The ‘not so good’ awaiting Nigeria Oil industry amid the threat of falling prices in 2016

Workers at a rig in Nigeria. Photo by BUSINESS DAILY

Workers at a rig in Nigeria. Photo by BUSINESS DAILY

This coming year is shaping up to be a difficult one for economies that are disproportionately dependent on oil.

This is especially true for Nigeria, where there’s a possibility of renewed conflict in the country’s oil-producing Niger Delta region, according to SBM Intelligence’s recently published “Nigeria in 2016” report.

The global oil picture is stacked against countries like Nigeria, in which oil constitutes some 10% of the country’s GDP.

Oil plunged to under $38 a barrel by December, with Goldman Sachs raising the possibility that the price could go as low as $20 in the coming year. The implementation of the Iran nuclear deal, expected to occur sometime in early 2016, will lift sanctions on the country’s oil exports, bringing a heightened supply to the international market at a time when prices are already depressed.

The rivalry between Saudi Arabia and oil producers Iran and Russia might also encourage Riyadh to raise production in order to drive down prices and cut into their opponents’ bottom line. A peace deal in Ukraine — an outside possibility in 2016 — would assumably lift sanctions on Russian oil and gas as well.

Nigeria, Africa’s largest economy and most populous country with over 180 million citizens, faces an additional challenge. As the SBM Intelligence report recounts, “2015 will also mark the end of the Presidential Amnesty Programme (PAP) which ended a petro-insurgency in Nigeria’s oil-rich Niger Delta region.”

Nigeria was the world’s 12th-largest oil producer in 2014, extracting some 2.4 million barrels a day — thanks in large part to oil production in the delta.

The delta insurgency, which began in 2004, was a reaction to the government and the oil industry’s perceived exploitation of communities living in oil-producing regions, which also suffered from the environmental effects of oil exploitation.

The insurgency targeted the infrastructure and occasionally the employees of multinational oil companies, and caused billions of dollars in losses for the industry and the government.

Above all, the insurgency complicated the already-fraught relationship between the oil sector and the people of the Niger Delta, who saw relatively little benefit from an industry that accounts for 75% of Nigeria’s government revenue.

At one point in the mid-1990s, during an early round of tensions in the region, parts of the delta were so hostile to the oil industry that Shell pulled out from the region entirely.

As the SBM Intelligence report notes, the end of the amnesty at least raises the possibility of resumed instability in the delta.

“Discontinuing access to state patronage may prompt militant leaders to resume their insurgency in the Niger Delta, with the potential to cut crude oil outputs sharply and further reduce government revenues,” the report states, adding that “Precedent suggests that militants could resume attacks on oil installations (both on-shore and offshore) and resume targeting foreign expatriates.” SBM Intelligence includes Tompolo, the nickname of a former top delta guerrilla commander, in its roundup of “key players” to watch in Nigeria in the coming year.

Disruptions to oil production in the Delta might not be disastrous for Nigeria, given the dip in global prices and the resulting disincentive to dump additional oil into the market.

But Nigeria is almost uniquely dependent on oil among countries with such a sizeable population. And the country faces security challenges with both regional and global dimensions to them.

Although Boko Haram lost territory in 2015 in the face of a renewed government offensive against the group, Africa’s deadliest jihadist organization also pledged allegiance to ISIS in March 2015.

Boko Haram waged a number of destructive attacks in late 2015 and moved into parts of neighboring Niger, suggesting the group’s setbacks hadn’t seriously harmed its ability to sew violence and chaos. Emerging tensions between the government and an Iranian-backed Shiite group also threaten stability in parts of the country’s north.

The Nigerian government is facing urgent security pressures at a time when the country’s main source of revenue is becoming less lucrative — along with, in SBM Intelligence’s view, the renewed possibility of insurgent activities in the country’s main oil-producing region.

First Published by The Business Insider Australia…. 

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