Analysis: Centrifugal Forces Endangering Nigeria’s Crude Oil Production

Nigeria has long suffered from ethnic-related strife. Much of it has been in the Niger Delta region in the southeast of the country, home to most of its oil and gas resources. The latest bout of strife in the Delta, much like earlier ones, has caused a substantial drop in the country’s crude oil production, which is in gradual decline anyways.

This has pushed Nigeria to second place among African crude producers — behind Angola — since March, and contributed to a brief rebound in benchmark light, sweet crude oil prices to over $50 per barrel in the first half of June. Nigeria produced 1.53 million barrels per day (b/d) in July, based on OPEC data, an increase of 148,000 b/d from June levels. These compare to 1.82 million b/d as recently as September 2015, and a peak of 2.48 million b/d in November 2005.

A new militant group with the comic strip-like name of Niger Delta Avengers is leading the latest round of attacks on Delta oil and gas infrastructure. The mostly rural people in the region are ripe for another round of rebellion. They continue to see few benefits from the revenue produced by their oil and gas, while oil pollution fouls their water supplies and fishing grounds.

The combination of substantially lower international crude oil prices and lower domestic crude oil production are hitting Nigeria hard. The International Monetary Fund is forecasting the country’s economy to contract by 1.8 per cent this year. In addition, Nigeria’s consumer price inflation hit double digits in February and is continuing to rise due to the central bank printing money to cover government budget shortfalls.

Despite having a relatively diversified economy compared to many other OPEC members, in 2014, the last year of relatively high prices for its mainly light, sweet crude oil, revenue from oil and gas accounted for 58 per cent of Nigerian government revenue and 95 per cent of total exports.

The Nigerian government has diverted troops from fighting Boko Haram, the Islamic State-affiliated separatist group in the country’s northeast, to the Christian southeast in an attempt to protect oil and gas infrastructure from sabotage, kidnappings and oil theft. But as previous experience has shown, it is difficult to defeat militants in the Delta swamps.

In 2009, the Nigerian government capitulated and implemented the Niger Delta Amnesty Program to stop attacks on oil and gas infrastructure by the Movement for the Emancipation of the Niger Delta (MEND). This program, the most expensive of its kind in the world, provided cash giveaways and job training to MEND’s 30,000 purported fighters. Due to budgetary constraints it was ended late last year, and has been identified as one of the reasons for the recent rise of the Avengers and less well known copycat groups.

Rather worryingly from the perspective of the Nigerian government, the ultimate goal of the Avengers appears to be outright secession for the Delta provinces, harkening back to the 1967-70 Biafra War. In contrast, MEND’s stated goals were to gain control over the region’s oil and gas revenues and secure reparations from the federal government for oil-related pollution.

The leadership of the Avengers may smell blood with ethnic strife on the rise across the country and a lack of military and economic resources to counter them. Besides war against Boko Haram in the northeast and new attacks on Niger Delta militants, the military is also attempting to quell communal violence in central Nigeria between nomadic Fulani herdsman and primarily Christian farmers.

Looking forward, Nigeria will likely continue to see a gradual decline in its crude oil production. At least sporadic ethnic strife will continue to retard exploration, development and production activities in the country. Exploration is at its lowest level since the birth of the Nigerian oil industry in the 1950s.

This probable decline in Nigerian crude oil production is despite numerous deep offshore oil projects in the planning stages. According to the U.S. Energy Information Administration, these projects amount to almost 1.1 million b/d of potential new production capacity. These sophisticated projects require the deep pockets and technical expertise of major international oil companies, but these sorts of companies have been abandoning Nigeria in recent years.

A less likely scenario is the people of the Delta region again attempt to achieve political independence from Nigeria through military means. In this case, the country’s crude oil production is likely to fall precipitously, as it did during the early part of the Biafra War. In the past, Nigeria’s offshore production has been relatively immune to conflict in the Delta. But Chevron Corp. was forced to shut-in about 35,000 b/d of crude production in early May following the Avengers successfully attacking the shallow water Okan platform.

Vincent Lauerman is president of Geopolitics Central, a Calgary-based consultancy.