IMPACT OF PETROLEUM INDUSTRIAL ACT (PIA) ON NATURAL GAS PRICING IN NIGERIA

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IMPACT OF PETROLEUM INDUSTRIAL ACT (PIA) ON NATURAL GAS PRICING IN NIGERIA

CHAPTER ONE

INTRODUCTION

Background of the study

The place of the oil and gas industry in the world economy cannot be over-emphasized. No wonder some authors refer to the sector as the mainstay of international economics (Iledare, 2008, Gylych and Muhammed, 2016). Technological advancements in the exploration and production of oil and gas in the last decades have been on the increase worldwide. Nigeria, being one of the major oil and gas producers in the world, became the hub of international petroleum investors in early 1960. The performance measurement and analysis of the operational activities of business ventures or enterprises such as upstream petroleum industry ventures is a requirement for the sustenance of the business, especially in a contemporary ever-changing business environment like Nigeria (Georgios and Farantos, 2015, 2016). The measurement and management of petroleum upstream investments entail knowing the relative technical efficiency and productivity changes over a certain period (Coelli, O’Donnell, & Battese, 2005, Ike Lee, 2014). The petroleum sector has attained the role of an indispensable source of energy from the day the very first oil was struck in North-Western Pennsylvania in the year 1859 by Colonel Edwin Drake (Inkpen and Moffett, 2011). This development resulted in the establishment of the first phase of the petroleum industry in the world known as the Standard Oil Trust (SOT). The SOT was created in 1882 with the main goal of Economics of Scale (EOS). This objective was achieved by combining all the refining operations in the consortium under one major management structure. Texas’ Spindletop discovery of 1901 marked the beginning of another phase of the 2 petroleum industries, and the oil which had long been used to light lamps suddenly became an energy source (fuels) for airplanes, Ships, Trains, and other Automobiles. All these innovations have made petroleum attain its present status as an indispensable source of the world’s energy and feedstock for petrochemical industries (Inkpen and Moffett, 2011). It may be difficult to sustain the accomplishments of the oil industry if there are no good information-based policies to drive the industry for productivity, growth, and efficiency in an emerging economy like Nigeria. In other words, the importance of a sustainable extraction policy to a country with abundant natural resources cannot be exaggerated. Hunter (2010) argued that an optimally designed regulatory framework and policy is one of the keys to reasonable earnings from endowed resources. Many countries of the world have developed a series of policies to ensure adequate returns from the commercial production of natural resources. The policies in respect of natural resource endowments establish some long-term targets and strategies to be followed to ensure successful exploitation. The governments of countries that are endowed with such natural resources as oil, gas, tin, mica, gold, etc., have responsibilities for formulating appropriate policies. Such policies must, of necessity, set the goals and objectives, and must articulate a clear vision for the sector. The such government also must ensure the development and implementation of strategic plans for the institution of a suitable legal, regulatory, and commercial framework for the prevention and resolution of any investment barriers in the sector. Periodic policy review is always obligatory to ensure consistency in policy objectives and to keep the investors’ confidence under varying economic conditions. Such reviews must be based on sound quantitative evidence from cutting-edge research and associated studies. A 2016 report indicated that the Petroleum Industry in Nigeria is the largest and most relevant institution in the whole of Sub-Saharan Africa (BP, 2016). The report shows that Nigeria has 3 proven oil reserves of about 37 Billion barrels and gas reserves of about 188 Trillion scf. Nigeria was enlisted as a member of the Organization of Petroleum Exporting Countries (OPEC) in 1971. Since then, Nigeria has been categorized as one of the largest oil producers in the world. Nigeria’s proven oil reserves are ranked among the highest eleven in the world and top twelve in terms of oil production, with a daily production of about 2.3 million BOPD as of the end of the year 2016 (NNPC, 2017). Despite the abundant petroleum resources in Nigeria, there has been a persistent decline in the contribution of the oil and gas sector to the gross domestic product (GDP) (NBS, 2016). The National Bureau of Statistics (NBS, 2016) report stated that the Nigerian petroleum sector contributed about 14.4% to the nominal GDP in the 3rd quarter of 2016, which was lower, compared to about 17.5% contribution in the 2nd quarter of 2014. The GDP decline is credited to the fact that Nigeria depends so much on the revenue from the petroleum sector, as over 95% of export earnings and 70% of government revenues are derived from the petroleum sector. Based on this over-dependency, any slight shock in the petroleum sector adversely affects the Nigerian economy.

IMPACT OF PETROLEUM INDUSTRIAL ACT (PIA) ON NATURAL GAS PRICING IN NIGERIA; GET MORE OIL AND GAS/PETROLEUM ENGINEERING PROJECT TOPICS AND MATERIALS

 

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