Oil in Nigeria and sub-Saharan Africa (Term Paper Sample)

Oil in Nigeria and sub-Saharan Africa
[Name]
[Instructor]
Introduction
After a half- century of exploration, oil was discovered in Nigeria in 1956. The discovery was made at Oloibiri, which is in the Niger Delta. The discovery had been made by Shell-BP, which happened to be the only concessionaire at the time. By the year 1958, Nigeria had joined the league of major oil producers when the first oil field managed to produce 5,100 BPD. Exploration rights were extended to foreign companies after 1960. Nigeria went on to join OPEC in 1971 and then established a state-owned corporation (NNPC) Nigeria National Petroleum Company (Amadou, 2014).
Over 90 percent of Nigeria’s gross earnings is from oil trade and, therefore, the commodity forms a large part of its economy. Oil exports also account for a large percent of GDP in other oil producing countries in Africa like Gabon, the Republic of Congo, Angola and Equatorial Guinea. The falling oil prices, therefore, have an adverse impact on the economies sub-Saharan African countries where oil is responsible for 75 percent of revenues.
By mid-July of 2014, there were signs of global oil demand disappearing, this promptly affected the price of hit US $ 80/bbl. The price at the pump also went down. Low prices of oil in turn affected oil producers’ currencies, Nigeria being among them. Sub-Saharan African countries that export oil like Nigeria and Gabon will find it hard to pay their debts because the decrease in oil revenue and the depreciation of their currencies will definitely make the U.S dollar denominated debt to be higher (Amadou, 2014)
Political risks due to fall in oil prices
Subsequently the economic effect of the decreasing oil prices leads to an increase in political tension in African countries like South Sudan. The young nation is experiencing the least oil prices at the moment in a range of $20-$25 a barrel. This is a result of the fall in prices of oil combined with poor pipeline contracts. Part of South Sudan negotiation leading to their independence involved making a fixed payment for the use of pipeline that pass through Sudan, thus the falling oil prices are decreasing their profit margin (Blake & Nathanial, 2013).
South Sudan had a bet on $100 per barrel price and made a pledge of payment at $11 per barrel. Therefore, the decreasing in oil price is not going well with South Sudan. In a similar way, Nigeria ought to watch for the increasing investors’ nervousness due to Boko Haram. When investors get scared and become more risk alert, they usually overlook measures put in place by authorities to contain the effect of falling prices.
Decrease of demand in emerging markets
There has been a drop in demand for oil across Europe, India, China, Brazil, Japan and other parts of the emerging markets for oil. The drop in demand can be attributed to any factors like the slow growth in the economy and the increase in global oil produce (particularly in North America). In August 2014, Saudi Arabia decided to reduce its oil output by 400,000 barrels per day. The move is seen as defense of its market share in fall of global oil prices (Amadou, 2014).
Only the major exporters of oil like the Arab countries can survive the fall in oil prices. This is because they have small population, big foreign currency reserves and they experience low cost in production. Nigeria, Russia, Colombia and Venezuela are currently the biggest losers from the decrease in oil prices, according to Neil Shearing, a market economist based in London.
America’s production of oil has gone twice in the last five years as a result of the new drilling technologies. United States has gone on to be the largest producers of oil and gas, overtaking Russia as Saudi Arabia comes third. With an increase in production of oil and the demand going down as a result of slow economic growth, a collapse in the price is bound to continue. Sub-Saharan African countries like Nigeria whose economies largely depend on oil will remain hard hit by the condition.
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