In those early days, Nigeria produced barely 5,000 barrels of oil a day. However, within a decade, production had jumped almost a hundred-fold to over 400,000 barrels a day and by 1974, Nigeria’s oil output exceeded 2.2 million barrels a day.89
Its 258 oil fields and over 2,000 well heads produce up to 2 million barrels a day.91 In addition to holding substantial reserves of crude oil, Nigeria also holds the world’s ninth largest reservoir of natural gas.
While a few large fields account for a significant proportion of oil output, the industry also features a long tail of smaller and lower productivity wells, which are spread across the entire region, often close to local communities, and with some often located in hard-to- access locations deep within the Niger Delta. The Niger Delta environment - dominated by a dense network of rivers, marshland, swamps and mangrove forests – as well as its uncertain security situation, can render some of these smaller wells difficult to access and maintain effectively, especially if there is a lack of suitably adapted operational infrastructure.
While a majority of production was for many years generated by onshore wells, a growing proportion of Nigeria’s output - currently 40 percent - is produced offshore, with many new finds in deep water. However, with the increased volatility of global oil prices, it is unclear how quickly these finds will enter into full production.93
* In recent years Nigeria and Angola have fluctuated in ranking as Africa's largest oil producer, with Nigeria ranked first on the continent as this report goes to press.
Almost 95% of Nigeria’s total hydrocarbon output comes from the Niger Delta, a 40,000 km labyrinth of wetlands, mangroves, swamp forests, creeks and farmlands located in the country’s south.
At the heart of the Niger Delta sits Bayelsa. Despite being one of Nigeria’s smallest, poorest and least populous states, it plays an outsized role in its oil industry. Home to Nigeria’s first commercial oil well, Bayelsa accounts for just over 1 percent of Nigeria’s population, but produces between 18-20 percent of its oil, generating an output of around 290,000 barrels per day as well as 18 trillion cubic feet of gas.95
*These figures are intensely contested. Bayelsa is one of Nigeria's largest oil producing states. According to Bayelsa Government's own figures via the Investment Promotion Agency, Bayelsa is the country's second largest oil producer, whilst federal figures (hotly contested by the Bayelsa State Government suggest that Bayelsa is the country's third (Derivation Fund Information, National Bureau of Statistics). These differences reflect the real challenges associated with calculating precision volumes of oil produced particularly when oil fields cut across states, but as importantly, the intense political battles associated with volumes produced, which determine the levels of federally distributed grants allocated to each state, in line with volumes of crude produced.
Nigeria’s Constitution and the patchwork of laws that govern the oil sector vest ownership of all oil resources and responsibility for the oversight of their extraction at the federal level rather than at the state level. All tax revenues, royalties and associated income generated by oil production go to the Federal Government, which controls the sector and distributes generated income between the three tiers of government – federal, state and local – through a system of monthly allocations.97 All states receive a monthly grant based on their population size and assessed need. On top of that, the Federal Government puts aside 13 percent of its tax revenue and royalties from oil production for monthly distribution to oil-producing states in proportion to their contribution.
Although the ownership of oil resources remains in the hands of the Federal Government, actual oil production is undertaken by private companies, primarily the IOCs, often operating through various types of joint ventures (JVs), of which there are six, undertaken with the Nigerian National Petroleum Corporation (NNPC).98 Crucially, the IOCs hold the actual licences for exploration and extraction, retain operational responsibility, and run the majority of production facilities on a day-to-day basis. In stark contrast to the practice seen in other oil producing countries, the NNPC acts mainly as a silent partner in these arrangements.
While more than 100 companies operate through their subsidiaries in Nigeria’s upstream oil sector, the five IOCs – Shell, Chevron, Total, Eni (AGIP) and Exxon-Mobil – together account for around c.75 percent of Nigeria’s hydrocarbon output.99
Shell operates as four subsidiaries in Nigeria: the Shell Petroleum Development Company (SPDC), the Shell Nigeria Exploration and Production Company (SNEPCo), Shell Nigeria Gas Ltd and Nigeria Liquefied Natural Gas (NLNG). By far the largest of these companies is SPDC. SPDC was the first Shell company to be active in Nigeria and the first company in the country to pump oil commercially. Today, it is Nigeria’s largest operator, producing 39 percent of the country’s oil output. It manages an area of over 30,000 km2 , over 1,000 producing wells and 6,000 km of pipeline. NNPC holds a 55 percent stake in SPDC, with Shell owning 30 percent and Total and Eni (Agip) holding the remaining 15 percent through their subsidiaries.102
Eni (Agip) operates three companies in Nigeria through its Agip subsidiary: the Nigerian Agip Company (NAOC); Agip Energy and Natural Resources, and Nigerian Agip Exploration (NAE). NAOC operates in the land and swamp areas of the Niger Delta, including across Bayelsa, while the other two companies operate offshore ventures. Eni (Agip) operates and holds a 20 percent stake in NAOC, while NNPC holds a 60 percent stake.
Chevron operates in Nigeria primarily through Chevron Nigeria Limited (CNL). CNL holds a 40 percent stake and operates eight onshore or near-onshore concessions in the Niger Delta, as well as participating in a number of multi-partner deep water operations. In 2018, its daily production averaged almost 200,000 barrels per day with additional significant outputs of natural gas and liquified petroleum gas.
Total operates three companies in Nigeria: Total E&P Nigeria Limited (TEPNG); Total Upstream Nigeria (TUPNI), and Total Nigeria PLC. TEPNG operates and holds a 40 percent share in a JV producing oil and natural gas from a number of onshore and shallow water concessions, while TUPNI operates a deep water concession and holds non-operating stakes in a range of other fields.
ExxonMobil operates two subsidiaries in Nigeria – Mobil Producing Nigeria Unlimited (MPN) and Esso Exploration and Production Nigeria Limited (EEPNL) – both of which are involved in several exploration and production activities via JV arrangements. The company also owns and operates a number of deep-water operations.
A growing number of smaller international and domestic producers are now entering the market as the IOCs step up their divestment of marginal onshore fields. Many of these divestments take place under conditions of secrecy, with the exact terms and sometimes even the facts of transactions remaining closely guarded secrets. As a result, it is sometimes unclear where liability sits for addressing historic pollution.
Bayelsa’s landscape is dominated by rivers, marshes and mangrove swamps, and many of its 2.3 million inhabitants live in communities that are mainly or exclusively accessible by water.104 The majority of the population speaks Ijaw or related languages, and the state is divided into eight administrative divisions, called Local Government Areas (LGAs), that map onto the three senatorial districts of Bayelsa East, Bayelsa Central and Bayelsa West.
The state is dotted with 2,616 oil wells, 232 oil facilities and criss-crossed by 5,000 km of pipelines.105 Over 500,000 people in Bayelsa - a third of the population - live within walking distance of oil infrastructure.106
SPDC operates about 4,000 km of pipelines and flow lines, 87 flow stations, nine gas plants; more than 1,200 producing wells, and two export terminals (Bonny in Rivers State and Forcados in Delta State). NAOC operates 11 flow stations, two gas plants, one oil centre and one export terminal (Brass). The flow stations are connected to the Brass terminal by a 460 km pipeline network, with an additional 180 km pipeline transporting gas to Indorama. The information provided by Shell is not disaggregated to show locations, especially of the wells in the Niger Delta thus making it difficult to determine what range of facilities are located in Bayelsa.109
In 2019, Bayelsa produced roughly 290,000 barrels of oil per day.110 On a per capita basis, Bayelsa’s oil output exceeds all other states. The state currently has 12 Oil Mining Licences (OMLs) and four Oil Prospecting Licences (OPLs) and accounts for roughly 15 percent of the country’s 159 oil fields. The state’s oil and gas reserves are substantial and of Nigeria’s three giant oil reservoirs (in excess of 1 billion barrels), two – the Nembe Creek and Gbarain fields – are located in Bayelsa. Oil is widely distributed across the state’s eight LGAs, but most of the state’s oil output originates in four: Brass, Nembe, Ekeremor, and Southern Ijaw. According to the DPR, as of 2014, 70 percent of the Niger Delta’s onshore mature reservoirs are in their secondary and tertiary production stages (i.e. final stages), requiring the injection of liquids or gases to aid extraction.111
The primary markets for Bayelsa’s oil lie in Europe, Asia and the Americas. Europe and India consume the bulk of Nigeria’s output, with the US’s share declining as its shale production rises.112
These oil and gas exports play a crucial role in Nigeria’s economy, contributing 75 percent of the country’s export earnings in 2020 and generating virtually all of its hard currency reserves.113 They also provide a critical source of revenue to the Federal Government, accounting for almost half of its tax take, although this proportion is declining.114
The oil sector’s role as a broader driver of economic growth and shared prosperity is, however, far more muted. In 2021, the oil sector accounted for only 7.25 percent of Nigeria’s Gross Domestic Product (GDP), down from 32.8 percent two decades earlier, and contributed only 0.01 percent of total employment.115 Recent volatile global oil prices, insecurity in the Niger Delta region and a global charge for increased green and renewable energy may see the importance of the oil sector in Nigeria diminish further.
The oil sector has made only a minimal contribution to Nigeria’s rapid economic growth, measured by its GDP, over the last twenty years, yet continues to exert a powerful gravitational pull on the rest of the economy and the politics of the country, playing a major role in driving the performance of the currency, the credit cycle and demand for imports, as well as fuelling corruption and competition for the control of oil resources.
The corporate structure of oil production in Bayelsa reflects the pattern seen across the country as a whole. Through their subsidiaries SPDC and NAOC, Shell and Eni (Agip) together account for the lion’s share of Bayelsa’s production, with the state’s total output amounting to 23.4 percent of Nigeria’s total production of 2.2 million barrels per day. The bulk of this production is pumped by Shell and Eni via a network of wellheads and fuel stations linked to three onshore terminals - Bonny, Forcados (both Shell) and Brass (Eni) - located in Bayelsa and its neighbouring states. The Brass Terminal accounts for 4 percent of Nigeria’s overall oil production, whereas Bonny and Forcados account for 22 percent.116 Chevron also has a presence as a 40 percent stakeholder operator in Joint Ventures with the NNPC in onshore and near onshore areas, and in deep-water projects off Bayelsa’s coast, with other subsidiaries.117 The composition of extraction activity is, however, changing as Shell (SPDC) in particular, but other IOCs too, divest from some of the more mature onshore fields and focus activities on offshore deepwater sites.
Bayelsa is one of Nigeria’s largest oil producing states. According to Bayelsa Government’s own figures via the Investment Promotion Agency, Bayelsa is the country’s second largest oil producer, whilst Federal (Derivation Fund Information, National Bureau of Statistics) figures, contested by the Bayelsa State Government, suggest that Bayelsa is the country’s third largest oil producer. These differences reflect the real challenges associated with calculating precision volumes of oil produced, particularly when oil fields cut across states. This also explains the intense political battles that occur over determining production volumes because federally distributed grants are allocated to each state, in line with volumes of crude produced.118
While IOCs dominate hydrocarbon production both at national level and in Bayelsa, the NNPC occupies an important niche. Effectively a ‘state within a state’, the company undertakes a limited range of exploration, production, refining and maintenance work. But its main role, other than acting as a vehicle for managing the Nigerian Federal Government’s stakes in oil production ventures, is to monitor and regulate overall national oil output. The NNPC’s lack of operational visibility limits its effective oversight at the site of production. This means that whilst NNPC is liable for paying the highest investment contribution for future exploration activities,119 relative to its ownership of JVs, it is the IOCs that determine how much production in terms of volume they choose to declare to the Nigerian government.
It is an example of how removed NNPC is from operational management of much of Nigeria’s oil resources that the monitoring of production volumes takes place at export terminals, rather than at the wellhead and the flow stations as best practice would recommend. Research indicates that this failure to apply international standards contributes to revenue losses amounting to billions of dollars a year due to under-reporting and oil theft, with, for instance, the NEITI identifying over US $9.8 billion of unpaid royalties, of which less than US $3 billion have ever been recovered.120
Responsible for articulating, implementing and regulating policies in the oil and gas industry and ensuring compliance.
DPR is the technical department of the MPR, responsible for monitoring and regulating the Oil & Gas activities.
An MPR department established under the 2008 National Gas Supply and Pricing regulation to allocate domestic gas supply obligations and to regulate the gas sector.
The Ministry carries out environmental impact assessments (EIAs) for proposed major projects in line with the 2004 EIA Act.
The board is responsible for the implementation of the Nigerian Oil and Gas Industry Content Development Act.
NOSDRA responsible for ensuring preparedness, detection and responses to oil spillages in Nigeria and companies' compliance with relevant legislation.
Oversees and promotes the commercial interest of the FGN, with subsidiaries positioned across the Oil & Gas value chain.
The JDA is a treaty between both countries to manage activities relating to the exploration of resources in the region of maritime overlap between both countries.
NESREA is charged with the protecting and developing the environment as well as coordinating and liaising with stakeholders within and beyond Nigeria
Source: PWC. 2001. The Petroleum Industry Act: Redefining the Nigerian oil and gas landscape
Several legislative instruments provide the legal foundation for oil exploration and production in Nigeria. As previously outlined, the Constitution vests ownership of oil resources in the Federation and grants the Federal Government exclusive powers to oversee and regulate the oil industry.
Until August 2021, the Federal Government vested responsibility both for collecting revenue in the form of rents and royalties due from the oil sector and regulating its activities to the DPR. The agency thus played a hybrid commercial and regulatory role, promoting and selling hydrocarbon concessions and collecting revenues from them while simultaneously regulating their activities. The DPR issued the EGASPIN and the Petroleum (Drilling and Production) Regulations (DAPR) that formed the core body of regulations for the industry as a whole. As part of its remit, the DPR also had oversight over the NNPC, which acts as an important vehicle for managing the Federal Government’s commercial holdings in hydrocarbon JVs and for monitoring oil sector performance.
Since the enactment of the Petroleum Act 1969, 20 pieces of legislation relating to the oil industry have also been passed. Whilst the original statute itself has not been fully updated for decades, some of the new legislation dealt with pollution and environmental protection. The regulatory system for pollution issues under the outdated regime was characterised by limited clarity, competition between institutions with overlapping and occasionally contradictory remits, and a mismatch between the statutory powers available and departmental remits. The DPR issued the primary environmental guidelines for the oil industry’s operations in the form of EGASPIN. The guidelines, introduced in 1991 and updated in 2002 and 2018, were ostensibly based on a framework previously adopted by the Dutch government. However, the DPR rarely, if ever, undertook any enforcement activity against oil company activity that breached EGASPIN provisions.121 At the same time, the Ministry of the Environment – through the National Oil Spill Detection and Response Agency (NOSDRA) – retained responsibility for detecting oil spills and ensuring they are effectively cleaned up. However, NOSDRA is purely intended as an emergency response agency and possesses no ongoing regulatory powers. Its remit is also tightly drawn, excluding responsibility for gas flaring and some forms of effluent discharge. Over time, the responsibilities of the Ministry of the Environment have been progressively curtailed.
To complicate matters further, the Nigerian Maritime Administration and Safety Agency (NIMASA) retains responsibility for maritime pollution,122 while the National Environmental Standards and Regulations Enforcement Agency (NESREA) has a remit to inspect vessels related to the oil industry, but not to supervise or regulate oil production or pollution.123 State level environmental protection agencies also play a role, as does the Nigerian navy in enforcement against illegal refining.
With such a tangle of agencies and remits, it is perhaps not surprising that regulatory standards and processes are often in conflict and regulators sometimes stray beyond their competencies. For instance, NOSDRA operates to standards that differ from those set out in the now defunct DPR’s EGASPIN guidelines, though the former Department often enacted regulatory provisions that related to NOSDRA’s work. In addition, NOSDRA also tracks gas flaring, despite gas being explicitly excluded from its remit.124
One theme, however, unites this fractured and top heavy regulatory structure: a lack of enforcement. While the DPR, until the passing of the PIA 2021, retained sweeping powers over the oil sector as a whole, it had limited statutory authority to penalise oil producers for pollution incidents or for failing to fulfil their clean-up obligations.
The Department’s foundational piece of legislation, the Petroleum Act 1969, did not stipulate any sanctions for environmental damage and did not impose liabilities on oil producers for spills and other pollution. Although the DPR did possess other powers under its remit, it was usually reluctant to use them. Under legislation, NOSDRA’s ability to levy fines is highly circumscribed. The maximum fine it can impose is 5,000,000 Naira (US $12,200) and an additional 500,000 Naira per day - less than US $1,220 at current exchange rates125 - so long as operators remain in breach of their responsibilities to clean up a spill.126 And even that power is contested; in recent cases, the Nigerian Court of Appeal ruled that NOSDRA could not impose sanctions without a court decision to establish liability.
Such constraints are particularly binding given the nature of the liability rules enshrined within the legislation. In most oil producing countries, the law on oil production is underpinned by two simple concepts: ‘Polluter Pays’ and ‘No Fault Liability’. Taken together, these two principles dictate that polluters should pay for any pollution arising from their activities, even if it was not their fault. Neither of these principles are fully enshrined in Nigerian law. Under the terms of federal legislation, oil producers are theoretically responsible for the clean up of any spills or pollution from their operations according to standards laid out in regulatory guidelines that are heavily informed by Dutch regulations.
The statutory framework for compensation for those affected by spills is minimal. The Petroleum Act 1969 was largely silent on the issue of liability for pollution, containing only limited provisions concerning the disturbance of surface rights. Like the previous act, the recently passed PIA attempts to place responsibility for pollution on concession holders.127 The still extant Oil Pipelines Act holds a pipeline operator to be liable for compensation if the pollution can be shown to have arisen from their failure to maintain their assets effectively. The legislation does not set out any standards for fair compensation in the event of contamination.
Nothing demonstrates this better than the structure and operation of the formal investigation process for pollution incidents. Under the terms of the ‘Joint Investigation Visit’, once a spill is reported, NOSDRA is required to investigate.
It is also the producer who pays for the investigation. Furthermore, due to a lack of resources, NOSDRA almost never makes follow-up inspections: according to an independent study, these occur in less than 13 percent of cases.128
Since 2010, the IOCs have been divesting from their onshore and shallow water assets and selling these concerns to indigenous Nigerian firms. However, most divestment decisions end up as private contractual arrangements hurriedly agreed upon by IOCs and the Federal Government, often with responsibilities for environmental and social liabilities left underspecified and with the communities ‘hosting the assets’ effectively kept in the dark. This has created a widespread perception among many local communities that divestment of oil and gas assets to indigenous oil firms is simply an attempt by IOC operating companies to evade their ecological liabilities. Indigenous firms eager to acquire the assets and subsequently the lease upon expiration are prone to accepting contracts absolving the seller of responsibility in the case of defects associated with the asset after decommissioning, as well as liabilities for other legacy issues that may arise. An illustrative example of this took place in 2014-2015, when Shell’s SPDC subsidiary sold its asset interests in oil block OML 29 and Nembe Creek Trunk Line - both notorious for associated oil spill pollution - to the Nigerian company Aiteo. Since the sale, local Nembe communities have been locked in legal battles with both Aiteo and Shell in the Nigerian courts over pollution- related and social investment liability issues.129
In recognition of the insufficient legal frameworks surrounding the oil sector in Nigeria, the Federal Government made attempts to consolidate the legislation governing oil exploration, production and pollution into a single legislation through the Petroleum Industry Bill (PIB) which was first introduced to the National Assembly in 2008. Repeated attempts at passing the bill into law failed, due largely to industry and political opposition, with later drafts of the bill changed beyond recognition.
The following proposed Petroleum Industry Governance Bill (PIGB), proved to be just as problematic having been passed by the Federal House of Assembly and Senate in 2018, but ultimately opposed by the incumbent President.130 Many ‘host’ communities in oil producing areas welcomed rejection of the PIGB as it did not address health, safety and environment concerns or host communities’ interests, though the National Assembly later explained that it was working on a separate Host Communities Bill. The PIGB also contained no provisions for ending gas flaring, did not address the issue of the independence of regulators, and it removed all powers of the Federal Ministry of Environment and its agencies over environmental regulation and enforcement in the petroleum sector.131
Ultimately, a new comprehensive version of the Petroleum Industry Bill was submitted to the Nigerian House of Assembly in October 2020, which was eventually enacted into law in August 2021 as the Petroleum Industry Act.
The PIA signed into law in August 2021 appeared to signify a landmark in Nigeria’s protracted reform of its petroleum industry. The Act has 319 sections, divided into five chapters, that collectively represent a framework for the regulatory governance of the Nigerian Petroleum Industry (NPI), the administration of the industry, the development of host communities, and a progressive fiscal framework along with other miscellaneous provisions. The Act also consolidates certain aspects of the NPI that had hitherto been addressed across a wide range of statutes.
The Minister of Petroleum will formulate policy and oversee the industry in general, while establishing two principal regulatory agencies with responsibilities for the upstream and downstream aspects of the industry.132
These agencies are the Nigerian Upstream Petroleum Regulatory Commission (NUPRC)133 and the Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).134 The NUPRC and the NMDPRA will grant licences and permits to upstream and midstream/ downstream sectors respectively.135 In addition, the Act makes elaborate provision for the NNPC to be restructured and eventually fully corporatised to enable it to operate in a liberalised commercial environment, moving beyond its traditional regulatory role.136
With respect to host communities, which have borne the brunt of petroleum operations for over six decades with little to show for it in terms of development, chapter three of the Act mandates lease and licence holders (concessionaires) to establish host communities’ development trust funds to finance projects for the benefit and sustainable development of the host communities, including infrastructure, economic empowerment opportunities, educational development, healthcare provision, and environmental protection measures among others.137
The PIA establishes a new framework for taxing oil company profits, with companies operating onshore and in shallow waters to pay a hydrocarbon tax along with a company’s income tax (CIT), and deep offshore companies to pay CIT.138 An immediate concern is that the trend is for greater offshore exploration to increase and dominate the oil industry in Nigeria, but they will not be paying a hydrocarbon tax.
A cause for concern is that NUPRC can veto any regulatory action by all other concerned agencies relating to upstream activities. This runs counter to the need for strong, independent, well-resourced institutions and also prevents all other concerned agencies, including NOSDRA, from taking independent action to regulate the industry’s practices. Arguably, this provision blatantly codifies the prioritisation of profits from the industry over effective regulation and therefore foreshadows the continuation of the Nigerian government policies that resulted in the devastation seen in Bayelsa.
Regarding the environment, the PIA grants oversight functions to NUPRC and the NMDPRA to ensure that future licensing and leasing are conditional on the viability of environmental management and decommissioning plans submitted by the operating oil companies. Disappointingly, gas flaring is allowed to continue subject to companies paying a fine, with companies only required to provide plans for the elimination of flaring within 12 months of the effective date of the Act.
The PIA now addresses a topic hitherto ignored by the Petroleum Act 1969 and subsequent legislation, specifically liability for decommissioning and abandonment of petroleum installations. Oil companies will be required to commit funds for running down their operations and to submit decommissioning plans to either the NUPRC or NMDPRA. There is also limited guidance for how oil companies should engage with host communities.139 Until the passage of the PIA, most of the relationships between producers and local communities were determined by Global Memoranda of Understanding (GMOUs), wherein oil companies entered into specific arrangements for social investment with particular communities or clusters of communities. However, arrangements under GMOUs were intended to enable IOCs to secure and retain their social licence to operate rather than to address their pollution- related liabilities; in reality, the absence of effective redress has meant the lines have been constantly blurred. Companies will be obliged to contribute a proportion of their annual income to an environmental remediation fund and a decommissioning and abandonment fund at levels determined by the companies’ own internal audits. The PIA also establishes a Host Communities Trust Fund, to which operating companies will be expected to contribute three percent of their annual spend to community development projects. This support is modelled on the GMOU approach in that the oil companies will be responsible for the composition of the Board of Trustees.
The PIA appears to confer considerable powers on the operating companies, NUPRC and NMDPRA. But it is silent on the role of the Ministry of the Environment and associated agencies such as NOSDRA with respect to both existing environmental guidelines on regulation and remediation and liability for historical spills. How the law will operate in terms of precise guidance and regulations in relation to the powers previously exercised by other Federal and State level agencies is yet to be determined.
Many of Nigeria’s existing regulatory standards, in addition to the conflicting and overlapping roles of regulatory bodies are maintained under the new PIA, so concerns about the impact on environmental regulation remain under the new regime, as does the problem of the country’s lack of a rigorous supervision and enforcement regime for critical elements of regulation, such as overseeing asset integrity. With precise regulation and enforcement powers yet to be decided, there is uncertainty over how the new PIA regime will fulfil its goal of promoting compliance with international standards.140
he core of the process is the Joint Investigation Visit (JIV). The clean-up regulations developed in line with the legislation that established NOSDRA dictate that all oil spills should be reported to the authorities within 24 hours. Immediately upon reporting, a Joint Investigation Team (JIT) consisting of the owner or operator of the facility, officials from NOSDRA, and representatives from the local community and state government, should be formed. This team visits the spill site and investigates its cause and the extent of any contamination. The team develops a report, which all participants are to endorse, identifying the causes and scale of the oil spill.141
This JIV report is the central instrument for determining the response to a spill and the liability for compensation and clean-up.142 As previously outlined, if the spill is found to be due to sabotage or third-party interference, the oil operator is not liable and the community receives no compensation as a result. However, the oil company is still expected to clean up the pollution itself.
Where compensation is due or remediation required, it is based on the damage assessment made by the JIV. Where post-spill action is mandated, NOSDRA is responsible for a follow-up inspection. In practice, where compensation is paid at all, IOCs often rely on compensation rates set by the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry in 1997 which are considered to be inadequate.143
The JIV process only covers oil spills and is rarely applied to offshore spillages, including cases where the Nigerian navy sinks intercepted tankers carrying crude or destroys artisanal refining activities. Nor is the JIV process applied to instances of spills associated with artisanal refining itself. The processes for assessing and remediating other forms of hydrocarbon pollution vary by type and are the responsibility of different agencies. Other forms of pollution include gas flaring and leaks associated with gas production (which can be hard to detect), effluent disposal (particularly in the Brass Canal), and the dumping of drilling mud waste. However, in practice, NOSDRA normally acts as the primary investigator and oversight body for all kinds of pollution cases.
Drawing the threads together, it is evident that the challenges raised by the structure of the Nigerian oil sector and the dominance of the IOCs are compounded by an overlapping and sometimes contradictory regulatory landscape and by a legal framework that limits the liabilities of operators in certain circumstances.
Nigeria has, on paper, consistently demonstrated a commitment to reducing carbon emissions and to mitigation policies. In 2011, the National Adaptation Strategy and Plan of Action for Climate Change in Nigeria (NASPA-CCN) was approved. In the following year, the adoption of Nigeria’s Climate Change Policy and Strategy signalled the Federal Government’s renewed commitment to combating climate change and resulted in an agreed Nigeria Climate Change Policy Response and Strategy (NCCRS) in the same year. At the 2015 Paris meetings of COP, Nigeria pledged to reduce the country’s greenhouse gas emissions by 20 percent (unconditional) and 45 percent (conditional) by 2030.
Whilst Nigeria’s commitments on paper are laudable, past failures (such as the program proposed to eradicate gas flaring and the biofuels program launched in 2007) and more recent practice (such as the limited provisions in the PIA for sanctioning continued gas flaring) suggest that commitments to implementation will remain a challenge. In fact, some analysts predict that Nigeria’s per capita carbon emissions could well double.
The NNPC signed a major new deal with IOCs Shell, Exxon, Total, and Eni in 2021 to develop an offshore oil bloc that includes the deep water Bonga field. Despite uncertain oil demand forecasts over the long term, Nigeria has serious ambitions to further expand its oil industry. More than one hundred oil and gas projects are set to be launched over the next five years, including 25 upstream oil and gas projects, 28 petrochemical projects, and 24 refinery projects.
The larger global environment is not conducive to energy transition either. In response to the Covid-19 crisis, the United States and Canada have boosted support for fossil fuel extraction by increasing subsidies to the sector. Most producing countries’ budgets are highly dependent on the sector, so there is an incentive to accelerate extraction, especially as the future value of oil assets becomes increasingly uncertain. Such a “get it while you can” attitude will likely produce the antithesis of managed phase-out.144 This is likely to be further exacerbated by the war in Ukraine and a shift away from reliance on Russian gas supplies. This suggests that any post-oil transition is more likely to be chaotic than orderly.
The post-oil pathway in Nigeria will be especially difficult. First, the physical assets are substantial. Nigeria is the fourteenth largest producer of petroleum, with oil reserves estimated at about 37 billion barrels. The nation has the sixth largest deposits of gas, with natural gas reserves estimated at a minimum of 100 trillion cubic feet. Second, the domestic power sector has always been weak. A total of 120 million people depend on fuel wood to meet their energy needs and only 40 percent of Nigerians have access to the electricity grid. Roughly 78 percent of the generating capacity is fossil powered (fuel oil, gas, and coal). Third, and crucially, even if Nigeria’s economy seems to have reached a tipping-point away from oil, core institutions and policies continue to remain structured around assumptions that oil is central. Even with higher non-oil tax revenue, oil and gas will continue to be produced and there is no evidence that the rent-seeking politics associated with powerful elites dependent upon access to oil revenues is likely to change.
Most Nigerian governmental institutions bear the hallmarks of turn-of-the-century oil-fuelled distributive and developmental thinking. Federal, state and local governments continue to relate through a federal structure that essentially prioritises the distribution of revenues from a central pot. Fourth, currency movements and the competitiveness of many economic sectors remain most heavily influenced by the continued powerful role of oil and the distortions and external shocks it produces. And most importantly, capital formation and wealth accumulation across both private and public sectors assumes the offstage presence of a huge and commercially attractive resource endowment whichcovers up underperformance, forgives a range of policy and implementation sins, and allows ‘non-earned’ income (rent) streams to displace more methodical means of development.
Yet some analysts have suggested that the seeds of a post-oil transition in Nigeria are already being sown, as a result of the declining percentage of oil revenues to Nigeria’s overall income.
Transitioning to Nigeria’s post-oil future will be difficult and demanding, particularly given the way in which oil and gas revenues shape Nigeria’s political economy and political settlement.145 Nigeria’s elite formation remains heavily driven by centrally allocated oil revenues. Pressures on debt service will make it very hard for the government to do anything but expand output. The debt service for Nigeria in 2023 is expected to absorb somewhere between 80 and 100% of oil revenue.146 It is no surprise that in terms of economic diversification – one of the key measures of breaking from oil dependency – Nigeria’s overall performance has declined since 2014.147
If Nigeria is to transition, it may be able to take advantage of a raft of relatively cheap and accessible renewable energy sources that are emerging. However any transition will require astutely tailored international support sensitive to the impact on Nigeria’s political economy (winners and losers), and in line with the scale and scope expressed at COP26.
Estimates suggest that the income Bayelsa has generated for the Federal Treasury as a result of oil production could be as much as US $150 billion since 2006.149
Yet little of this bounty has found its way back to the people of Bayelsa. The state may be a source of immense wealth for the Federal Government and IOCs, but its population remains extremely poor.
Over 70% of the population rely on subsistence farming and fishing,151 and unemployment exceeded 32.7% in 2020.152 Few inhabitants of Bayelsa have access to good health care or other public services. The average life expectancy is just 50 years.153
And as in other states in the Niger Delta, oil production and the associated competition for resources has contributed to a deterioration in the security situation and a continuing threat from militant activity.
Nigeria’s oil bonanza has brought little benefit to Bayelsa and it has come at a terrible cost to the state and its people. Assessing the scale and scope of that cost will be the focus of Chapter Two.
