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CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The development of the human environment worldwide has been accompanied by industrialization. The oil industry has remained the leading sector of the Nigerian economy for many decades now.

According to EIA (2009), the Nigerian economy is heavily dependent on the oil sector which accounts for over 95 percent of export earnings and about 85 percent of government revenues. The oil industry is primarily located in the Niger Delta area of the country. In addition, Nigeria had an estimated 36.2 billion barrels of proven oil reserves as of January 2009.

In 2008, Nigerian crude oil production averaged 1.94 million bbl/d, making it the largest crude oil producer in Africa. And also being an important oil supplier to the United States. Over half of the country’s oil production is exported to the United States. In 2008, Nigeria exported most of its 2.17 million bbl/d of oil production (approximately 1.9 million bbl/d was exported). Of this, 990,000bbl/d (44 percent) was exported to the United States, making Nigeria the 5th largest foreign oil supplier to the United States.

The major foreign producers in Nigeria are Shell, Chevron, ExxonMobil, Total and Eni/Agip (Experts column, 2010). Nigeria is greatly endowed with abundant natural resources and the weather supports yearround agricultural production. In the past, Nigeria has depended largely on industrial and manufacturing sectors, as well as agricultural production and the export of cash crops like groundnut, millets, maize, cocoa and palm oil, which had a positive growth rate for its income, until oil was discovered in Nigeria.

Crude oil is the term for "unprocessed" oil, the substance that comes out of the ground. Crude oil is a fossil fuel, meaning that it was made naturally from decaying plants and animals living in ancient seas millions of years ago (in most places you can find crude oil were there once were sea beds). Crude oils vary in colour, from clear to tar-black, and in viscosity, from water to almost solid. Although, oil was used to keep fires ablaze in early human history, its importance in the world economy evolved slowly. Oil is of great importance to the world at large. Oil has become the world’s most important source of energy since the mid-1950s. This is as a result of its relative abundance, high energy density and easy transportability to different areas. Additionally oil (in the form of petroleum) serves as raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, 2 pesticides and plastics. It is also an energy source powering the vast majority of vehicles. Generally, oil is vital in industries and it accounts for a large percentage of the world’s energy consumption. The world at large consumes 30 billion barrels (4.8km³) of oil per year and top oil consumers largely consist of developed nations. This makes it one of the world’s most important commodities (Wikipedia, 2009). Oil consists of hydrocarbons, which include mostly alkanes, cycloalkanes and various aromatic hydrocarbons, while other organic compounds contain nitrogen, oxygen and sulfur, as well as trace amounts of