Political Uncertainty May Hinder Nigerian Oil Output



Barclays Capital in a Dec. 30 report said that the resumption of political uncertainty and violence may hinder the recent growth in Nigerian oil output, which climbed to a two-year high of 2.3 million b/d after dropping to a low of 1.7 million b/d in mid-2009.

Deadly bombing and shootings over the holiday season served as reminder of the divisions the country faces as it heads into the 2011 elections in April, Barclays noted in a Jan. 6 report. While localized violence occurred prior to the 2003 and 2007 elections, the upcoming presidential election appears to be far more polarizing as there is no single elite consensus candidate and many prominent Northerners are adamantly opposed to the Jonathan presidency, Barclays said.

The Nigerian economy is heavily dependent on the oil sector which, according to the International Monetary Fund, accounts for over 95 percent of export earnings and about 65 percent of government revenues, the U.S. Energy Information Administration (EIA) reported in July of last year.

Since December 2005, Nigeria has experienced problems with increased pipeline vandalism, kidnappings and militant takeovers of oil facilities in the Niger Delta, one of the areas of Nigeria that holds the majority of the nation's oil and gas reserves. The Movement for the Emancipation of the Niger Delta is the main group attacking oil infrastructure for political objectives, claiming to seek a redistribution of oil wealth and great local control of the sector. Oil worker kidnappings have been common, and security concerns have led some oil services firms to pull out of the country and oil workers unions to threaten strikes over security issues.

The instability in the Nigeria Delta has caused significant amounts of shut-in production and several companies to declare force majeure on oil shipments. EIA estimates Nigeria's nameplate oil production capacity to have been around 2.9 million b/d at the end of 2009 but as a result of attacks on oil infrastructure, monthly crude oil production ranged between 1.6 million b/d and 2.0 million b/d.

While the country holds the largest natural gas reserves in Africa, there is limited infrastructure in place to develop this sector. Gas associated with oil production is mostly flared but the development of regional pipelines, the expansion of liquefied natural gas infrastructure and policies to ban gas flaring are expected to accelerate growth in the sector, both for export and domestic use in electricity generation.

The Nigerian government has sought to remedy problems with oil theft, pollution, and limited infrastructure with the Petroleum Industry Bill; however, the bill is still being debated in Congress more than a year and a half after first being introduced.



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