ABSTRACT
Nigeria
became a sovereign entity in October 1960. After the political independence Nigeria
began to take her rightful place in international politics.
After
independence, she joined some international organization notably the United
Nations, the Economic Community Of West African States (ECOWAS) with the
emergent growth in the oil industry and persistent moves by the western
countries to alter and destabilize the oil price in 1970’s, promoted Nigeria to
join the organization of petroleum exporting countries (OPEC) in 1971, although
the organization has been in existence since September 1960 with only five
countries as its founding member. Nigeria joined the organization to
propagates OPEC aims which are to coordinate and unify petroleum policies among
member states in order to secure fair and stable price for petroleum products.
This
research work will try to x-ray the role Nigeria has been playing since she
join OPEC and also look at how Nigeria had been using her position as an oil
producing country and member of OPEC to create an image for herself within the
international politics. Has Nigeria
being playing decisive roles within OPEC? These are some of the problems this
essay will try to find out.
The
paper will also look at the benefit of being a member of OPEC and also the
disadvantages. The rightful roles and place of Nigeria within OPEC has been highly
questioned by individuals. The paper will also examine the above statements
regarding Nigeria
and OPEC.
TABLE OF CONTENTS
Title page i
Certification iii
Dedication iv
Acknowledgment v
Abstract vii
Table of contents ix
CHAPTER ONE
1.1 Introduction 1
1.2 Statement
of the problem 6
1.3 Conceptual
clarification 7
1.4 Methodology 7
1.5 Theoretical
framework 8
1.6 Hypothesis 10
1.7 Objective
of study 11
1.8 Scope
of study 11
Notes 13
CHAPTER TWO
2.1
Literature Review 15
Notes 41
CHAPTER THREE
OPEC
policy of pricing and production
3.1
Market structure 44
3.2
Crude oil price 47
3.3
Crude oil production 48
3.4
Middle East crisis and OPEC 51
3.5
Assessing Nigeria
in OPEC 52
3.6
Petroleum and Nigeria
economy 55
3.7
The paradox nature of Nigerian crude oil 58
Notes
60
CHAPTER FOUR
Summary,
conclusion and recommendation
4.1
Summary 61
4.2
Conclusion 62
4.3
What to be done 63
Bibliography
65
CHAPTER ONE
1.1 INTRODUCTION
Nigeria is regarded as the most populous
country in Africa, with the population of
approximately 140 million. This is perhaps the reason the country is pride
itself as the giant of Africa1. Nigeria
shares land boundaries with the Republic
of Benin in the West, Cameroon to the East, Republic
of Niger to the South and Chad Republic
in the south-East
Nigeria became a political
independence in 1960. Since then she adopted foreign policy posture which
emphasizes the country’s national interest over which a national consensus has
clearly emerged. With the attainment of independence, the country began to take
its rightful position in the international politics. Nigeria
has exhibited profound interest in the economic development of Africa states and contributed quotally for the
consolidation of universal peace, mutual respect among all nations and
elimination of discrimination in all its manifestations. Especially its closest
neighbours of the west African sub region.2.
The primary objective of Nigeria foreign policy like other
countries is to promote and protect the country’s national interest in its
interaction with outside world. Nigeria’s
involvement and membership of international organization with of course most
relevant to my discussion have be limited upon the examination of Nigeria’s
role in international organization with particular emphases on OPEC.
Economic cooperation as it is provides fair
opportunities for multi-lateral negotiation and collaboration among states and
could be used to monitor types of value in the image of specific national
preference3. Nigeria
has sought membership in the UN, OAU, ECOWAS, before narrowing down with
particular reference to OPEC. Nigeria
had benefited immensely from United Nation programmes such as Millennium
Development Goals, UNICEF, IMF and so on. Nigeria
in spite of its relative level of development continuous to chair United Nation
special organ for example toward the end of 2009 Nigeria was elected one of the
member of the UN security council.
Nigeria’s role in the formation and survival
of the Africa union cannot be over emphasizes in the transition from OAU to the
Africa Union required 36th
instrument of ratification of the constitutive ACT of the Africa Union. On 26
April 2001 Nigeria became the 36th member state to deposit its
instrument of ratification this concluded the requirement of two-thirds and the
Act entered into force on 26th of May 2001.4
Technical Aid Corp (TAC) was form by Nigeria aim at ease
movement of Nigerian professionals such as Teacher, lawyer, doctors, engineer
etc to other countries who are in need. In December 1985 Nigeria proof effort to settle border conflict
between Burkina Faso and the
Republic of Mali. The treaty of ECOWAS was signed in
Lagos on 28th may 1975.5 Nigeria commitment as regards to
fratricidal war in Liberia was a stand of Article 52 of the UN charter
providing for regional security .Nigeria also give a similar spirited defence
to Sierra Leone .This was possible through ECOWAS monitoring Group ECOMOG
established by General lbrahim
Babaginda.
Organization of petroleum Exporting countries (OPEC) came
of out of necessity as the international oil market was controlled by an
oligopoly of several major international companies shell. Mobil Texaco .British
petroleum Exxon and Gult. These companies were in position to dictated oil
prices as they represented the supply side of oil OPEC was founded in 1960 by
coming together of iran, Kuwait, Sauid –Arabia
and Venezuela Nigeria became a member of OPEC in 1970
The
treaty formally establishing OPEC was signed in Baghdad. Iraq with the primary objective of
securing fair and stable prices of petroleum product.
OPEC had specialized agencies which includes the
conference, board of governor, the secretariat and special economic commission.
THE
CONFERENCE: The
conference is the authoritative head of the OPEC, it meets at least twice a
year to formulate policy and approve new appointment.
THE
BOARD OF GOVERNORS:
There is one governor to represent each member country the board implements the
resolution made by the conference. They also meet twice yearly.
THE
SECRETARIAT:
Is sub–divided into various department under the Secretary –General
1.
Office of the secretary –General
2.
Administration department
3.
Information department
4.
Economic department
5.
Legal department
6.
Technical department
7. Statistics unit
SPECIAL
ECONOMIC COMMISSION:
Special fund was established to benefit non-OPEC members to provide loan. The
fund is administered by a governing committee with a chairman and director
general
1.2 STATEMENT OF PROBLEM
The study aims at ascertaining Nigeria
policy and role in OPEC as this would contributed to the existing literature on
Nigeria
role in OPEC. Efforts will be made to evaluate Nigeria policy role in terms of
decision and moral contribution. Some scholars both within and without have
been very critical about Nigeria
performance and its benefits being a member of OPEC finally to x-ray the
problems and prospects of the organization since its inception and
recommendations
1.3 CONCEPTUAL CLARIFICATION
ORGANIZATION: Organization refers to any group of
persons coming together for specific purpose. This could be political cultural
religions as well as economic oriented. Organization aim at providing interest
protection for its member.
PETROLEUM: Petroleum is regarded as the
mineral got from the earth beneath containing gas fuel and other chemical
substances.
ROLE: This refer to a part played by an
actor. It involve Nigeria
commitment and active participation toward the success of OPEC
1.4 METHODOLOGY
The information will be derives from secondary data,
relevant literature on foreign policy and federal government pronouncement on
the subject. I will also make use of the few available annual volumes of
bulletin journals of foreign affairs published by Nigeria institute of external
affairs and official bulletin of OPEC this research work will also gather information
from papers and articles written by eminent scholars on the
topic
in addition I will also make use of relevant articles and periodicals like the
local and international magazines, internet sources and international
media home like CNN, press TV, BBC and
so on.
1.5 THEORETICAL FRAME-WORK
A theoretical frame- work renders a research work to be
more structure. It serve as a way through which political phenomenon can be
analyzed.
In the course of this research, the general system theories
will be use to explain Nigeria
role in OPEC.
System theory is probably the most widely used term in
international relations. It is assumed that all existing political units
interact with one another according to some regular and observable partner of
relationship6. The system theory emphasizes the inter-dependence of
all the sub-system or units within a system in their inter-locking relation. In
the game of international politics, each state in the system is the guardian of
its own security and independence.
According to David Easton, the state is a system
consisting of interdependent part which interact with one another in order to
perform a function.
Demands from the environment undergone a conversion
process with the political system and come out as output, which are usually
authoritative decision. It is noted that the reaction of the people form
support and protest to the policy makers as a feedback.
David Easton (1953) Gabriel Almond and Bungham Powel
(1966) and Robert Dahl (1970) were among the early proponents who have also led
the way of applying the general system theory to explain the political system
as comprising sub-system7.
In applying the general system theory to the study, OPEC
is regarded as the general system while Nigeria role as a sub-system. The
indication represent the relationship a sub system and a general system.
OPEC in general has a set of goals to pursue in which Nigeria as a
unit is expected to perform her role in relationship with the general system
for mutual benefit.
These goals may include coordination and unifying
petroleum politics among member states in order to secure stable prices,
securing common petroleum policy among member states, to allocate production
level and to aid poor non-oil-producing countries.
1.6 HYPOTHESIS
In order to establish the borders around which this
research work is centered, the following operational hypothesis were developed
and tested.
Ho:
That Nigeria
has made meaningful contribution to the organization of petroleum exporting
countries
Hi:
That Nigeria is in weak position in the OPEC
1.7 OBJECTIVE OF THE STUDY
The
basic objective of this research includes:
i.
To
examine the conditions that necessitate the formation of organization of
petroleum exporting countries OPEC in connection with the security of good and
stable price of oil.
ii.
To examine the relationship between demand and
supply and crude oil products
iii.
To
recommend the appropriate policies and strategies to streamline price and
production level of the petroleum resources
iv.
To
examine the problems and challenges facing Nigeria as a member of OPEC.
1.8 SCOPE OF THE STUDY
The scope of this research will cover the organizational
structure of the OPEC which includes OPEC conference, board of governors, the
secretariat and special economic commission. The following variable will be
considered.
Historical
development
Management
and organizational structure
Administrative
function
Problem
encountered
The research is centered to cover the
inception of OPEC in 1960 to present date.
NOTES
Aghemelo and Osumah: “Nigeria
government and politics” An introductory perspective monograph series 4. Page 2
Akpotor and Nwolise: “Revolving issues in Nigeria foreign policy page 53.
Olusanya G.: “The fundamentals of
Nigerian foreign policy and external economic relations”
Olusanya G. Ibid page 73
Nwokoloba A: “Nigeria’s
foreign policy since independence”
Akinyemi A.B et al (ed) Reading and documents on
ECOWAS
OPEC Bulletin, volume xxi No 8 Sept.
1990.
Aribisala F.: “Nigeria in OPEC
the weakest link in cartel chain
NNPC Diary 1990
Gabriel Almond and B. Powell:
Comparative politics a development approach
Ray Ofoegbu “Foundation course in
international relations for African universities (London George Allen and union
LTD) 1980, page 10.
CHAPTER TWO
2.1 LITERATURE REVIEW
It is a good idea to cross check research already carried
out on the subject because it has a number of merits. It can help to enhance
the researcher’s finding thereby making useful contribution to the body of
knowledge. Few literatures are available on Nigeria’s role in Organization of
Petroleum Exporting Countries (OPEC). In this view, attempt will be made to
review a selected number of books, articles, papers and journals on Nigeria role in
OPEC.
Alex E. Nwokedi posit in his paper oil
as an instrument of national image building, that when OPEC was established in
September 1960 not must serious thought was given to the organization
comprising a group of developing countries. The western media predicted its early
distintegration1.
He also say that the last twenty-five
years of OPEC shown that the organization has remained a unified group and that
the organization have continue to provide a pivot for the full exercise of
independent states the right to exploit and manage their petroleum resources
for the benefit of the people. Alex says Nigeria
is not exemption to this because she had been able to a reasonable extent
coordinate the various petroleum companies together for benefit of oil
producing areas and Nigeria
at large.
Alex pointed out that since oil has
become a weapon of international politics Nigeria like other OPEC member have
been able to use OPEC as a platform for the third world countries to exercise
some economic influence and axert its present and image in the community of
nation such as global and regional organization.
According to Alex OPEC can be viewed
from three phases. Past, present, and future. He opined that previously, the
western media had tagged Nigeria
in the international scene as weak link in OPEC. He claimed that world media
and analyst of oil industry always claimed Nigeria owing to her economic
buoyancy could not stick to OPEC decision as regard to production and prices
regulation. Alex argues further that Nigeria in the past was looked upon
with pity some said she was an anaemic member of OPEC. Such situation does not
earn any respect for the country. It was therefore necessary that Nigeria should
be projective as the giant of African and not a weak member of OPEC.
On the present Alex contented that
negative image has transformed into a positive one. Nigeria is no longer regarded as a
sick baby of OPEC but a unifying force and ralling centre in the OPEC assembly.
In and out of the conference venue, member states in OPEC had always looked up
to Nigeria
for correct sense of direction, indepth and honest solution to the OPEC
problems.
He concluded that Nigeria
leadership role in OPEC earned respect for the country, in addition member of
Nigerian delegation strove to be very good ambassadors to their country.
Consequently in the last decade ugly reference to Nigeria as to the weak link of OPEC
have shallow away in the western press as the country has gone into a new era
in OPEC in particular and the world in general.
On the issue of positive image Alex
claimed that when Nigeria was elected to OPEC presidency, for the first time
member state have kept their words on production ceiling and prices. He opines
that Nigeria
leadership not only reinforced discipline in OPEC but also made members more
resolute in their decisions and helped to restore the organizations
credibility. Nigeria
helps to restore stability in oil prices. This stability was manifested in
conferred fellowship award on OPEC’s then president Dr. Rilwamu Lukman by the
Imperial College London2.
Femi Aribisala on his part; the weakest
link in the cartel chain contented that the Organization of Petroleum Exporting
Countries OPEC is a key organ for the promotion of Nigeria national interest.
He believes that Nigeria
future has been link to the capacity to fix and control the international price
of oil. After the 1970s when the OPEC was very powerful and purposeful
following the pressure from European countries Nigeria
position in OPEC began to fall and this resulted in referring to Nigeria as the
weakest link in OPEC chain.
During the 1970s Nigeria played
a pivotal role in OPEC and OPEC succeed in controlling the international oil
market. This resulted in the recognition of the country as a major black
African power in the international relations, able to pursue an action oriented
and dynamic foreign policy3.
Femi concluded that the new oil wealth
gave the country the financial muscle to play an important role in the creation
of the Economic Community of West-African State ECOWAS in 1975. Nigeria
contributed the lion share of more than 31% of the annual budget. This implies
that oil as an important foreign instrument for Nigeria in the mid 1970’s.
Nigeria
spearheaded the formation of African petroleum producers Association in Lagos on Tuesday January
27, 1987 for better resources management and also as a major influencing power
in the future. Nigeria’s
financial solvency enable the country to engage in petro-Dollar diplomacy in
the defence of Africa’s interest in the
international scene4.
According to Mobolaji E. Aluko advise
that Nigeria
should be in the forefront of demanding a more imaginative renegotiation of
OPEC terms or else it reconsidered its membership. This is the opportunity that
we should seized when Nigeria
own Aihaji Dr. Rilwanu Lukman (and until recently president Obasanjo’s special
Advisor on petroleum) was made secretary-General of OPEC from January 1, 1995
until Dec 3, 2000.
Nigeria was placed high at the OPEC
production rate but Nigeria
economy is facing paradoxical situation of paying higher price for internal
consumption.
Aluko posit it is simple logic to
understand that no matter the international price of our own crude oil provided
we depend to a large extent on imported refined oil, we will continue to pay a
higher price for that than if the needed crude had been refined within our
country. In fact, according to the figures by OPEC released on its website in
absolving itself of being responsible of high cost of refined products, it
stated that between the years 1996 and 2000 OPEC countries received $850
million revenue from sole of crude oil, cost of finding, production and
transporting the oil is not included. On the other hand the g7 countries (USA, UK,
CANADA, FRANCE, GERMANY, ITALY AND JAPAN) received
1.3 trillion dollar outright from oil taxation. OPEC’s secretary-General have
stated repeatedly time without number that high gasoline price are due to
taxation by western countries and speculation by their market5.
Alison- Madueke. The minister of petroleum
of Nigeria.
In an interview in London Sep 15 2010 said Nigeria has African second biggest crude oil
reserves of 37.2 billion barrels after Libya and continents largest gas
deposit according to BP Plc’s statistical review.
OPEC meets in Vienna on Oct 16 to determine production
quotas. While woman including Kuwait’s
Siham Rozzoua have sometime led national delegations at meetings Alison –
Madueke will be the first to join the group as a fully fledged minister
according to OPEC6.
Femi maintain that between the period of
1979 and 1981 OPEC fortunes began to wane, it was this period that Nigeria
earned the name as the weakest nation in the cartel chain. On the issue of oil
quota, Femi opined that the situation reach crisis point in 1982, when with
sustained decline in the world oil demand. Nigeria continued to stick to OPEC
benchmark price in contrast to the BNOC (British National Oil Corporation)
which lowered its prices. As a result, Nigeria’s production dropped to
650,000mbd, with Nigerian crude oil being offered on the spot market and below
the recommended price7.
Nigeria was in 1986 with the
implication of an ineffectual OPEC and perilously low oil price. A reasonable
part of the government annual estimates could no longer be attained imports or
raw materials spare-parts and essential commodities were severely affected.
This condition threatened to re-ignite the country’s international dept crisis.
Nigeria need to develop a more
coherent policy to deal with the medium and long term needs of the economy. The
recent experience shown that the country has become a victim for possessing oil
because oil endowment which is supposed to serve as a weapon to bolster Nigeria
foreign policy positions ahs however according to Femi demonstrates that
Nigeria high dependence on oil for lion share of its export earning ultimately
put it at the mercy of exogenous development in the international oil market.
The formulation of a good oil policies enhance a good oil reserves for the long
run, the policy also lead Nigeria graduation from the weakest link in the OPEC
chain to a buoyant and self reliant economy, able to withstand the vagaries of
the international oil market.
James Sells, in his articles, Nigeria
caught in netback pricing arrangement has make us to understand that one of the
most important but least widely understood feature in the oil market unheaval
of the past years have been the growing popularity of netback pricing
arrangement. While hastening the demise of OPEC’s official prices and so
contributing to the world market collapse, this system has also made it even
more difficult to design the real trends in prices.
Under a netback deal the price a refiner
pays for crude oil is affectively the price he eventually received for the
refine product, less and agreed profit margin. Saudi Arabia started exporting oil
on a netback basis and now is selling almost its entire output in this way.
Other OPEC producers have followed suit and netback pricing is now used by Iran, Kuwait,
Algeria, Irag,
Libya, Nigeria, Venezuela and U.S.S.R a non OPEC
member.
When Saudi Arabia decides to abandon its
role a swing producer for the organization of petroleum exporting countries
netback pricing offered the way to increase its market share by selling to
customers oil with a risk-free profit margin8.
The collapse of world oil prices has hit
Nigeria
harder than most other exporting nations. The oil wealth of the 1970’s
transformed the country into a politically assertive and rapid industrializing
country. The falling prices are threatening to throw everything into reverse
gear until of recent oil receive exorbitant price of about 82 to 84 dollar per
barrel.
According to Sells, Nigerian governments
have proved even less capable of controlling oil market. As a minor exporter,
Nigeria has little bargaining power in OEPC, for as price began to fall, its
revenue suffered more than most member from the effects of reduced quota
because Nigeria derive 90% of its revenue from crude oil. The president of the
Federal Republic of Nigeria, General Ibrahim Babangida who was faced with
graver problems in his first month in office, however lowered oil prices,
pressure for greater discipline in OPEC and increase price competition from North Sea producers in key European markets.
Sells maintained that Nigeria to win a share in European gas market in
the 1990’s Nigeria
will have to lower its once high expectation on prices and revenues. With ample
supplies available from Algeria,
the Soviet Union and Norway.
Nigeria
will be forced to play a minor role with a flexible market related price
structure. He continues that with few large fields, Nigeria need a steady flow of new
discoveries to prevent a further fall in the ratio of reserves to production.
Sells concludes by saying that an OPEC
attempt to sustain prices by further cuts in national production quotas would
impose added problems.
Asiodu A. in his article “Nigeria economy
under severe tension collapse of the oil market and defective policies cited.
He tried to x-ray the extent of the oil prices collapse.
In 1981 Nigeria
earned 21 billion dollars from oil exports. Asiodu continues by indicating the
inadequate policies on oil sales pries of crude oil contracts were set quarrel.
In the face of rapidly changing situation Nigeria often was very tardy in
responding to demands for price and adjustments. On the other hand Nigeria lost
equally when she was busy adjusting prices upwards in the face of violent
upwards swings in prices as occurred during the oil crisis of 1979-1980.
While Nigeria
carried on this adjustment many OPEC countries succeeded for a number of years
before rapid production quota was agreed by OPEC in 1983 through a number of
measures in maintaining their sale volumes and oil revenues.
Adams G. FNMAS formal managing director of Nigerian National
Petroleum Corporation (N.N.P.C) delivered a key note address to the 4th
delegates conference of PENGASAN at Owerri in 1986. The title of his paper was
NNPC and year 2000. Adams traced the Nigeria state joining OPEC in 1971
and determined to take the best use of opportunities of our membership
including actualizing the hopes of OPEC members that sooner or later OPEC
member states would take over increasing the percentage of ownership and
control most of their valued national resources. According to him the period of
1973-75 was NNPC pre-occupied with the acquisition of participating interest in
the operation of oil producing companies that were operating in Nigeria. The
negotiations were long and tedious since the nation and indeed the third world
and specifically OPEC was at the receiving end.
Adams cited an example that Nigeria,
Brazil, Saudi Arabia, Venezuela and several other third
world countries will benefit from petro-chemical industry by the year 2000
along commercial lines with the joint participation of government and private
local and foreign interest. Adams acknowledge
the fact that exploration activities in non –OPEC counties have in recent time
been intensified by multi-national and that developed economics have
diversified then energy base to avert the disruptive effects of 1973-19749.
Dr. Alhaji Rilwane Lukman, formal minister of petroleum in
his paper “WORLD OIL” ten years past, ten years ahead affirmed that the role
OPEC played in world oil market is not a covert one, may agitate some mind10.
Increase and decline of oil price in the last 28 years, not many saro the need
for some control or management of oil fundamentals while OPEC’s role in the
driver seat did not stand totally uncontested. OPEC has continued to shoulder
the responsibility of maintaining market stability in the past decade.
Lukman pointed out how OPEC has been making efforts to
stabilize oil prices; this was possible through resolutions bearing the
signature of all its member countries been able to inspire price recoveries. Other
ways which OPEC countries have tried to stabiles price of oil was the early
1989 technical experts from OPEC met with their countries from non-OPEC
producers in London
with a view to developed and strengthening effort to achieve long stable oil
prices.
The organization according to him during its three decade
of existence has matured from a small, low profile association of five oil
producing nations into a major player on the world energy state. Our experience
have be rich and profound with wide swings in the fortunes of our member
countries economic welfare. OPEC learned many lessons from her experiences and
consider its self-equipped to venture into the 1990’s as a positive dynamic
force in the international oil market.
Professor J. Aminu, past petroleum minister also tried to access
Nigeria
in oil trade. This he did by saying that the signifying of a resolution
reaffirming its adherence in 1989 July resolution number 87 has modified their
agreement of August 1990. Nigeria and other OPEC countries has often said the
organization of petroleum exporting countries can bear the responsibilities of
maintaining stability in the oil market and has asked the industrialize
consumers to release stock11. These industrialized countries have
been reluctant to do so. Dr. Subroko OPEC’s secretary general has been working
very hard to stabilize OPEC prices of oil. Infact, he was elected into the seat
for his cherished ideas in the ministry of mines in Indonesia his home country.
Dr. Bassey Ate a research fellow in Nigeria institute of international affairs, in
his article in the Nigeria
forum, title “the third world and non-alignment”. He traced the birth of OPEC
from 1960. OPEC was established base on unified desire of the third world oil
producers to wrest from the mighty multi-national companies the power to
determine both the price and output of their endowed resources, against the
background of persistently deteriorating terms of trade12. The
important of OPEC rest on the aspirations of the developing countries to assert
their sovereign right over natural resources within their territorial integrity
for the purpose of advancing their economic independence through progress.
Another key important area is that the developing countries indicated economic
cooperation and self reliance as a strategy for development and for coming to
contending with the power of developed economy in international economic
relation.
Ate talk about hypothesis and possible bail out from the
dominance of the oil companies and their government to dictate the development
policies of the third world producers, through the operation of the industry
and world market13. According to him only solidarity and unity of
OPEC member can give the organization the advantage in spite of pressure in the
market situations, disagreement within the organization will bring about the
risk of bab state of affairs for OPEC members.
He rests his case that disintegration will surely permit
the industrial power to achieve their long-sought goal of undermining the
bagaming position of the poor oil producer14.
C.E Okpalefe, in his article in the Nigerian forum titled
the OPEC phenomenon in Nigeria’s
economy. He tried to bring about the importance of Black Gold after the Second
World War as a source of energy that replaced and deplaced the traditional
sources of power such as coal. He said before the formation of OPEC in 1960 the
international oil companies made huge profit of about 82% of the total profits
all the detriment of the producing companies who were left with only 18% of the
total profit15. The formation of OPEC brought five countries
together in September 1960 in Bagdab Iraq. The original members of the
organization were Venezuela,
Iran, Saudi Arabia, Kuwait
and Iraq but today, OPEC
membership has grown to 13 nations including Nigeria.
OPEC could be described as an organization created
primarily to enable the oil producers present a collective bagaming power and
to enhance establishment of a strong barrier against the intrigues of the
marketing companies. Thus OPEC tires to ensure uniformity and stabilization of
oil. Essentially therefore, OPEC is a cartel established by its members by gain
greater control of the international oil market with a view to maximizing
earning15.
It is the desire to benefit from the above objectives that
motivated Nigeria
into joining OPEC in 1971. There was high demand for oil in the 1970s, there Nigeria derive
substantial earning from oil. Nigeria
desire may been stimulated by her bad experience in the 1960s. The economy
which had previously experienced boom have began to faced strains in the 1980s.
To be precise, it is significant to state that picture of the nation’s economy
since 1982 has been gloomy. Okpalefe, continues that it is the state of affairs
that have triggered off serious debate as to wether Nigeria should remain in OPEC or
not. Those who were of the opinion for Nigeria to pull out of OPEC hold
OPEC responsible for our economic woes. Those in favour for withdrawer were
indifference of the prevailing world oil market, because event have overtaken
OPEC strong position in the world market, one of such events is that non-OPEC
countries are those who are not binding on OPEC quota policy.
The election of the then Nigeria’s petroleum and energy
minister Alhaji Rilwanu Lukman in 1986 as OPEC president which is an indication
of Nigeria’s growing influence in the organization in recent years. The
economic and political implications are very obvious. Apart from enhancing Nigeria’s
diplomatic power abroad, it would help to ensure the protection of the nation’s
economic interest when negotiations are in the organization since oil is the
main stay of our economy.
Jacob A. Adeleke in his book titled “the Nigerian
petroleum industry and national economy” had traced Nigeria joining OPEC in 1971 and
major resolutions of OPEC is gradual acquisition of equity interest in oil
companies among member countries of OPEC. It was expected that OPEC would have
by 1982 acquired equity interest of at least 51% in all oil companies. Adeleke
continued by saying that the federal government of Nigeria had stared the
acquisition of interest in all existing oil producing companies except Shell
Petroleum Development Company where equity shares stood at 80 percent17.
Adeleke mentioned some of the oil producing companies
which the federal government of Nigeria have equal shares these include
Nigerian Agip Oil Company (NAOC), Mobil Oil producing Company, Gulf, ELF,
Texaco Pan Ocean and Shell. The operation of these companies are managed wholly
by the companies while annual operating budgets are borne by joint partner on
the basis of equity interest.
Another type of concession is the production sharing
contract agreement. The production contract allows partners to contribute funds
for capital and operational activities in the agreed production of their equity
interests. The first of this type of contract was signed with Ashland Oil
Company in 197318.
Keith Merchant in his article OPEC in the third decade”:
coping with the glut, talk about the growth and economic power in the 1960’s,
He saw the 1960’s as OPEC formative years which witnessed certain advances
vis-à-vis the strengthening of its member countries relationship with the
multi-nationals. He said there was increasing producer involvement in the
determination of the pace of exploitation of their reserves, fiscal policies
pricing and production of oil, and expanding the degree of involvement of their
national oil companies profitably in all aspects of oil industries.
K. Merchant says that OPEC’s second decade began with a
shift in the control of crude oil pricing from the multi-national corporation
in 1971-73. The ground work of this change was prepared at the turn of the
decade by two countries. Algeria
and Libya,
these countries successfully challenge for the first time their concessionaire
oil companies on the issue of pricing19.
Merchant concluded that OPEC played a leading role in the
North-South dialogue aimed at establishing a New International Economic order.
This resulted in the establishment of OPEC special fund, with the aim of
providing poorer nations with soft loans for balance of payment purpose and
development programmes. The special fund became the OPEC fund for international
development in 198020.
NOTES
Alex E. Nwokedi: “Oil as an
instrument of national image building” N.N.P.C a paper delivered to the
information media 1988, page 1
Ibid page 4
Femi Aribisala: “Nigeria in OPEC
the weakest link in the cartel chain” Nigeria External Relations. Nigeria institute of international affairs Lagos 1986
Akpotor and Nwolise: “Revolving
issues in Nigeria’s
foreign policy page 91.
Mobolaji E. Aluko: “Nigeria and her
membership of OPEC”.
OPEC first lady Alison Madueke
grapples with Nigerian reform by Dulue Mbachu Sep 15 2010.
F. Aribisala: Ibid page 116.
James Sells: “Nigeria caught
in netback pricing arrangement”. The president magazine Sept. 1986.
Adams G.A FNM GS, NNPC and year 2000
NAPETCOR. Vol. 7
Dr. Allaji Rilwanu Lukman: World oil
ten years past, ten years ahead. NAPETCOR vol. 10.
Prof. Amimu J: “Nigeria had
done well in oil trade” national concord Monday December 24, 1990 page 18.
Dr. Bassey Ate: “The third world and
non alignment” Nigerian forum: Nigerian institute of international affairs Lagos. Vol. 2 No 5 page
1092.
Dr. Bassey Ate: Ibid
Dr. Bassey Ate
Okpalefe C.E “The OPEC phenomenon in Nigeria
economy”.
Ibid page 51
Adeleke J.A: “The Nigerian petroleum
industry and the National Economy
Ibid
Keith Marchant “OPEC in the third
decade coping with the glut” OPEC review: An energy and development forum vol.
xiv, No 3 1990. Page 229.
CHAPTER THREE
OPEC POLICY OF PRICING AND PRODUCTION
3.1 MARKET STRUCTURE
OPEC gained a greater degree of control
over pricing and output decision, largely at the expense of the international
majors. Independent and national oil companies have come to play more important
role. The market structure was Oligopolistic in nature, this is because there
are few sellers. The decisions of one firm can be influence by the decision of
the others.
World oil market experienced political
crisis as a result of two oil price increases, OPEC became the major force in
the world oil market, energy demand slowed down initially and then declined
finally. The stage was set for the oil crisis of 1981-1983. This demand decline
of 1981-83 coupled with deadlocking of inventories, squabbles among OPEC
producers for market shares and the vast expansion of non- OPEC output changed
the nature of the oil market altogether. These changes resulted in volatile
spot prices and upward ratcheting of contract prices during the 1970s and early
1980s today have contract prices have taken a downward trend1.
Can OPEC guarantee the security of oil
supplies? The answer is yes, at the right condition OPEC can provide an
increasing amount of oil to meet the expected growth of global oil demand, OPEC
currently produces 42% percent of the world’s crude oil.
OPEC has a policy of maintaining
stability in the oil market and its member countries have often done this by
increasing or decreasing the amount oil they produce only OPEC nations have a
significant spare oil production capacity and this enables them to increase
production at relatively short notice. However because OPEC is not the only
source of oil in the market, it cannot guarantee the movement of oil price or
the availability of supplies to all consumers at all times. OPEC has around 80
percent of the world’s oil reserves and this will enables us to expand oil
production to meet the growth in demand.
The market remained in a generally
depressed stated during the second half of 1982 with heavy price discounts
being offered by some producers in order to move their oil. OPEC production
fall under 16.7mb/d in the late summer2.
Looking back to 1986, many people would
consider it to have been the worst year in OPEC history. Although it is true
that the organizations average output rose by 2.9mb/d and OPEC market share
rose for the first time for 10 (ten) years to 44.7 percent. What happened in
1987 can be described as market recovery because the market related favourable
and in the New Year spot prices move upwards the reference level3.
3.2 CRUDE OIL PRICES
The production and pricing discipline so long sought by
OPEC played a major part not only in firming fair pries but also in changing
the general attitude within the oil market.
As the old year more into the history books. Brent prices
crossed the great divide reaching the 18 dollar per barrel for the first time.
The peak was attained in middle January 1990, but since then the underlying
trend has been downwards until recently4. Source OPEC Bulletin Sept
1990. This price spiked in 1990 with the lower production and uncertainty
associated with the Iraq
invasion of Kuwait
(Gulf war)
Price began to recover in early 1999 and OPEC reduce
production to 1.719 million barrel. Between April and October 2000 three
successive OPEC quota increase totally 3.2 million barrel per day were not able
stern the price increase5.
3.3 CRUDE OIL PRODUCTION
Since the British discovered oil in Nigeria
particular Niger Delta in the late 1950s, the oil industry has been marred by
political and economic strive largely due to a long history of corrupt military
regimes and complicity of multinational corporation, notably Royal Dutch Shell.
Despite this, it was not until the early 1990’s that the situation was given
international attention particular following the execution by Nigeria state of
play right and activist Ken Saro-Wiwa provoking the immediate suspension of
Nigeria from the common wealth of nation.
Another major surprise of the petroleum industry is the
fact Nigeria’s
reserves continue to grow even in the face of growing production. Responsible
for this scenario is the combination of reasons ranging from innovative and
legal regimes fashioned by government to technological advance on the part of
operating companies. While modern scientific means of exploration and
production continue to re-evaluate hitherto abandoned oil wells to a great
success. Government has continue to motivate the companies with new contractual
arrangements such as the production sharing contract (PSC) which seek to
address the bame of the older joint venture arrangement.
There are six major oil companies in Nigeria:
Shell,
Chevron, Mobil Agip, ELF and Texaco, of a recent Nigeria crude oil output
declines 6 = - Nigeria crude oil output dropped 3.8% in February at 2,698
million barrel per day (mbpd) though it remained Africa’s top oil producer out
performing
Nigeria – 2,698 mbpd
Angola – 1,704 mbpd
Libya – 1,347 mbpd
Algeria – 1,261 mbpd
In its March monthly oil marked report
released this week, the organization of petroleum exporting countries estimated
the nations crude oil output at 2.098mbpd in February. From 2.181mbpd in
January and 2.192 mbpd in December.
Samir Gadio Emerging market strategist
standard Bank says the statistics seem to suggest that a sizeable increase in
production in the short to medium term look somewhat unlikely until new oil
field come on stream and the existing infrastructure operates at a higher
capacity.
Overall, the turnout in output since
late 2009 as well as the rally in the Bonny light oil price in 2011 should
theoretically translated into a significantly positive trade balance and robust
current account surplus.
Afrivest, a finance research and
analysis firm said the government has offered to increase it crude oil
production on OPEC request to cool soaring oil price.
3.4 MIDDLE EAST CRISIS AND OPEC
Military flexing by Iraq
over Kuwait
has an ominous implication on the relationship between the two countries on one
hand, strategic importance of Gulf region vis-à-vis would oil supply and lastly
supper power influence on the region (Gulf war 1990).
The most important effect of political instability is its
relevance to the global oil market supply demand matrix. The hostilities in the
Gulf prompted the recent meeting of the organization of Exporting countries
(OPEC) where they agreed on a production ceiling of 22.419 million barrels per
day for all its member7.
Oil price rose to their highest point in more than two
years as the social west in Northern Africa reduced global supply by as much as
1.0mbpd. Nigeria Bonny light is similar to the type of oil produced by Libya and would
be a good replacement for refiners who are currently lacking adequate supplies
because of the North African crisis.
3.5 ASSESSING NIGERIA IN OPEC
There was fear that Nigeria within the community of oil exporting
countries would be dragged into the Middle East
conflict. Meanwhile the Iran/Iraq war and gulf war between Iraq and Kuwait
has shown that Nigeria had
stood a neutral ground on issue concerning the Middle East.
Nigeria has since corrected the
erroneous impression as the loyal weak position in OPEC through number of ways.
These include its leadership contribution which earned respect for the country.
During Nigeria’s
leadership OPEC nations kept their words on production and prices. The formal United States president Mr. George Bush had
appeal to oil producing nations to increase production in view of the Middle East crisis. Reacting to the appeal, Nigeria’s petroleum Minster professor Jubril
Aminu expressed Nigeria
strong position to the call8. Aminu also appealed to other members
of OPEC to resist temptation to take temporary advantage of the situation to
deviate from the agreed position.
To assess production and exploration, as
of 2000, oil and gas export accounted for more than 98 percent of export
earning and about 83% of federal government revenue as well as generating more
than 40% of its Gross Domestic Product GDP. It also provides 95% foreign
exchange and about 65% government budgetary revenue. Nigeria proven oil reserve are
estimated by U.S Energy Information Administration (EIA) at between 16 and 22
billion barrel (3.5 x 109m3) it’s crude oil production was averaging
around 2.2 million barrel (350,000m3) per day.
Nigeria
is one of the few major oil producing nations still capable of increasing its
oil output, unlike most of the other OPEC countries, Nigeria is not project to exceed
peak production until at least 2009. The reason for Nigeria relative unproductively is
primarily OPEC regulation on production to maintain price on the international
market. More recently production has been disrupted intermittently by the
protests of the Niger Delta inhabitant who feel they are being exploited. Nigeria has a
total of 159 oil fields and 148 wells in operation according to the ministry of
petroleum resources.
During the regime of late Sanni Abacha
there are 3 major oil refineries, the Warri, Kaduna,
and Port Harcourt
refinery. Petroleum product in Nigeria are unavailable to most Nigerians and
are quite costly because almost all of the oil extracted by multinational oil
companies is refined overseas, while only limited quantity is supplied to
Nigeria themselves.
Today, Nigeria has risen very fast and
steadily to host the world 10th largest reserves at about 22 billion
barrels. Within the organization of petroleum exporting countries having
produced some of its past leaders such as the late chief M.A Fayide and Dr.
Rilwanu Lukman, Nigeria
is in the 6th position in terms of reserve and daily production. Nigeria
currently daily average production is over two million barrels. Shell has the
capacity to up her reserves to 30 billion barrel with the next two years with
her daily production up to 3 mbpd, indeed the aspiration of government is to
hit the 40 billion barrel mark in reserves by the end of the first decade of
the millennium with production of about 4mbpd by that target date. As part of
the aspiration the government through N.N.P.C has targeted to top in all oil
and gas fields in Nigeria.
Although Nigeria
for over 30 years has established herself as a leading producer of crude oil.
3.6 PETROLEUM AND NIGERIAN ECONOMY
Agriculture was the main foreign exchange earner for Nigeria up to
1964. The major export crops of Nigeria
were palm produce, cocoa, rubber, timber, groundnut and hides and skin.
As from 1965 oil started replacing
agriculture as the major foreign exchange earner. By 1975 oil accounted for
over 80% of Nigeria
foreign exchange earnings. This exchange from oil from 1977 to 1985 was over 90
billion U.S dollars.
Oil was first discover in commercial
quantity at Oloibiri Bayesa state in 1956. Since then oil has been found in
several other area of southern Nigeria.
Nigeria
production of oil rose to its peak of 2.2 million barrels per day by the middle
of the 1970’s. The price of oil at that time was of higher increase. The
discover of oil in severely part of the world coupled with global economic
recession brought about a fall in the world price of oil. The price of Nigerian
crude oil which stood at about 40 U.S dollars per barrel in 1980 fell to 11 U.S
dollars in 1987.
The fall of the world oil price has
forced OPEC to adopt several policies aimed at raising oil price. One of these
is to asked its member countries to reduce output of oil. If total of world oil
production is reduced, price might be forced up.
This policy has led to a gradual
reduction in the Nigerian output level, Nigerian output which stood at 2.2
million barrels in 1975 fell to below 1.4 million barrels per day in 1987. The
fall of world crude oil price has serious implication on Nigeria
economy. Nigeria
found herself in several economic problems, the country became unable to meet
up its requirement as unemployment and inflation reached unbelievable proportion
and many industrial enterprises closed down since the country could not import
needed raw materials for her industries. This type of economic situation
exposed the country to foreign depts. Nigeria became unable to service her huge
foreign depts lead the federal government under President Babangida embarked on
the structural adjustment programmes in order to ameliorable terrible economic
problems.
3.7 THE PARADOX NATURE OF NIGERIAN CRUDE OIL
Nigeria is one of the few major oil producing nations ranked
in 6th position yet petroleum product are unavailable to most
Nigerians and are quite costly because almost all of the oil extracted by
multinational oil companies is refined oversea while only limited quantity is
supplied to Nigerian themselves.
With respect to being both a producer
nation of crude oil and a consumer nation of ourselves to blame for the problem
associated with that. Unfortunately, not only have we been flaring our gas all
of these years. Nigeria government afforded to agreed to deals with this
situation squarely to zero tolerance by 2008 but our refineries have not be
working as they should due to technical incompetence, neither have we devoted
enough resource to the large scale development of our petrochemical industries.
The solution to the price spiral for
refined products for Nigeria
is simple. Nigeria
have enough crude oil to serve our refined products needs. Therefore we should
not only get those refineries that we have to work by hook or by crook but also
streamline and speed up the licensing process for those possible eighteen new
private ones (four belonging to companies floated by Rivers, Akwa0Ibom, Ondo
and Lagos state are reportedly in an advance from the hackneyed mantra of
privatization that we read from government in which investors are literally
being begged to kindly buy the refineries off government hands.
NOTES
Flarri C. “World oil” copy with the
danger of success. Zeb press London
1985 page 5.
Marchant K. “OPEC in the third
decade” copy with glut, OPEC REVIEW: An energy and development forum vol. xiv
No 3, 1990 page 235.
Ibid page 251
OPEC Bulletin Sep 1990
World events and crude oil prices
1997-2003
Oluwaseyi Bangudu: Nigeria crude
oil declines March 18, 2011.
Bell A. Implication of gulf crisis on
oil. Tribune Sunday 12th Aug 1990 page 8.
Olorunfemi M.A “Future oil supplies”
OPEC Review: An energy and development forum vol. xiv, No 3, 1990 page 292.
Dr. Mobolaji E. Aluko An innovative
solution company Washington D.C USA
CHAPTER FOUR
SUMMARY,
CONCLUSION AND RECOMMENDATION
4.1 SUMMARY
The subject of discussion revealed the guiding principles
which governed Nigeria’s
foreign policy and Nigeria’s
performance in some other global and regional bodies like the United Nations
common wealth. Africa union, the Economic community of West African state
before it was finally narrowed to the role Nigeria play in the organization of
petroleum exporting countries. The research appraised the reason that led to
the establishment of OPEC, why Nigeria
joined the organization and various organs of the organization. It was
discovered that marketing polices under the cartel was more stable and
maintained an international uniformity among the operating majors. Although the
companies operating in each country were legally distinct, there was a partner
of interlocking partnership. With the formation of OPEC in 1960 and the
subsequent wresting of power form the international major, the oil industry
degenerated into a sphere of uncertainty and instability.
Analysis
of crude oil pricing, production and exploration and also assessed the
performance of Nigeria
in OPEC.
4.2 CONCLUSION
The politics of the oil industry today
make little distinction between OPEC and non- OPEC producer. The present
situation may be tagged blessing as the social unrest in the Middle
East heated high production and increase in oil revenue. For the
first time in history oil price rose to 107.87 dollar on 14th March
2011 according to OPEC daily basket. There are signs that OPEC’S policies are
coming to be recognize for what they are namely genuine pointers to the
realities and challenges confronting world economic development. Finally the
answer to Nigeria’s
current economic problem is the judicious management of her oil resources,
building up robust reserves to with stand future oil shocks and to expand her
Agricultural base to reduce heavy dependence on oil.
4.3 WHAT TO BE DONE
If OPEC is to maintain it’s long role as a moderating
force in the international system it’s members must immediately adopt measures
which within a frame work of operation flexibility and progressive change,
point towards secure supplies and preditation price. It is wise for the
organization to induce it’s member to adopt strict cartel practices, so that it
can offer the free world’s oil market. This offer world be made on a scenario
take it or leave it’’ basis with the understanding that any failure on the part
of the purchaser to adherent to the agreed acquisition worlds result in the
automatic cancellation of any further OPEC
supplies. Again in the short run analyst we should not undermine the
strength of non- OPEC oil producers who have group together as a counter-
vailing forces against the monopolist tendencies of OPEC cartel. Therefore if
putting a check on the vulnerability of the international oil market is to be
moderated, at least for a fair deal, the co-operation of OPEC and non-OPEC
member country is absolutely essential. Another panacea which would ginger OPEC
to life will be that the organization within or outside which will ever is more
convenient, a co-ordinating unit for the market of OPEC oil. Such a unit should
encouraged direct participation by the international market department of each
OPEC National oil company.
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