2.

0 OIL AND GAS INDUSTRY

2.1 An Overview of Oil and Gas Industry in Nigeria

Nigeria has a population of over 110 million people and an abundance of natural resources,
especially hydrocarbons. It is the 10th largest oil producer in the world, the third largest in Africa
and the most prolific oil producer in Sub-Saharan Africa. The Nigerian economy is largely
dependent on its oil sector which supplies 95% of its foreign exchange earnings.

The upstream oil industry is the single most important sector in the economy. According to the
2008 BP Statistical Energy Survey:

 Nigeria had proven oil reserves of 36.22 billion barrels at the end of 2007 or 2.92 % of
the world's reserves. The Nigerian government plans to expand its proven reserves to 40
billion barrels by 2010. Most of this is produced from the prolific Niger River Delta.
Nigeria’s wealth of oil makes it most attractive to the major oil-multinationals, most of
whom are represented in Nigeria, with the major foreign stakeholder being Shell. Nigeria
produced an average of 2355.8 thousand barrels of crude oil per day in 2007, 2.92% of
the world total and a change of -4.8 % compared to 2006.

 Nigeria has current proven natural gas reserves of 160 trillion cubic metres. Due, mainly,
to the lack of a gas infrastructure, 75% of associated gas is flared and 12% re-injected.
Nigeria has set a target of zero flare by 2010 and is providing incentives for the
production and use of gas. The government also plans to raise earnings from natural
gas exports to 50 percent of oil revenues by 2010. It has been reported in the 2008 BP
Statistical Energy Survey that Nigeria had 2007 natural gas production of 34.97 billion
cubic metres, 1.18% of the world total.

It is significant to mention that Nigeria's downstream oil industry is also a key sector, which
includes four refineries with a installed capacity of 438,750 bbl/d. Problems such as fire,
sabotage, poor management, lack of turn around maintenance and corruption have meant that
the refineries often operate at 40% of full capacity, if at all. This has resulted in shortages of
refined product and the need to increase imports to meet domestic demand. Nigeria has a
robust petrochemicals industry based on its substantial refining capacity and natural gas
resources. The petrochemical industry is based at Kaduna, Warri and Eleme.

Until 1960, government participation in the oil industry was limited to the regulation and
administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC
resolutions, the Nigerian National Oil Corporation (NNOC) was established, later becoming
NNPC in 1977. This giant parastatal, with all its subsidiary companies, controls and dominates
all sectors of the oil industry, both upstream and downstream.

Upstream

The upstream oil industry is the single most important sector in the country's economy, providing
over 90% of its total exports.

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 Oil is produced from five of Nigeria’s seven sedimentary basins: the Niger Delta, Anambra,
Benue Trough, Chad, and Benin. The Niger Delta, the Onshore and Shallow Offshore basins
can be considered fairly well to well explored. Ventures here are low risk and the basins contain
about 80% of producing wells drilled in Nigeria. During the later 1990s exploration focus turned
to high risk ventures in the frontier basins of the deep water offshore with encouraging success.
These ventures are becoming increasingly attractive with developments in deepwater
exploration and production technology.

Its crude oils have a gravity between 21·API and 45·API. Its main export crudes are Bonny Light
(37·) and Forcados (31·). About 65% of Nigeria’s oil is above 35·API with a very low sulphur
content. Nigeria’s OPEC quota is 1.89 million bbl/d.

Downstream

The downstream oil industry in Nigeria is another key sector in the country's economy. The
country has four oil refineries and there are eight Multi-national Oil Companies and 750
Independent Marketers all active in the marketing petroleum products. Cross-border smuggling
is an ongoing problem and there are frequent reports of large scale corruption in the distribution
and marketing chain. The government through its 100% state-owned national oil company,
Nigerian National Petroleum Corporation (NNPC) has had an all encompassing control over the
industry through its shareholding in all the companies involved and in the setting of wholesale
and retail prices.

2.2 Oil and Gas Exploratory and Production Facilities in Nigeria (187)
There are about 187 Oil and Gas Exploratory and Production Facilities in Nigeria
 Complex Crude Oil Refineries –5
 Gas Fields -3
 Offshore Concession - 53
 Crude Petroleum Oil Fields - 94
 Onshore Concession - 32

Industry Sector Profiles for Oil and Gas in Nigeria (7)

 Extraction of Crude  Oil and Gas (General)  Petroleum Lubricating

Petroleum  Oil Refining Oil and Grease
 Natural Gas Liquid  Petroleum and Manufacturing
Extraction Petroleum Products
 OiI and Gas Industry Wholesalers
Regulation

2.2.1 Activities in the Upstream Sector

Activities in the Upstream Sector of the Oil and Gas Industry include:

 Surveying: Geodetic control establishment; Mapping, tropical and plan metric; and Sea
Bottom Survey/Investigation.

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  Civil Works: Site Surveys; Preparation of drilling locations; Construction of mud pits and
slabbing or concreting jobs at rig sites. Supplies of cement, chemicals, sands, gravel,
iron rods, labour, road mat, timber, etc.
 Seismic Data Acquisition and Interpretation: Analysis and interpretation of data acquired
from seismic and geodetic surveys - such data on soil land rock samples.
 Geological Activities: Wire line, logging, core analysis, geological and geochemical
studies.
 Drilling Operations: Drilling and work-over rigs; field transportation and equipment for
haulage and rig movements; general and specialized service such as casing running,
cementation, welding, diving and catering; and provision of mud and other chemicals.
 Crude Oil Transportation & Storage: Construction and maintenance of crude oil storage
tanks and pipelines.
 Exploration and Production: Investors wishing to participate in this venture are welcome.
This involves applying for block(s) for exploration through the oil prospecting license
(OPL) and the oil-mining lease (OML). Currently, emphasis is shifting from production
sharing contract (PSC) to Service Contract. Pursuant to the latter, the Oil Exploration
License (OEL) confers on the licensee, renewable on expiration.

Offshore Drilling

Offshore drilling for oil and natural gas on the continental shelf is carried out in many waters and
at large depths. Oil wells are drilled from modern steel or concrete structures. These structures
are, in many cases, movable. What is more, they can float while being moved, and often while
drilling. Further, offshore rigs have drilled in waters over 7,500 feet (over 2,200 meters) deep
and as far as 200 miles (over 300 kilometers) from shore". In Nigeria a significant number of oil
and gas wells have been drilled and are producing both Onshore and Offshore.

2.2.2 Activities in the Downstream Sector

Activities in the Downstream Sector of the Oil and Gas Industry are as follows:

Refining

 Investors can set up and wholly own a refinery.

 Companies with the technological know-how can undertake turn-around maintenance of
refineries.
 There is tremendous scope for small-scale joint venture manufacture of spare parts,
chemicals with technical foreign partners.
 Also opportunities exist in the manufacture of other special products such as
(a) Industrial and food grade solvents;
(b) Insecticides
(c) Cosmetics
(d) Mineral oil, petroleum jelly greases;
(e) Bituminous-based water/damp proof building materials such as floor tiles,
(f) Exports of refined products surplus;

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 Petrochemicals

A three-phased petrochemical development plan is in place.

The first phase is already in place producing:

 Linear alkyl – benzene, carbon black and polypropylene.

 Carbon black, used for manufacture of tyres, rubber products, pigments, printing inks,
polish, etc;
 Linear alkyl – benzene, used as an active agent in the production of detergents and
shampoos.
 Polypropylene – used as raw material in the production of injection moldings, fiber
extrusion, shipping sacks, prayer mats, carpet underlay and cloth wrap.

Second Phase

 An olefin based complex has been commissioned; and Investors can engage in products
fabrication.

 Gas Development and Conversion

Government has opened the sector to foreign investment and is willing to consider
appropriate tailor – made incentives for projects in this sector. Opportunities which
abound in this sector for investors include:-

 Natural Gas Pipeline Network

Plans are a foot to build and extend gas pipeline in view of the importance of gas.
Investors wishing to set up energy intensive industries such as cement factories, iron
smelting and foundries will have a significant cost saving if gas is used as fuel.

 In furtherance of the spirit of the treaty of ECOWAS (the Economic community of West
African States) which seeks to encourage co – operation between member states for the
overall improvement of their economies, Nigeria has completed the installation of the
West African Gas Pipeline as a means of meeting the energy requirement of Ghana,
Togo and Benin Republic by supplying them with natural gas from Nigeria on purely
commercial terms.

 The Liquefied Natural Gas Project (LNG)

The Nigerian LNG project is being implemented in phases with an initial production from
two trains. The plant is situated at Bonny Island. NLNG has successfully secured market
for its moderate production volume from its base project and train three.

 NEW GAS SYSTEMS

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 There is more Gas than Oil, in Nigeria. While the country's oil reserve could last for
about 31 years that of gas could be depleted in about 72 years, according to recent
authoritative report.

In spite of this abundance, local gas utilization is constrained by limited transmission

systems and even lack of same in some parts of the country. This hinders greatly, the
transmission, distribution and marketing of the product in many parts of the nation.

Currently, there is a proposal by the Nigerian government to construct additional four

transmissions systems including Ajaokuta – Abuja - Kaduna, and Aba – Enugu - Gboko
at the estimated cost of $2 billion.

3.0 POLLUTION IN OIL AND GAS INDUSTRY

Environmental Pollution arising from activities, operations and processes in the Oil and Gas
Industry is indeed very significant and cannot be over-emphasized. Oil and Gas Installations in
the Upstream Sector in Nigeria are located in the Niger-Delta Region, which is a mostly marine
environment.

3.1 Oil Pollution of the Marine Environment

Tables 3.1 show the variety of oil pollution sources, estimates of the scales of distribution and
impact of each of these sources on the marine environment. Even though these estimates can
vary up to 1-2 orders of magnitude (especially in cases of natural oil sources, atmospheric input,
and river runoff), it is generally agreed that the main anthropogenic flows of oil pollution into the
marine environment come from land-based sources (refineries, municipal wastes, river runoff,
and so on) and transportation activity (tanker oil transportation and shipping). Enough evidence
exists to support this opinion [NRC, 1985; GESAMP, 1990; 1993]. Polycyclic aromatic
hydrocarbons (PAHs), especially benzo(a)pyrene, enter the marine environment mostly due to
atmospheric deposition (Neff, 1979).

Table 3.1 Sources and Scale of Oil Pollution Input into the Marine Environment

(Note: +, -, and ? mean, respectively, presence, absence, and uncertainty of corresponding

parameters).

Scale of Distribution and

Environment
Impact
Types and Source of Input
Hydrosphere Atmosphere Local Regional Global

Natural:
+ - + ? -
Natural seeps and erosion of bottom sediments

Biosynthesis by marine organisms + - + + +

Anthropogenic: + - + + ?
Marine oil transportation (accidents,

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 operational discharges from tankers, etc.)

Marine non-tanker shipping (operational,

+ - + ? -
accidental, and illegal discharges)

Offshore oil production (drilling discharges,

+ + + ? -
accidents, etc.)

Onland sources: sewage waters + - + + ?

Onland sources: oil terminals + - + - -

Onland sources: rivers, land runoff + - + + ?

Incomplete fuel combustion - + + + ?

Traditional shipping and oil transportation routes are more exposed to the impacts of oil-polluted
discharges from tankers and other vessels than other areas. For example, observations in the
Caribbean basin [Atwood et al., 1987; Jones, Bacon, 1990; Corbin, 1993], where annually up to
1 million tons of oil enter the marine environment, showed that about 50% of this amount came
from tankers and other ships [Hinrichsen, 1990].

Between 0.5 and 1 million tons of oil were released into the coastal waters. Besides, products of
combustion of over 70 million tons of oil and oil products were emitted into the atmosphere
[Fowler, 1993]. Another large-scale accident occurred in Russia in September-November 1994.

It must be remembered that catastrophes, in spite of the obvious consequences and all the
attention they attract, are inferior to other sources of oil pollution in their scales and degree of
environmental hazard. Land-based oil-containing discharges and atmospheric deposition of
products of incomplete combustion can accordingly give 50% and 13% of the total volume of oil
pollution input into the World Ocean (see Table 2).

The major potential environmental effects from offshore drilling occur from the discharge of
wastes, including drilling fluids (also referred to as drilling muds), drill cuttings and produced
formation water. The decommissioning of platforms/rigs is also a potential environmental
problem.

3.2 Types and Nature of Pollution

Pollution arising from the Oil and Gas Industry may be due to liquid, solid and gaseous wastes.
The types, sources and nature of pollution are described based on the Sectors:

3.2.1 Upstream Sector

The waste streams commonly encountered in the Upstream Sector of the Oil and Gas Industry
are as follows:

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  Produced Water.
Produced water, water produced in association with crude oil, is by far the largest waste
stream in most oil fields, accounting for up to 95 percent of total wastes. It is composed
of natural underground saline formation brines combined with water injected into the
formations from the surface to enhance recovery of the oil in a process called
“waterflooding.” In mature fields the amount of this water produced often exceeds the
amount of oil. For some Oil Fields such occurrence may result in the generation of
excessive quantity of produced water daily. Also operations at second-generation
oilfields might reuse much of their produced water for enhanced oil recovery.

Specifically produced water is treated to remove solids and traces of oil and then
returned to the formation to be reused in water-flooding. The solids are removed
during treatment, as their reinjection might plug the subsurface formation. Not all
produced water is treated for continued water-flooding; some is only cleaned up
sufficiently to re-inject it for disposal in highly permeable zones at depths of several
thousand feet. It was suggested that other industries may be able to provide improved
technologies for handling produced water.

 Miscellaneous Surface Waters.

These waste waters include non-exempt “relatively clean” waters such as some run-off
from cleaning vehicles and shops, and non- process industrial waste waters like engine
coolant and unused cement slurry. These waste waters range from ones containing
practically no contaminant to waters like cement slurries which clearly require treatment
before they can be discharged or recycled.

The standard practice for recycling or disposing of these waste waters has been well stipulated
by FMENV and DPR. Contaminants in these cases may be traces of hydrocarbon from small oil
spills, or even the suspected presence of a non-exempt contaminant. These wastes are
routinely tested for contaminants and treated as if they were contaminated.

 Drilling fluid (drill mid)

Drill mud (also called cutting mud) is a complex colloidal mixture of water,
bentonitic clays, chemical additives, and trace amounts of oil from cuttings of the
hydrocarbon-bearing zones. This mud serves several purposes in oil drilling as it is
circulated down the inside of the rotating drill from the surface and backup the annular
space between the drill pipe and the drilled hole. At the drill bit/rock interface, it cools
and lubricates the cutting action. As it flows up the annular space, it lifts rock chips which
can then be screened out at the surface. Most important, the column of mud creates
hydrostatic pressure which keeps pressurized oil or gas from being expelled
uncontrollably (a “blowout”). Much of this drill mud is recycled, but after repeated use it
picks up fine rock particles and water soluble subsurface minerals until it is no longer
economically practical to recondition it. The colloidal mass can then be separated from
the water either by centrifugal processes or by simply allowing it to settle in a pit. The
remaining fluid is then disposed of by deep injection. Much progress has been made in
the last decade in the employment of low toxicity mud additives, which has enabled the
DPR to issue permits for offshore discharges of treated muds and cuttings.

 Drill cuttings
Drill cuttings are the pieces of rock and soil removed from the ground as a drill bit cuts a
hole for a well. Present technology for disposal of these cuttings is to bury them in a non-

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 leaching lined landfill. In some oil fields drill cuttings are ground using a ball mill. The
ground material is then made in slurry form and injected into a permeable subsurface
formation.

 Work-over and completion wastes

Work-over and completion wastes result from operations where an oil well’s head is
partially open to the atmosphere and is filled with a water base fluid that maintains
pressure on the formation to prevent blowout. Work-over fluid is injected into such a well
while the well’s interior tubing string, valves, packer gaskets, or other components are
undergoing maintenance. When maintenance is complete, the work-over fluid is
removed from the well before starting routine operation. Completion fluids are typically
used in a well when the well casing is perforated just before starting production. Both
fluids become contaminated with oil and formation brine.

 Proppants/frac sand
Proppants (also called “frac sand”) refers to the aluminum silicate beads of varying sizes
injected into wells to hold formation fractures open, thus increasing subsurface oil flow to
the wells. When these materials are transported back to facilities with crude oil from the
wells, the beads settle out, along with formation sand, to form a semi-solid sludge in the
bottoms of vessels.

 Bottom wastes
Tank bottom wastes are a type of sediment that accumulates in oil field vessels and
pipelines when fluid turbulence is low. These dense sludges are composed of crude oil,
paraffin, asphaltics, reservoir material, drilling mud, and slightly radioactive material
(called NORM--“naturally occurring radioactive material”), in addition to the frac
sand/proppant discussed above.
Historically, bottom waste has been put into lined oily waste pits either for permanent
burial or for temporary storage until it can be treated to remove hydrocarbons, usually by
thermal processes.

 Dehydration and sweetening wastes

Polyols and glycols are used in the oil and gas industry as antifreeze additives and to
remove traces of water from natural gas streams in the production of fuel gas. Waste
dehydration polyols and glycols sometimes emit traces of benzene. Identifying an
inhibitor chemical or process of benzene formation in these processes was suggested as
a worthwhile research objective.

 Hydrogen sulfide (H2S)

Hydrogen sulfide, a corrosive gas more toxic than hydrogen cyanide, is emitted by
sulfate-reducing bacteria growing in subsurface formations and oil field surface
equipment. The evolution of hydrogen sulfide is currently inhibited by using powerful
biocides like acrolein and formaldehyde, which unfortunately, are highly toxic and
dangerous materials.

 Oily debris and filter media

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 Oily debris saturated with crude oil comes from oil spill cleanups (minor and major) and
can include oily soil and gravel. Similarly, filter media used for filtering crude oil may
become saturated with oil.

 Hydrocarbon wastes
In Nigeria and elsewhere oil fields generate waste hydrocarbons such as “dirty diesel”
fuel contaminated from pressure testing pipelines. Hydrocarbon waste is currently
assessed for significant organic halides (which might poison refinery catalysts), filtered,
commingled and processed with the crude oil stream from a field, and then sold to a
pipeline.

 Camp wastes
Oil Company Camps (e.g. Chevron, Mobil, SPDC etc.) generate wastes equivalent in
quantity to those of small municipalities. The camp wastes include used batteries,
radioactive materials, wood pallets, wood cribbing, thread protectors, reusable bins
(“liquid-bins”) and spent vehicle lube oil.

 Halons and other CFCs.

Large volumes of halon (an ozone-depleting chlorofluorocarbon) are currently
being used in oil and gas production as a fire and explosion suppressant.

 Garnet filter media.

The large sea water filtration plants on the North Slope typically use garnet particles as
filter media to remove suspended solids from sea water before the water is injected into
the oil fields to increase oil recovery. Several tons of the inert, deep red, spent garnet
filter media is generated each year.

 Naturally Occurring Radioactive Material

Naturally Occurring Radioactive Material (NORM) is produced in solution with oil field
brines and deposited as scale on the inside of oil field vessels and piping. Its
radioactivity (rated as “low specific activity” by the Nuclear Regulatory.

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