By Dulue Mbachu
Feb. 24 (Bloomberg) -- Nigeria’s acting president, Goodluck Jonathan, faces two challenges in keeping crude output from shrinking in Africa’s biggest oil producer: guns and cash.
Jonathan, appointed to the helm of Africa’s most populous nation in place of ailing President Umaru Yar’Adua by parliament on Feb. 9, needs to calm a four-year-old insurrection in the Niger River delta and raise funds to expand the oil industry, according to analysts at Eurasia Group and PM Consultancy.
Nigerian oil production rose 16 percent in the six months through January, according to Bloomberg estimates, and will need to rise a similar percentage again to reach levels last seen at the end of 2005. Immediate priorities for Jonathan include sustaining a government amnesty for militant fighters in the delta and applying “coherent policies and actions” to bring in more investment, said Ann Pickard, Royal Dutch Shell Plc’s executive vice president for Africa.
“The amnesty will only survive if we can get jobs to the delta,” Pickard said at an oil and gas conference in Abuja yesterday. Dependent on oil and gas exports for more than 80 percent of government revenue, Nigeria needs to encourage energy investment and use it “as a springboard to diversify the economy in the future,” she said.
The two issues converge at Shell’s Forcados-Yokri project, part of a joint venture with the state oil company, Total SA and Eni SpA, to gather 85 percent of natural gas flared off in Shell’s Nigerian operations. Scheduled for completion in 2006, it was abandoned due to militant attacks, and now that relative peace has returned, “there are no funds and the project remains stalled,” according to a report on Shell’s Web site.
Ethnic Ijaw
Maintaining the peace in the oil-rich Niger delta may be the easier challenge for Jonathan, who is an Ijaw, the dominant ethnic group in the region. His “appointment will support the delta peace process and recent positive developments there,” Sebastian Spio-Garbrah, Africa analyst at Eurasia Group in New York, said in a Feb. 10 note to clients.
Armed attacks, including kidnapping of oil workers and sabotage of installations during the past four years, has cut production as much as 28 percent and put a damper on new energy projects.
President Yar’Adua’s amnesty for militant gunmen in the delta last year brought a lull in the fighting as well as hope that negotiations could satisfy the region’s demands for greater control of the oil wealth.
Cease-Fire
Jonathan still has to win over the main militant group, the Movement for the Emancipation of the Niger Delta, or MEND, which called off its three-month “indefinite cease-fire” on Jan. 30, citing lack of progress in talks in Yar’Adua’s absence.
MEND said it will cooperate with Jonathan only if its demand for local control of the delta’s energy resources is met, regardless of the fact that he’s an Ijaw.
“The truth is that we’re not sentimental over the origin of the president,” MEND spokesman Jomo Gbomo said in an e- mailed response to questions by Bloomberg. The group is “more concerned about any individual that can emancipate the region from five decades of bondage.”
If he can keep the guns relatively quiet, he still has to address Nigeria’s problem of under-investment in oil and gas.
Nigeria increased crude output to 2.2 million barrels a day this month, of which 700,000 barrels a day is from deep offshore fields, Petroleum Minister of State Odein Ajumogobia said yesterday.
Onshore Production Hurt
Oil produced onshore and in shallow swamp waters, where militant attacks are more frequent, is now 1.5 million barrels a day, according to the minister, down from 2.5 million a day in 2005. Completing a so-called “flares out” project to shut oil fields where associated natural gas is still vented into the atmosphere, may also reduce production, he said.
OPEC member Nigeria is faced with the choice of investing now or risking a decline in output within 15 years, according to state-owned Nigerian National Petroleum Corp., or NNPC. Shell, Exxon Mobil Corp., Chevron Corp., Total and Eni operate joint ventures that produce most of Nigeria’s oil and gas in which NNPC holds an average 59 percent stake.
Nigeria has been providing an average of about $5 billion a year in investments in the joint ventures, while its share has tripled to $18 billion this year since 2002, according to figures published by the NNPC. The money was mostly spent on keeping production going, not exploration, it said.
The country’s oil reserves have declined to 32 billion barrels, from 36 billion in 2001, and farther away from a target of achieving reserves of 40 billion and export capacity of 4 million barrels a day by 2010, according to Victor Briggs, general manager for planning at NNPC.
Oil Bill
Yar’Adua’s solution was to talk peace with the militants while introducing a bill to reform the way oil investments are funded.
Under the Petroleum Industry Bill awaiting passage in the legislature, independent joint ventures able to raise investment capital from financial markets, will replace the current joint ventures and free the government from the need to make direct capital contributions.
International oil companies have protested Nigeria’s plans through the bill to raise oil royalties and taxes, which they say will discourage capital-intensive investments in Nigeria’s deep offshore Atlantic waters.
If the bill is passed in its current form “approximately $50 billion won’t be invested as planned” in Nigeria by international energy companies, said Shell’s Pickard. The proposed bill is a “cumbersome document that lacks insight into the very basics of our industry,” she said.
Policy Defended
“Nothing is further from the truth,” Pedro Van Meurs, head of Petrocash, a Nassau, Bahamas-based consulting company and an energy policy adviser to the government, said today at an oil and gas conference in the Nigerian capital, Abuja. Changes sent to the legislature in a memorandum two days ago make terms for Nigeria’s deepwater “very competitive and in line with international deepwater terms,” he said.
Yar’Adua, who left three months ago for medical treatment in Saudi Arabia, returned to Nigeria this morning. While the president’s health has improved, Jonathan will continue to act as president as Yar’Adua continues his recovery, his spokesman Olusegun Adeniyi said in an e-mailed statement today.
While Jonathan may feel the “pressure to do something,” he is likely to be “constrained” by the fact that he’s not the official president, said Antony Goldman, head of London-based PM Consultancy that specializes in risk analysis of West Africa’s oil states.
Persistent leadership uncertainty and the slow legislative process may mean that necessary steps won’t be taken quickly, said Goldman. “And when that happens you allow what was already a bad system to become worse,” he said.
--Editors: Stephen Voss, Mike Anderson
To contact the reporter on this story: Dulue Mbachu in Lagos at +234-1-271-8547 or dmbachu@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
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