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Financial Times: Nigerian energy

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Published: June 18 2007 12:57 | Last updated: June 18 2007 22:54

How apt that Nigeria’s recently installed vice-president is called Goodluck Jonathan. His appointment is seen as an attempt by the new government to quell violence in the Delta region – his homeland and the centre of the country’s oil industry.

The world needs Mr Jonathan to live up to his name. Rebel attacks and kidnappings mean 800,000 barrels a day of Nigeria’s output is currently offline. With the world’s effective spare capacity standing at 2.8m b/d – just 3 per cent of demand – that is a big factor in keeping the market tight and prices high. Similarly, just 25 per cent of Nigeria’s refining capacity is actually running. So Africa’s biggest energy producer imports about three-quarters of its gasoline, exacerbating a shortage of gasoline in Atlantic markets. And corruption fuels instability: the World Bank estimates that four-fifths of the country’s oil revenues accrue to just 1 per cent of the population.

For all that, Deutsche Bank reckons Nigeria could overtake Norway to become the world’s third biggest exporter of oil by 2010. It already ranks a shade behind Saudi Arabia as a supplier to the US. That is largely down to the country’s thriving deepwater sector. Far from the rebels’ bases in the Delta and helped by an attractive fiscal regime – rare for such a resource-rich country – output from Nigeria’s deepwater fields has doubled in the past two years. Nigeria’s gas reserves also present a huge export opportunity – especially as, right now, 40 per cent of the country’s gas output is simply burned off as waste.

For majors with well-established positions, such as Royal Dutch Shell, Nigeria represents a rare region of high growth and high profits. The risks are huge, however.

The wider and gloomier conclusion is that much of this potential rests on Nigeria’s offshore, in effect acting like an exporting entity distinct from the potentially explosive mainland. For consuming nations, long-term reliance on such suppliers – as opposed to better energy efficiency and developing alternative fuels – looks like a recipe for disaster.

Copyright The Financial Times Limited 2007

 

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