For over half a century, Nigeria’s Niger Delta has been the most prolific of oil exploration play in the country and in sub-Saharan Africa. Since the discovery of oil in the province in commercial quantity, exploration has occurred year-in-year-out, giving rise to a multibillion-dollar oil and gas industry, which currently serves as the main source of income upon which the Nigerian economy operates and thrives (Nigeria’s economy is dominated by crude oil, accounting for about 10% of the country’s GDP, 70% of government revenue and more than 83% of the country’s total export earnings).[1] Scores of multinational and independent oil corporations are present and operating within the sector, with the Niger Delta being the centre-stage of operation.
It is important to note however, what has helped the Niger Delta become the epicenter of oil exploration in Nigeria has a lot to do with the abundance of oil in commercial quantities but not without the presence and deliberate efforts of high-profile (international) investors in deploying technological resources, manpower and corporate infrastructure towards the recovery and production of oil in the region.
Now this is a matter for concern, with the recent growing trend observed among the operating international oil exploration companies. More and more of these companies are moving exploration away from Niger Delta’s onshore (land, swamp and shallow waters) to offshore/deep waters. Furthermore, there has been a growing decline in the investment (technology, manpower and infrastructure) being poured-in by these international companies in the past ten years of operation as witnessed for example in the Warri area, as well as the Western and Easter areas of Shell’s operation. This trend is indicative of pertinent questions and growing uncertainties concerning the prospects of the Niger Delta as a continued viable nerve centre for oil exploration in Nigeria and Africa. One of these questions borders on the state of reserves in the Niger Delta: Will oil continue to be found in commercial quantity in the province, given the several decades of consistent exploration? Other questions include concerns about the actual and secondary costs of continued exploration in the region, vis-à-vis the environmental impacts, infrastructural demands, communal peculiarities, security and revenue implications. The growing shift to offshore/deep water exploration all boils down to the summative question: Will oil exploration in the Niger Delta continue to make economic sense? Asides that, as international oil companies (IOCs) gradually shift their focus and their operations offshore, will the independent companies emerging onshore the Niger Delta be able to pour in the same level of investment into oil recovery and production as the IOCs?
Answering these questions requires a critical examination of various interconnected factors. A good place to begin is the provision of some historical background on how oil reserves and oil exploration have evolved over the years. At the beginnings, oil discovery and exploration centered around oil that had been forced to the earth’s surface by temperature and pressure within the earth, as is common to all other minerals associated with volcanic eruptions. Oil found relatively close to the earth’s surface, without much deep-earth exploration, is referred to as cheap or easy oil. In time, with its expanding application, oil gained recognition as a viable commercial alternative source of fuel, consequently leading to soaring demand. Conversely, supply of cheap oil diminished, as the available near-surface reserves fast depleted, reducing their commercial availability. This prompted the tracing of oil sources, to locate larger quantities in subterranean deposits. Exploration went deeper, first onshore (land and swamp), then offshore. The emergence and success of offshore exploration followed advancements in exploration technology. It is important to note however, that the deployment of exploration infrastructure depended (and still depends) on oil provinces where accumulation of oil is large enough to make commercial sense. Projected revenue has to be commensurate with exploration costs, otherwise, it would make no sense to explore, even if some amount of oil was discovered in a province. This leads us to pinpointing the uniqueness of the Niger Delta.
The distinguishing nature of the Niger Delta is such that the sedimentation of oil-bearing sands in the region have, over millions of years, developed in a manner that ensured the collection of oil into massive pools, adequate for exploration in commercial quantities. The reality is such that, after several decades of perennial exploration, oil is still being found in the Niger Delta. According to OPEC, estimated proven crude oil reserves in Nigeria is about 37 Billion barrels[2], making Nigeria the tenth country with largest oil reserves in the world (88 other countries trail behind Nigeria)[3]. Most of these oil reserves are located in the Niger Delta. The matter then, is not whether oil will continue to be found in the Niger Delta, but what new technologies will be required for profitable exploration. This is an important question, considering the fact that initial top layer deposits are being exhausted, necessitating the move to deeper layers. The dynamics of oil wells are such that through some natural occurrences within the earth, natural pressure pushes up oil into wells. However, as these wells are explored, they deplete and changes occur in the nature of subterranean operations, such that natural forces and pressures no longer push up oil. In which case, a form of recovery is then implemented, where technology is developed to mimic the operations of natural pressure, thereby giving access to deeper oil wells. Hence, with respect to the state of reserves in the Niger Delta, availability is not the immediate problem to face, technology for enhanced recovery is the real matter.
Another factor to consider on the question of the Niger Delta’s continued viability for exploration is the actual cost associated with exploration. There are two distinct costs associated with exploration viz actual costs and secondary costs. Actual costs are the direct technical costs that accompany exploration, whereas secondary costs are “indirect costs” which derive from such items as regulatory costs, community expenses and other environmental costs. Regarding this, a comparison of actual costs of exploration in the Niger Delta basin with other basins such as Ghana basin, Brazil basin, North Sea, Dahomey, regions of Europe, Asia etc., reveals that it costs much less to explore oil onshore the Niger Delta than in a lot of other basins (Refer to Figure 1 below).
It therefore follows, that when considering the continued viability and sustainability of the Niger Delta for oil exploration, neither availability nor actual exploration costs are major barriers. Nevertheless, sustainability is not automatic. Several ongoing issues still need to be resolved in the Niger Delta to ensure sustainability in oil exploration and incentivise oil exploration companies to continue operations onshore.
Figure 1: Marginal Production Cost 2014
Cost of producing an additional barrel of oil (USD/bbl)
Source: Oil Production by Country https://knoema.com/infographics/vyronoe/cost-of-oil-production-by-country
Prominent among these issues are the environmental impacts of exploration in the Niger Delta province. Hazardous wastes, pollution on sites, coupled with inadequate protection of soil, waters, biodiversity and air quality have imperiled the health of local populations near oil production sites in the Niger Delta. Furthermore, gas flaring has heavily destroyed food crops and fisheries. Reports show that an average of three oil spills happen per month[4]. Jointly, spills and gas flaring have led not just to oil-based environmental degradation, but also to massive exploration costs and the costs required to remediate the damage caused by exploration to the environment, both historically and in the future? For one, costs related to environmental impacts have led to increased operation costs for high profile oil exploration companies who are now exiting. It is then necessary for independent companies, who stand the chance for economic gains from exploring onshore, to factor in the cost of redressing the historical environmental damages and possible future ones into their operation costs before extracting their gains. This is pertinent, as there are no other sources of revenue to restore the environment and alleviate future damage outside oil revenue from the region. These are essential conversations and considerations to have if exploration in the Niger Delta will be sustainable and considered worthwhile in the coming days.
Another major challenge is the socio-economic impact and the ripple effects associated to exploration in the Niger Delta. These include but are not limited to increased cost of rent, basic foodstuffs and a generally high cost of living in oil producing communities. It turns out that an ample proportion of residents in these communities are unable to match-up to the high cost of living, resulting in higher crime rates and prostitution. Closely related to this is the perceived sense of marginalisation subscribed to by many of the indigenes within the host communities. A corollary of this is that many locales have taken to independently exploring oil through unorthodox and illegal means, a situation that stands a higher chance to aggravate the environmental conditions, much more than well-structured, government-controlled and regulated exploration being carried out by recognised exploration companies. Major community conflicts and violence have erupted from this whole mix, the Ogoni crisis and Odi massacre being examples in the not-too-distant past and more recently, the emergence of militant groups like MEND. Kidnapping and other violent crimes are rife in the Niger Delta, leading to the frequent conversion of the Nigerian Military apparatus to security operatives in a bid to quell chaos and maintain fragile order in the region. These challenges have become national concern and cannot be winked at as they threaten the prospects presented by oil in the Niger Delta.
Conclusively, the future of oil exploration in the Niger Delta stands at a cross road and can swing in more than one direction. While continued availability is guaranteed, the surrounding factors must be considered and strategically influenced if things will swing in the favourable direction. Deliberate studies must be conducted to determine the actual costs that further explorations will incur in relation to new technologies, coupled with the costs that must go into environmental remediation of the host communities and the intentional improvement of the livelihood of community residents, alongside any other known or hidden costs. It must then be determined (albeit a nominal sum) if the latent revenue of the yet-to-be-explored oil in the region will be sufficient to cover these costs, guarantee profits and ensure continued funding. This way, intelligent decisions can be made faster by key actors and necessary interventions can be worked out and rightly introduced. Pathways for lasting peace and security must also be sought and further established to bring about stability in the business environment.
In all of this, time is of essence. With possible future transitions from fossil fuel, it remains to be seen if oil, especially gas will retain its dominant relevance in the energy market. In a world economy where oil and its derivatives still dominate the energy market, exploration and production in the Niger Delta can still be harnessed for domestic development. That world can change drastically in the near future, forever tilting the balance of economic power. But as for now, Nigeria still stands a chance with oil in the Niger Delta. In fact, hydrocarbon can continue to be recovered in volumes and stored up for later production, awaiting the time when the market demands for it.
Indeed, there is no better time to act than now.
[1] Nigerian Economic Outline https://santandertrade.com/en/portal/analyse-markets/nigeria/economic-outline
[2] Nigeria Facts & Figures https://www.opec.org/opec_web/en/about_us/167.htm
[3] Oil Reserves by Countries https://www.worldometers.info/oil/oil-reserves-by-country/
[4] Opukri, C.O., Ibaba, I.S., 2008. Oil induced environmental degradation and internal population displacement in the Nigeria’s Niger Delta. J. Sustain. Dev. Afr. 10, 21.