Nigeria – part one:

Published January 9th, 2001 - 02:00 GMT

Nigeria, an Organization of Petroleum Exporting Countries (OPEC) member, is one of the world's largest oil exporters. Nigeria is a major oil supplier to Western Europe and was the 6th largest supplier of crude oil to the United States in 1999.  

Note: information contained in this report is the best available as of July 2000 and is subject to change.  

 

GENERAL BACKGROUND: 

On May 29, 1999, Olusegun Obasanjo was sworn in as Nigeria's president, returning the country to civilian rule. Obasanjo has inherited the challenges of reconstructing Nigeria's political institutions, reforming the economy, and managing the country's oil wealth in the face of widespread poverty, ethnic and religious tensions, environmental and other problems.  

 

President Obasanjo has taken steps to reduce corruption, reform the military, and balance his cabinet with members of Nigeria's dominant and minority ethnic groups. 

 

In April 2000, the Obasanjo administration increased the percentage of oil revenue returned to Nigeria's oil producing states from 3 percent to 13 percent.  

 

In July 2000, the Nigerian government declared the security situation in the country to be a matter of national emergency and took steps to increase recruitment and training of police forces to combat violent crime and vigilante groups organized along ethnic lines.  

 

The Nigerian economy is largely dependent on its oil sector, which accounts for more than 80 percent of government revenue, over 95 percent of total exports, and over 90 percent of the country's foreign exchange earnings.  

 

Nigeria's balance of payments fluctuates greatly depending on world prices of oil. Agriculture is the strongest non-oil sector of the economy, accounting for approximately one-third of Nigeria's gross domestic product (GDP).  

 

The industrial sector accounts for about 6 percent of GDP. Nigeria's real GDP growth was 2.8 percent in 1999 and is projected to be 5.3 percent in 2000.  

 

One factor that has contributed to Nigeria's low growth rates in recent years is the lack of economic diversification in the country.  

 

Although Nigeria attracts about 75 percent of all foreign investment in West Africa, high interest rates, deteriorating infrastructure, inefficient bureaucracy and poor telecommunications have combined to deter foreign investment outside the narrow petroleum sector.  

 

Nigeria's dependence on crude oil is expected to lessen somewhat as the natural gas industry develops.  

 

The Obasanjo administration is working on a number of economic reforms including the privatization of parastatals, exchange rate management, and the phasing out of subsidies. A new International Monetary Fund (IMF) credit facility and a Paris Club debt rescheduling are expected in 2000.  

 

Nigeria's total external debt is estimated at approximately $30 billion. In May 2000, the World Bank approved two credits totaling $75 million to assist Nigeria in providing universal basic education and improving economic management.  

 

In February 2000, the United States and Nigeria signed a trade and investment framework agreement (TIFA) that establishes a ministerial level council for discussion and cooperation on trade- and investment-related issues. In 1999, the United States ran a $3.75-billion trade deficit with Nigeria. 

 

OIL:  

Nigeria contains estimated proven oil reserves of 22.5 billion barrels. Almost all of these reserves are found in relatively simple geological structures along the country's coastal Niger River Delta. The majority of the oil lies in about 250 smaller (i.e., less than 50 million barrels each) fields. 

 

At least 200 other fields are known to exist and contain undisclosed reserves. The country's crude oil reserves have gravities that range between 21o API and 45o API.  

 

Nigeria's main export crude blends are Bonny Light (37o API) and Forcados (31o API). Approximately 65 percent of the crude oil produced in Nigeria is light (35o API or higher) and sweet (low sulfur content). Nigeria plans to increase its proven oil reserves to 40 billion barrels by 2010.  

 

Production and Exports: 

Nigerian crude oil production averaged 2 million barrels per day (bbl/d) in 1999. The Obasanjo administration would like to increase oil production capacity to 3 million bbl/d by 2003 and to 5 million bbl/d by 2010.  

 

Nigeria's OPEC crude oil production quota was raised from 2.033 million bbl/d in April 2000 to 2.091 million bbl/d in July 2000, following the OPEC decision to raise crude production levels to meet higher world demand for crude oil and to ease upward pressure on world oil prices.  

 

A major problem facing Nigeria's upstream oil sector has been insufficient government funding of its joint venture (JV) commitments. In 1999, field operators involved in joint ventures with the Nigerian National Petroleum Corporation (NNPC) ceased exploration and field development because the NNPC failed to pay its share of capital spending on time.  

 

In June 2000, NNPC Managing Director Gaius Obaseki announced that $2 billion in arrears had been repaid to the major foreign oil companies operating in Nigeria, bringing the country up to date on its payments for the first five months of 2000. The NNPC owns a 60 percent share in the major onshore and offshore joint venture operations.  

 

Several major deepwater discoveries, including TotalFinaElf's Akpo field, Shell's Bonga field, ExxonMobil's Erha field, and Texaco's Agbami field, are expected to increase Nigeria's production significantly over the next few years. 

 

The latter three alone are expected to contribute some 750,000 bbl/d over the next three years. Some smaller but important finds could contribute as much as 150,000-200,000 bbl/d more oil. 

 

These finds include ENI/Agip's Abo field, Shell's Doro and Ngolo fields, Statoil's Nnwa field, and TotalFinaElf's Ukot and Chota fields. In particular, production from ExxonMobil's deep offshore Erha field could reach 250,000 bbl/d by 2003-2004.  

 

ExxonMobil announced the discovery in 1999 on Oil Prospecting License (OPL) 209. The Erha field is estimated to contain reserves of 1.2 billion barrels. ExxonMobil (56.25 percent) operates the field and Shell holds a 43.75 percent share.  

 

The majority of Nigeria's crude exports are destined for markets in the United States and Western Europe, with Asia becoming an increasingly important market as well. In 2000, Nigeria plans to begin supplying crude oil to India on a sustained basis. 

 

In 1999, Nigerian crude exports to the United States averaged 623,000 bbl/d (13.8 percent of U.S. imported crude oil). Nigeria was the 6th largest crude exporter to the United States in 1999, behind Saudi Arabia, Mexico, Venezuela, Canada and Iraq.  

 

During the first four months of 2000, Nigerian crude exports to the United States averaged 746,000 bbl/d, making Nigeria the fifth largest source of crude supplied to the United States for the period.  

 

Crime and Ethnic Unrest: 

The execution of Ogoni environmental activist Ken Saro-Wiwa in November 1995 attracted international attention to the plight of the Ogoni people and other minority groups in the oil-producing areas of Nigeria. 

 

Since Saro-Wiwa's death, social unrest has increased among nearly all of the minority ethnic groups in the Niger Delta region. Throughout 1999 and early 2000, a situation of daily disturbances ranging from the southern Niger Delta region to Kano in northern Nigeria prompted President Obasanjo to threaten to impose a state of emergency.  

 

In addition to inter-ethnic tension, there have been persistent attacks against oil companies by youths protesting the environmental degradation of indigenous homelands and their marginalization in terms of federal resource allocation. 

 

The attacks have resulted in disruptions of oil production and exports.  

Illegal fuel siphoning as a result of a thriving black market for fuel products has increased the number of oil pipeline explosions in recent years.  

 

The most serious disaster was the October 1998 Jesse fire in which over 1000 people died. One of the latest pipeline explosions outside Warri city in July 2000 resulted in 250 deaths, and marked (at least) the fifth such explosion during the last two years.  

 

In an effort to stop vandalism, the Nigerian government has ordered satellite equipment from the United States to monitor pipeline and oil installations in the Niger Delta region. According to NNPC managing director Jackson Gaius-Obaseki, Nigeria lost an estimated $18.8 million (2 billion Naira) during the first five months of 2000 because of vandalism of fuel pipelines.  

 

Exploration: 

In March 2000, Nigeria opened bidding on 22 new oil blocks, including 11 in the Niger Delta deep and ultra-deep offshore. 46 oil companies participated in the open competitive bidding round in which 14 blocks received a total of 51 bids. 

 

Ocean Energy, Shell, and Petrobras made the highest offers of $210 million, $200 million, and $100 million, respectively, for deepwater block OPL 250 located offshore the Niger Delta.  

 

Ultra-deep OPL 249 received the second highest bids of $164 million from a Conoco-Phillips-Marathon partnership and $100 million from Pan Ocean Explorations.  

 

The allocation of Block 249 is uncertain, however, pending the removal of a court injunction. The bids will be evaluated during the third quarter of 2000 and the contracts ill be awarded in the fourth quarter. 

 

Nigeria's domestic oil companies have alleged that guidelines for the latest licensing round unduly favored foreign oil majors.  

 

Bidders were required to have share capital of 1 billion Naira and have at least $100 million in a bank account, significantly more than was required previously. Moreover, local oil companies have expressed concern over the Nigerian government's takeover of 40 percent of domestic firm Famfa's shares in OPL 216. 

 

A dispute between Famfa and its partner, Texaco subsidiary Star Deep, is undergoing arbitration in London. The Nigerian government apparently evoked a clause in the Petroleum Act that allowed it to intervene in the project. 

 

In July 2000, Shell made a 100-million-barrel oil discovery in its onshore Soku oil and gas field in southeastern Nigeria. Production of 10,000 bbl/d is expected to begin toward the end of 2000. Shell (30 percent) operates the joint venture with NNPC (55 percent), TotalFinaElf (10 percent), and ENI/Agip (5 percent). 

 

In May 2000, TotalFinaElf announced a discovery in exploration Block 246. Initial tests on the field yielded output of 9,000 bbl/d of very light oil. TotalFinaElf is the operator with a 24% share. Its partners are South Atlantic Petroleum (60 percent) and Petrobras (16 percent).  

 

TotalFinaElf also has signed an agreement with NNPC for the financing of the offshore Amenam/Kpono field, discovered in 1990. TotalFinaElf will invest approximately $1 billion, with oil production planned for mid-2003.  

 

When fully onstream, the 500-million-barrel field is expected to produce at a rate of about 125,000 bbl/d. In line with Nigeria's zero gas-flaring policy, associated gas will be either re-injected or marketed through the nearby plant in Bonny.  

 

After six years of oil exploration activities in northern Nigeria, Chevron decided in July 2000 to withdraw from the Benue Trough. Shell and TotalFinaElf have not announced their withdrawal from the Benue Trough and Gongola Basin areas, but apparently have halted their exploration activities in northern Nigeria.  

 

Shell's well, Kolmani River 1, apparently yielded natural gas in commercial quantity, while the outcome of TotalFinaElf's exploration is unclear. Nigeria intends to press ahead with its search for oil in the Lake Chad basin despite initial discouraging drilling results on the part of foreign oil companies.  

 

In December 1999, a $1 billion production sharing agreement was signed by NNPC and several major foreign oil companies for the development of the EA/EJA field, which is expected to come on stream in the second half of 2002. Under the terms of the agreement, Shell will contribute 77.14 percent, ENI/Agip 12.86 percent, and TotalFinaElf 10 percent.  

 

With estimated reserves of 350 million barrels of oil, the EA/EJA field is expected to produce more than 100,000 bbl/d of oil and up to 100 million cubic feet of gas per day.  

 

Border Disputes: 

Both Cameroon and Nigeria have claimed the Bakassi peninsula, a 1,000-square-kilometer (400-square-mile) area located in the Gulf of Guinea that is believed to contain significant reserves of oil.  

 

Several oil discoveries have been made on the peninsula and in its adjoining waters, but at present, operations in the disputed area have been suspended. In February 1994, Cameroon submitted the dispute to the International Court of Justice (ICJ) for settlement, and Nigeria later followed with its own suit. 

 

In March 1998, the ICJ began formal hearings on the case concerning the Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v. Nigeria), and in June 1999, Equatorial Guinea applied for permission to enter the proceedings.  

 

The ICJ authorized Equatorial Guinea to intervene in the case in October 1999 on the basis of the country's arguments to protect its legal rights in the Gulf of Guinea as the maritime boundary between Nigeria and Cameroon is determined.  

 

In its Order, the Court fixed April 4, 2001 as the time-limit for the filing of a written statement by Equatorial Guinea and July 4, 2001 as the time-limit for the filing of written observations by Cameroon and by Nigeria on that statement.  

The Nigerian government has questioned Equatorial Guinea's sole ownership of the Zafiro field (Block B). At issue is whether Zafiro is a separate field, or part of an oil structure that straddles the territorial waters of both countries.  

 

ExxonMobil (then Mobil) started oil production from the field in September 1996 under a contract with Equatorial Guinea. TotalFinaElf holds the lease on the Nigerian block, OML 102, which lies just 3.5 kilometers (2 miles) north of the Zafiro field.  

 

TotalFinaElf and Nigeria claim that seismic data of the field confirms that it extends into Nigerian territory. Nigeria has called for a determination of the boundary between the two nations and for the establishment of joint-field development.  

 

In 1998, TotalFinaElf (then Elf) drilled two wells on OML 102 and announced a discovery called Ekanga. Equatorial Guinea maintained that the Ekanga wells were drilled in their territorial waters in Block B. Negotiations between Nigeria and Equatorial Guinea have met with little success so far.  

Source: United States Energy Information Administration. 

 

 

© 2001 Mena Report (www.menareport.com)

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