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Petroleum, also called crude oil, is formed from the decay of deep buried organic matter since ancient times. Petroleum is extracted from sea, ocean or ground sources by drilling oil wells in the sources, the oil extracted is then refined through a process known as ‘fractional distillation’ in which all constituents of crude oil are separated in fractionating columns when subjected to different and certain heat levels.
The refined products of petroleum are fuel (gasoline), diesel, cooking gas, asphalt, grease, engine oil, kerosene, plastics, rubbers, road tar, pharmaceuticals, cosmetics and so on. Most of these refined products have domestic importance which include but aren’t limited to home use, transportation, energy generation and industrial use. They therefore possess high economic importance and market demand which yields high production output by the sector, this in turn boosts profits to ensure revenue allocation to the government, all these lead to a buoyant economy. About 100 countries are confirmed to have petroleum sources worldwide, nonetheless 15 are major oil producers or have one of the world’s largest oil reserves.
Nigeria, a West African country with rich sources of petroleum homing the 10th biggest oil reserve of 37.5billion barrels in the world. It produces 2.1million barrels p/d and consumes 500,000 barrels p/d. Petroleum is the main source of revenue for the country which means the country relies solely on the oil and gas sector that any trend in the industry will have a great influence on the country’s economy.
In 2021, Nigeria exported $41.8B worth of crude petroleum making it the 7th largest exporter of crude petroleum in the world. Also in the same year, crude petroleum was the 1st most exported product in Nigeria with the United States amongst the main destinations. The nation’s demand for petroleum and its products (gasoline especially) is high. Gasoline one is the most consumed of all petroleum products since its economic activities are mostly dependent on it ranging from transportation, heating to power generation for production.
Despite being a top producer of oil, the country however lacks operating refineries and most of its petroleum is refined overseas and then transported back. These increase the costs of production causing a hike in the price of gasoline and most other commodities, and consequently forces the nation’s government to subsidize gasoline (although it has been removed by the current president of the country and the cost of most commodities have skyrocketed).
Luckily, the tides have turned, and it may be a new era for the Nigerian petroleum industry as the first private refinery owned by Africa’s richest man ‘Aliko Dangote’ has been inaugurated by the government of the country on the 22nd of May 2023. The refinery boasts of being one of the biggest in Africa with a productive capacity of 650,000 barrels of oil per day, which is even more than substantial to meet the country’s daily demand for petroleum.
The United States economy thrives on the oil sector as well. The American petroleum industry creates employment for about 10.3million people. The US produces over 14 million barrels of oil in a day and consumes about 20 million barrels (making it the top consumer of petroleum globally) which is over its daily productive capacity, it imports petroleum from other countries to balance with its daily internal production to meet its domestic demand. Nigeria was a major exporter of petroleum to the United States with an average of 1000 barrels p/d from 2000-2021, although it was reported to have ceased import from the West African country in 2014 (July and August) relating to discovery of petroleum by Shale oil in large quantities in the United States, it however resumed importing from Nigeria in limited quantities only.
More so, because of the 1973 OPEC oil embargo, America created the Strategic Petroleum Reserve (SPR) in 1975, it established the law to minimize the effect of severe energy supply interruption such as of the embargo. In 2010 the level of the reserve was at its peak of 726.6million barrels. Since 1984, the level has never been lower until presently, on 31st of March, 2022 (in order to tackle the hike in oil and gasoline prices) the president of the United States ‘Joe Biden’, declared to tap into the reserve to supply 1 million barrels of oil per day for 6 months which has led to a decrease in the reserve causing it to be at its lowest (434.1million barrels) since the 80s (450 million barrels).
Aside from the SPR, the USA has the world’s 9th largest petroleum reserve of 50 billion barrels of petroleum, which unfortunately, when calculated, will last America for 5 years because of its rate of consumption of petroleum and its products.
Some of the top producers of oil are members of an organization called OPEC. The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental organization founded in 1960, in Baghdad. It is responsible for regulating and coordinating policies for petroleum production to ensure orderliness in the oil market. This organization is made up of 13 countries (Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela), they’re either leading oil producers or have a momentous investment in the oil industry. OPEC has an extensive influence on global oil prices as it attempts to manage oil availability to sway the oil price in the global market.
In other words, the cartel oversees the flow of petroleum in the world market by directing the production rate of its member countries. Surprisingly, on April 2, 2023, OPEC along with non-members of the organization in the petroleum industry (both of which form OPEC+) cut oil production recently to protect its revenue due to the depreciating value of US Dollars and also to protect the global oil market stability. Saudi Arabia and Russia will be the first in making the proclaimed cuts, with a decrease of 500,000 barrels each, followed by Iraq, United Arab Emirates and Kuwait. Nigeria, Congo and Angola are however an exception as they will continue to produce maximally to meet their OPEC quota of 2023.
Oil and gas are one of the most lucrative sectors and the driving force of the global economy. Most of the largest companies such as automotive companies, energy companies, pharmaceutical companies and the likes are in the petroleum industry, hence making it a predominant sector amongst all others. Petroleum industry is extremely beneficial to the global economy, only if managed properly otherwise it would be a curse.