Wednesday, July 14, 2010

How Does an Oil Company Go Broke?

In recent years, we have witnessed windfall profits in the oil business. Even in 2008, the year of the oil price crash, the large oil companies profited more heavily than ever.

Yet, we get news yesterday, and later denials, that the Nigerian National Petroleum Corp is "insolvent".

How can this be possible, I asked myself. Especially considering that Nigeria sells crude on the world market yet pays domestic wages to the majority of its workers. My initial reply to myself was that it must be a combination of corruption and the inefficiencies of government run business.

Then I read further down the article. Seems that even though Nigeria is one of the largest crude oil producers in the world, more than 85% of the gasoline used in the country is imported!
There have been attempts to privatize the country's four refineries since around 2002 and as far as I understand at least some of them have now been privatized since 2006. However, the local refineries are totally unable to keep up with the burgeoning demand for gasoline. No wonder, the Kaduna Refinery was shut down this March due to vandalism of the crude oil pipeline supplying it.

It becomes clear that the problems go beyond mere corruption and inefficiency. It fact, the Nigerian oil industry is disaster area of rampant pollution, extreme safety and working condition issues (the pipeline explosion pictured above killed 22 people), political interference, revolutionary actions, terrorism, profiteering by multinationals and vandalism and extortion.

It is often written that the oil industry, responsible for 80% of Nigerian economic output, is nevertheless the curse of the nation. What a pathetic situation.

Imagine - if a disaster on a scale of the BP spill can occur in the Gulf of Mexico, right off the coast of Louisiana, what type of tragedies could occur in the dog-eat-dog world the oil industry has spawned in Nigeria.

The first refinery in Nigeria was initiated in 1965. Since that time, it could be argued that the industry has abused the country to the hilt right up to the present, where the state of affairs is such that I couldn't even imagine a viable solution to the ongoing problems in the country.

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