• Friday, July 19, 2024
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BusinessDay

Nigeria’s oil production at risk of disruption

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A break in personal and political relations between Nigeria’s President Goodluck Jonathan and Rotimi Amaechi, the governor of Rivers State, the country’s largest onshore oil producing state, threatens to once again plunge the volatile Niger Delta region into militia violence, putting at risk up to 20 percent of oil production in coming months. Amaechi was summarily suspended from the ruling party after winning a controversial ballot to chair the Nigerian Governor’s Forum. Amaechi, despite being a southern Christian, like Jonathan, is opposed to the president’s 2015 re-election bid. He has therefore aligned himself with some northern Muslim governors to torpedo the president’s campaign. A section of northern Muslim politicians are vehemently opposed to Jonathan’s re-election citing a disputed personal pledge to run for only one term following the death of President Umaru Yar’Adua in 2010. This peeved group believes that Jonathan’s re-election violates a hitherto ruling party convention for the mostly Muslim north and mostly Christian south to ‘rotate’ the presidency every 8 years. Conversely, Asari Dokubu, a major Niger Delta militia leader, partly responsible for the massive 2006 shut-in of oil production, has vowed to “shut down the Delta” if Jonathan is blocked from running for re-election. The Niger Delta amnesty programme which has helped restore calm to the region may very well unravel soon.

As jockeying ahead of the 2014 ruling People’s Democratic Party (PDP) primaries intensifies, up to 400,000 barrels of onshore oil production, mostly from Shell in Rivers State, could be at risk of shut-ins. Furthermore, because the governor of neighbouring Akwa Ibom State, Godswill Akpabio, is leading the president’s political loyalists against Amaechi, militias loyal to the embattled Rivers State governor may seek in retaliation to disrupt production in neighbouring Akwa Ibom, the site of Exxon’s large Qua Iboe facilities. Unless the two politicians resolve their spat soon, armed militia groups loyal to the opposing political camps are likely to escalate attacks on each other in the Delta leading to significant shut-ins of oil production in coming months. In 2006 up to 25 percent of production was cut off ahead of the 2007 general elections. Nigeria goes to the polls in 2015; however, the ruling party will choose its presidential, gubernatorial and legislative candidates in contested party primaries 2014.

Nigerian oil production which peaked at about 2.6 million barrels per day has in recent months slid to daily averages of just over 2.1 million barrels. A re-ignition of conflict in the Niger Delta, particularly in Rivers State, could cut up to 400,000 barrels of oil per day from production. Already in the past month Shell has shut down about 130,000 barrels per day of production for repairs after constant attacks and thefts by militias.

Rivers State is also Nigeria’s second largest state economy, after the commercial capital Lagos State. Any production shut-ins there and consequential fall in oil exports will negatively affect Nigerian government revenues, forex exchange reserve growth and GDP outlook for 2013. With a military state of emergency already in place in three northern states, and growing policy tensions between the central bank and the finance ministry over the direction of the Nigerian naira, the eruption of violence in the Niger Delta and a significant cut in production will be wholly negative for Nigeria’s capital markets.