Economics · Lesson 15

Natural resources and the petroleum industry

JAMBWAECNECO

What the syllabus asks

JAMB: Natural resources and the Nigerian economy: development of the petroleum industry; contribution of oil to the Nigerian economy; linkage effects; the role of the NNPC; problems of the oil industry; Nigeria and OPEC; other mineral resources

WAEC: Natural resources: meaning and types (renewable and non-renewable); mineral resources in Nigeria and their location; the petroleum industry – history, upstream and downstream activities, contribution to the economy, problems and effects on other sectors; conservation of resources; role of OPEC

NECO: Natural resources: meaning and types (renewable and non-renewable); mineral resources in Nigeria and their location; the petroleum industry – history, upstream and downstream activities, contribution to the economy, problems and effects on other sectors; conservation of resources; role of OPEC

What you will learn

Define natural resources and distinguish renewable from non-renewable resources.
Name Nigeria’s main mineral resources and their locations.
Trace the development of the petroleum industry and describe upstream, midstream and downstream activities.
Explain the contribution of oil to the Nigerian economy and calculate oil revenue figures.
Explain the problems of the oil industry, the Dutch disease and the effects on agriculture.
Explain conservation, NNPC’s role and Nigeria’s membership of OPEC.

Key points

Natural resources: renewable (forests, fish) and non-renewable (oil, coal, tin).
Minerals: oil and gas – Niger Delta; coal – Enugu; tin – Jos; limestone – cement areas; iron ore – Itakpe.
Oil found at Oloibiri 1956; exported 1958; OPEC 1971; NNPC 1977; PIA 2021.
Upstream (exploration, production), midstream (pipelines), downstream (refining, retail).
Oil supplies the bulk of export earnings and much government revenue.
Problems: dependence, spills, gas flaring, theft, conflict, refinery failure, corruption.
Dutch disease: resource boom strengthens currency and harms agriculture and manufacturing.
Manage oil wealth with savings funds, benchmark prices, transparency and diversification.
Conservation ensures sustainable use.
OPEC uses quotas to influence prices.

Start here: Meaning and types of natural resources

The crude oil beneath the Niger Delta, the coal of Enugu, the tin of the Jos Plateau, the forests of Cross River and the fish of Lake Chad are all natural resources.

Natural resources are materials and conditions provided by nature, such as land, minerals, water, forests, wildlife and climate, which can be used to produce goods and services.

Types

Renewable: replaced naturally over time if not over-used: forests, fish, soil fertility, water, solar and wind energy.
Non-renewable: exist in fixed quantities; once used they are gone: crude oil, natural gas, coal, tin, gold, limestone.

Natural resources fall under the factor land in economics; their reward is rent (including royalties).

Whether a resource is useful also depends on technology and prices. Crude oil was of little value before the internal combustion engine; deep offshore oil became worth extracting only when technology improved and prices were high enough. So a country’s resource base is not fixed: it grows with knowledge, investment and demand.

Importance of natural resources

Raw materials for industry.
Sources of energy.
Export earnings and government revenue.
Employment.
Attract foreign investment.

Worked example 15.1

Classify as renewable or non-renewable: (a) natural gas; (b) timber; (c) solar energy; (d) limestone.

(a) Non-renewable.
(b) Renewable (if trees are replanted).
(c) Renewable.
(d) Non-renewable.

Non-renewable; renewable; renewable; non-renewable

⚠️ Common mistake: assuming renewable resources can never run out. Over-fishing and deforestation can exhaust them if use exceeds natural replacement.

Try it yourself. Under which factor of production are natural resources classified?

Show solution

Land; reward: rent.

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Practice questions

1. Which is a non-renewable resource?

Crude oil
Forest
Fish
Solar energy

Show answer

A: Crude oil
Oil cannot be replaced once used.

2. Crude oil was first discovered in commercial quantity in Nigeria at

Enugu
Jos
Itakpe
Oloibiri

Show answer

D: Oloibiri
In 1956, in present Bayelsa State.

3. Nigeria began exporting crude oil in

1971
1977
1958
1956

Show answer

C: 1958
First shipment from Oloibiri in 1958.

4. Nigeria joined OPEC in

1999
1971
1960
1958

Show answer

B: 1971
OPEC was founded in 1960.

5. The NNPC was established in

1977
1956
1971
2021

Show answer

A: 1977
It merged the NNOC and the ministry's petroleum department.

Key words

Natural resources: Gifts of nature such as land, minerals, forests and water used in production.
Renewable resource: A resource that can be replaced naturally, e.g. forests, fish.
Non-renewable resource: A finite resource that cannot be replaced once used, e.g. crude oil.
Crude oil: Unrefined petroleum extracted from the ground.
Upstream sector: Exploration, drilling and production of crude oil and gas.
Midstream sector: Transportation (pipelines), storage and processing of oil and gas.
Downstream sector: Refining, distribution and retail marketing of petroleum products.
Royalty: Payment to the resource owner (government) per unit of resource extracted.
Joint venture: Arrangement in which government (through NNPC) and oil companies share costs and output.
Production sharing contract: Arrangement in which an oil company bears exploration costs and shares output with government.
Gas flaring: Burning off natural gas produced with crude oil.
Dutch disease: Decline of other export sectors caused by a natural-resource boom that raises the exchange rate and costs.

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