oil was first discovered in commercial quantities in Nigeria in 1956 near Oloibiri Village in Rivers State. The discovery was made by Shell D’Arcy, a company of Anglo/Dutch origins. The company began production in 1958 with an average production of 6000 barrels of oil per day (bopd). Nigeria currently produces about 2 million bopd.Nigerian oil is light and low in sulphur and consequently commands premium prices. Nigeria is the 9th largest world oil producer and the 5th largest OPEC producer. Nigeria also has huge natural gas reserves.

In the 1960s, government interest in the oil industry was limited to the collection of taxes, royalties and lease rentals. Many developing countries had begun to agitate for greater control over their natural resources in reaction to the continued control of their economies by the old colonial masters. In 1962 the Resolution on Permanent Sovereignty over Natural Resources was adopted by a majority of the General Assembly of the United Nations. The Resolution asserted that the right of people to freely use and exploit their natural wealth and resources is inherent in their sovereignty. In this spirit, in 1969 the Petroleum Act was enacted which vested the entire ownership and control of all petroleum in, under or upon all land or Nigerian territorial waters in the Nigerian government.In 1971 Nigeria joined the Organization of Petroleum Exporting Countries (OPEC). OPEC was formed to improve the lot of oil producing countries by adopting a “group” stance (all resolutions adopted are binding on every member).In accordance with OPEC’s 1968 and 1971 Resolutions urging member countries to participate in oil operations by acquiring ownership in the concessions held by foreign companies, Nigeria’s military government in 1971 established the Nigerian National Oil Corporation (NNOC) by Decree. The NNOC was empowered to acquire any asset and liability in existing oil companies on behalf of the Nigerian government, and to participate in all phases of the petroleum industry. In that same year, the government acquired 33% and 35% of the operating interests of Agip and Elf respectively. Further acquisitions occurred in 1973 and 1974 in the operations of all the other foreign oil companies. Government participation in the commercial oil sector continues to this day through the NNPC and government’s participatory interest is 60% in all the JVs except the Shell operated JV where it is 55%.

In the beginning, Petroleum matters were handled by the Hydrocarbon Section of the Ministry of Lagos Affairs, which reported directly to the Governor-General. The Unit kept records on matters relating to exploration, and importation of petroleum products. It also enforced safety and other regulations on matters which were then mostly products importation and distribution. As the activities of the petroleum industry expanded, the Unit was upgraded to a Petroleum Division within the Ministry of Mines and Power.The Petroleum Division grew to become the Department of Petroleum Resources in 1970. In 1971, a new body – The Nigerian National Oil Corporation (NNOC) – was created to handle direct commercial operational activities in the oil industry on behalf of the Federal Government, while the Department of Petroleum Resources in the Federal Ministry of Mines and Power continued to exercise statutory supervision and control of the industry.

In 1975, the Department was upgraded to a Ministry and named the Ministry of Petroleum and Energy which was later renamed the Ministry of Petroleum Resources.Decree 33 of 1977 merged the Ministry of Petroleum Resources and the Nigerian National Oil Corporation (NNOC) to form the Nigerian National Petroleum Corporation (NNPC), in order to conserve the then scarce manpower in the oil industry. This decree also created the Petroleum Inspectorate as an integral part of the NNPC, and entrusted it with the regulation of the petroleum industry.

In 1985, the Ministry of Petroleum Resources was re-established, but the Petroleum Inspectorate remained within the Nigerian National Petroleum Corporation until March, 1988 when the Nigerian National Petroleum Corporation was re-organized. By this re-organization, the Petroleum Inspectorate was excised from the Nigerian National Petroleum Corporation, and transferred to the Ministry of Petroleum Resources as the Technical arm and renamed the DPR.The creation of the Ministry of Petroleum Resources necessitated by the need to develop and implement sound policies that will serve as a back bone for the development of the thin burgeoning oil and gas sector. The Ministry is saddled with the responsibility for the articulation, implementation and regulation of policies in the oil and gas sector. It also exercises supervisory role over the operators and stakeholders to ensure compliance with all applicable laws and regulations in oil and gas.Oil is an essential raw material that to some extent constitutes a part of the diverse and increasingly important strategic resources in Nigeria. Nigeria with its 140,431,7 population (1991 and 2006 census) is the largest  and most populated in the world and the seventh most populous country in the world and the most populous black country in the world.

The MPR is circled with a line of its vision, mission and objectives. It is committed to maximizing the net economic benefits from oil and gas resources and enhance the social and economic development of the people while meeting the nations need for fuel at competitive cost, accomplishing all in an environmental acceptable manner. The MPR is determined to make far reaching changes and ensure the fundamental transformation of Nigerian oil and gas industry on exploration, exploitation, production and distribution of products to bring it in line with the 21st century global industrial practices. The mandateof the Ministry of petroleum resources is to transform the oil and gas industry for the increased benefit of Nigeria and its people through effective implementation of policies on hydrocarbon exploration, production, distribution and utilization in accordance with international standards.The first commercially viable discovery of oil in Nigeria at Olobiri in the Niger Delta in 1956 had a modest production rate of 5,100 barrels per day. Resources of crude oil stand at 28.2 billion barrels. Natural gas resources total 165 trillion standard cubic feet (SCF) including 75.4 trillion non-associated gas (NNPC). According to NNPC, 2014; with a maximum crude oil production capacity of 2.5million barrels per day, Nigeria ranks as Africa’s largest producer of oil and the sixth largest oil producing country in the world. Nigeria’s gas production in the year 2000 was approximately 1, 68.66 billion SEF, 1, 3715 billion SCF was associated gas and the rest 310.6 billion was non-associated gas (NNPC, 2014).

Furthermore, the Ministry of Petroleum Resources is charged with statutory responsibility of ensuring compliance to petroleum laws, regulations and guidelines in the oil and gas industry. The discharge of these responsibilities involves monitory of operations at drilling sites, producing wells, production partners and flow stations, crude oil export terminals, refineries, storage depots pump stations, retails outlets, any location where petroleum is either stored or sold and all pipelines carrying crude oil, natural gas and petroleum products. As is always the case with most oil producing countries in the world, the problems associated with oil regulatory laws made by the Nigerian government for the oil corporations are not different. The Nigerian government since independence seems to have taken certain practical steps aimed at maximizing the oil wealth. In other to achieve this, the government has laid a strong foundation for the development of petro-business in the country through petroleum laws that encouraged granting of license to both indigenous oil companies like Henry Stephen Delta Oil, Niger Oil Resource and Niger Petroleum Company; later more oil multinational companies were permitted to join existing ones (Hassan, 2006; BP Archive 18274, 1996). It should be noted that in other to enhance a clear environmental and political peace within the oil producing communities in Nigerian government had also made some environmental legislation to manage and control operations of Shell-BP, Chevron Nigeria and other multinational corporations. This steps was taken by the government in the early 1960’s, bearing in mind the fact that drilling involves the degradation of the environment that affects their natural vegetation, (Usman, 2001) as well as causing pollution to water aid rivers. This shows that the government was pre-emptive of high risk of pollution that is associated with the production of oil which may occur through mechanical features or sabotage of oil pipelines.

Consequent upon the above establishments and backgrounds, the central thrust of this project is the role of the Ministry of Petroleum Resources in the management of oil regulations in Nigeria.

 

1.2     STATEMENT OF THE PROBLEM

Scholars, individual, corporate institutions and non-governmental organizations have expressed concern over the complexity which surrounds the violation of oil regulation and problem of compliance in Nigeria. Established resource management and lack of effective regulations as conditions that bring about economic hardship, which prepares the ground for resentment among communities i.e. Niger Delta which is usually manifested in an increased risk of violence to seize their rightful share (Affa’a-Mindzie and Blyth, 2014). The revenue from oil had been largely mismanaged by the successive governments, as the level of economic and social infrastructural development on ground does not reflect the revenue derived from the petroleum industry. This is evident in the absence of the kind of infrastructural facilities, health and education services that should befit the world’s 14th largest oil producing country in 2010 instead the UN has ranked Nigeria 145th out of 172 countries in its human development index. Public opinion equally raised doubt on the accuracy of payments made by oil companies to the government of Nigeria with respect to tax and royalty payment etc. This is confirmed further by the lack of transparency and accountability by the International Oil Companies (IOCs) dealing with government in the sector. Conflict in the Niger Delta, that had forced companies to suspend production periodically plus oil theft, which had caused thousands of barrels of crude to go missing had made it very difficult to measure production data accurately. Similarly, what transpired in the Niger Delta region also largely reflected in other sectors of economic the country. In essence, it has become apparent that the revenue from Oil and Gas had not been properly allocated, or better still, used adequately to the benefits of the country (NEITI, 2009). Thus the causes of this setback, its effect on the economy and the possible way out constitute a major problem that the study stands to investigate

Undoubtedly, therefore, this study addresses these constraints. It agrees with scholars like Usman (2001), Omorogbe (2011), Ogiri (2001), Okonta (2001) and Ukonmah (1997) who have shown concern about constraint violation of oil laws and regulations by oil companies notable Shell-BP and Chevron in the Niger Delta. Within the legal framework required by Nigeria laws over pollution and environment degradation , this study discusses some of the major oil and gas regulations with the aim of feeling a lasting solutions to the problems of violation and non-compliance. It relies mostly on both primary and secondary source materials for its analysis. The oil policy objectives of the federal government are achieved through the NNPC which is an agency of the government. It implements government policy on oil production level, transportation and determination of oil prices. The federal government employs the service of NNPC through the Ministry of Petroleum Resources (MPR) to control the activities of oil companies in Nigeria.

However, it will be shown that the joint venture between the federal government and the oil multinationals was to a larger extent the cause of non-compliance to oil regulations. This study poses two challenging questions namely;

  1. Does the Ministry of Petroleum Resources sole responsibility of managing oil revenue undermine the effective regulations of oil production safety in Nigeria?
  2. Does the dominance of government shares in gas joint venture operation account for weak enforcement of anti-gas flare laws in Nigeria?

 

1.3     OBJECTIVES OF THE STUDY

This study has both broad and specific objectives. The broad objective of the study is to examine the role of the Ministry of Petroleum Resources in the management of oil regulations in Nigeria. However, the specific objectives of this study are;

  1. To ascertain if the Ministry of Petroleum resources sole responsibility of managing oil revenue undermines the effective regulations of oil production safety in Nigeria.
  2. To evaluate if the dominance of government shares in gas joint ventures operations account for weak enforcement of anti-gas flare laws in Nigeria

 

1.4     SIGNIFICANCE OF THE STUDY

This study has both theoretical and practical significance. Theoretically,it will add to the pool of knowledge in the effective regulations oil production which is the sole responsibilityof the ministry of Petroleum resources in managing oil revenue It will also enhance the study of the dominance of government shares in gas Joint Ventures operations account for weak enforcement on anti-gas flare laws in Nigeria. This study will also provide a methodological tool suitable for the analysis and understanding of the trends or dynamics associated with the role of the ministry of petroleum resources in the management of oil regulations in Nigeria.

Practically, the study aims to open new avenue for intellectual research as knowledge is a cumulative thing, especially in the areas of political science as national development is a political variable, petroleum engineering and economics since management of oil regulations and the role of the ministry of petroleum in managing it are involved.

 

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