THE CONTRIBUTION OF INSURANCE TO THE NIGERIAN PETROCHEMICAL INDUSTRY: Challenges and Prospects. A RESEARCH PROJECT MATERIAL ON INSURANCE
1.1 BACKGROUND TO THE STUDY
A study of human history reveals a universal desire for security. The quest for security has been one of the most potent and motivating forces in material and Cultural Revolution. Early societies relied on family and tribe cohesiveness for their security. Insurance, in some form, has been a universal response to societies’ quests for security as it covers risks in many aspects of human endeavor including the petrochemical industry (Kenneth and Harold, 2005).
Nigeria’s economy before independence and shortly afterward largely depended on agriculture; this is because a good number of its citizens were farmers. Agriculture then was her only source of foreign exchange through the sale of cash crops. Shortly after the independence and the civil war, Nigerian economy changed because of oil boom in the early 70s. This caused a significant neglect of its agricultural sector and other mineral resources which they are blessed with. The boom attracted foreign investors which include banks, insurance companies, oil producing companies etc. Among the early oil producing companies to exploit its share of Nigeria include British Petroleum Company (now SHELL), Uni Petrol etc.
Petrochemicals are chemicals derived from petroleum or natural gas. They are obtained either directly from cracking (pyrolysis), or indirectly from chemical processing of petroleum oil or natural gas. Major petrochemicals are acetylene, benzene, ethane, ethylene, methane, propane and hydrogen from which hundreds of other chemicals are derived.
The petrochemical industry and the products it makes play an enormous role in our daily lives. Imagine life without gasoline, cosmetics, fertilizers, detergents, synthetic fabrics, asphalt, and plastics. These products and many more are made from petrochemicals.
Petroleum products are used virtually in all major facets of human endeavours, these include: household product manufacturing, transportation, communication etc. Spitz and Peter.H in their book “Petrochemicals: The rise of an industry” argues that the petrochemical industry has become an important sub-sector in the modernization process and industrial growth of many nations. More so, it is a source of revenue generation, foreign exchange earner and high contributor to national output. Thus, our age has aptly been described as the age of petroleum.
Crude oil has become a global commodity because of its extensive applications which are capital intensive (Anthony, 2007). This explains why multinational organizations want to invest in the oil and gas industries to apply their skills in high technology. Also, volatile nature of petrochemical operations makes it risky to handle with utmost diligence; therefore, the importance of insurance is accorded equal degree on importance with the petrochemical industry itself.
As our country’s economy depends largely on oil and its by-products, based on chemicals derived from oil sector and natural gas, it is pertinent that one should consider the risk involved and the types of risks that the petroleum industry is exposed to. It is of paramount necessity to think of appropriate ways of minimizing the risk involved in its operations. Insurance is an appropriate way of handling and reducing these risk exposures. Insurance covers losses or destruction to properties, equipment and machineries, etc., and since petrochemical industries use some of these equipment’s in their operation, insurance is of essence in the industry. Insurance’s most important function is indemnification, and it prevents the petrochemical industry from being handicapped financially or to stop production after a loss.
1.2 STATEMENT OF THE PROBLEM
With the discovery of crude oil in Nigeria, other sectors of the nation’s economy were neglected and given the back seat of the economy while the euphoria associated with the lucrative opportunities that came with the oil sector promoted the sector in the economy. The said promotion and diversion of majority of attention to the oil sector and its lucrative opportunities gave rise to the neglect of some perceived risks faced by the industry, and as well, the neglect of the need for insurance companies.
Nigerian economy has grown rapidly in recent years with strong expansion in the chemical and petrochemical industries, transforming the country into one of the world’s largest producers of chemical products. As the Nigerian economy grows, so does the number of industrial accidents. This gives rise to safety issues, as industrial accidents become a constant occurrence. In the past few years, there have been numerous large-scale industrial fires and explosions, causing widespread public concern and significantly impeding prospects for further development of the petrochemical industry. Also, there have been many lesser-known accidents that caused severe property damage and casualties.