Oil and Gas Law - Energy Law

A

THESIS

ON

ENERGY LAW

THAT

CRITICALLY EXAMINES THE LEGAL ISSUES IN THE DEREGULATION OF THE DOWNSTREAM SECTOR OF THE NIGERIA INDUSTRY: CONSIDERING THE ARGUMENTS IN FAVOUR AND AGAINST DEREGULATION INCLUDING ISSUES PERTAINING TO OPERATION OF THE REFINERY ,WITHDRAWAL OF OIL SUBSIDIES AND APPROPRIATE PRICING IN A LIBERALISED ECONOMY..

Nigeria is blessed with vast quantity of oil making it the 6th largest oil exporter in the organization of petroleum exporting country. Oil is a major source of energy in Nigeria and the world in general. Oil being the mainstay of the Nigerian economy plays a vital role in shaping the economic and political destiny of the country. Although Nigeria's oil industry was founded at the beginning of the century, it was not until the end of the Nigeria civil war (1967 - 1970) that the oil industry began to play a prominent role in the economic life of the country. Nigeria can be categorized as a country that is primarily rural, which depends on primary product exports (especially oil products). Since the attainment of independence in 1960 it has experienced ethnic, regional and religious tensions, magnified by the significant disparities in economic, educational and environmental development in the south and the north. These could be partly attributed to the major discovery of oil in the

country which affects and is affected by economic and social components.

Crude oil discovery has had certain impacts on the Nigeria economy both

Positively and adversely. Although Nigeria makes billions of dollars but as most developing countries this has not transformed the economy of the country. Due to problems of mismanagement, inefficiency, corruption, lack of funds, smuggling, bureaucratic bottlenecks and excessive subsidizing, the supply of crude oil has excessively collapsed. the importance of oil in any given economy cannot be overemphasized as illustrated or effective captured in the words of Dr. Trevor, Byer while delivering a lecture in the 14th international energy forum and the it goes thus'' I think a Body like this does not need to be convinced that the energy sector is an important part of the Nigerian economy. it produces about 75% government revenue or more 50% of public investment and it earns more than 95% of the foreign exchange that comes into Nigeria...''

From the above statement it is made clear and more light is shared on the reason why the importance of the oil and gas sector of the Nigeria economy cannot be overemphasized. for the purpose of our discussion however it would not be out of place to define what oil means in the first place . Oil has been defined as crude petroleum and other hydro carbons regardless of gravity which are produced at the wellhead in liquid forms and the liquid hydro carbons known as distillates or condensates recovered or extracted from gas other than gas produced in association with oil. Oil is a major raw material which has many useful uses hence its importance and place of prominence .among it uses is that it is used as a convenient and effective source of energy .it provides fuel for machineries. it has uses for power generation ,domestic uses ,transportation, it keeps the factories in the industrialized economy working and it's a source of revenue e.t.c. In the words of Feide in 1986 ''It is linked with blood, tears and suffering it helps development and progress. it has been sighted as a means of political domination ,economic exploitation and physical domination "From the foregoing it can be seen that oil has and is still affecting the lives of people all over the world. The destiny of all nations is in fact determined by the results of petroleum industry operation.

To begin with, the question can be asked, what do we mean by the oil and gas industry and what are its components. people usually refer to it as one industry but it is not it is made up of many industries each one having acquired its special characteristics .the more important of these industries are exploration ,production, transportation, Processing, marketing and distribution .it is now customary to distinguish two parts in the oil industry. Namely the downstream and the upstream sector. Exploration and production activities make up the upstream sector .activities subsequent to production of crude oil are called downstream operations. This includes refining marketing and distribution. some oil companies choose to operate in one sector only for example exploration and production. they are said to have an upstream interest.

Today, the oil industry is in particularly difficult s situation in Nigeria. This hardship has both the international and national dimension. At the global level, with the breakdown of global ideological barriers, opportunities for international oil exploration are available in geographical/ geological areas which we did not fore see a few years ago. The political and economic opening of high potential area previously closed to western investment is creating immense demands on the sources of private western capital. low oil pricing have also constrained industry funds available for investments in further exploration activities in the industry worldwide, including Nigeria.

At the national level the inability of government to raise its quota in the joint venture creation has led to the production sharing contracts. However we propose to focus on the legal frame work for appropriate funding of the oil industry and this is done within the contractual framework of agreement for oil exploration activities in Nigeria.

This contractual arrangements are the production sharing contract, joint ventures, service contracts and its variants. Before all this arrangements, the contractual arrangement before attainment of political independence the contracts gave monopoly solely to the British and the tenure usually lasted for 30 years, investor ownership. However the position was changed when Nigeria joined OPEC after the NNPC was established .however from 1993 and until recently inadequate government funding was the major constraint to the growth of the industry. There have been many ups and downs I the governments cash call payment performance. The production sharing contract on its own is popular in Nigerian industry. It marks a shift from the joint venture. It governs the understanding between NNPC and the new companies. At present,8 companies operate the production sharing contract. In 1999 the Federal Government promulgated the deep offshore and inland basin production sharing contract. The decree spells out fiscal incentives for oil and gas