Nigeria’s delayed federal and state elections will add another layer of risk and uncertainty to the many existing challenges facing the country’s oil sector, according to a new report from IHS Inc, a global source of critical information and insight.
The closely fought presidential contest between incumbent President Goodluck Jonathan and main challenger Muhammadu Buhari is split along ethno-regional lines, the report says, and the likely disputed results will threaten the state’s political legitimacy and structure.
As a result, long-overdue oil sector reform, especially via the Petroleum Industry Bill (PIB), first proposed in 2008, is likely to be further delayed.
“Elections will be yet another disruptive force for Nigeria,” said Roderick Bruce, principal analyst at IHS Energy and one of the report’s authors. “Regardless of the election’s outcome, energy investors will continue to face fiscal and regulatory uncertainty as a result of ongoing challenges to the passage of the Petroleum Industry Bill (PIB). That uncertainty has already constrained deepwater exploration and development.”
The new IHS report finds that, regardless of who wins, the closely run and highly contentious nature of the elections increases the risk that the polls will stoke related violence and disorder. The high probability of disputed results will limit the state’s ability to implement energy policy effectively.
The elections are likely to aggravate the security situation in the oil sector with implications for political violence in the Niger Delta and northeast. Disgruntled groups from the Niger Delta region have a history of blockading and disrupting oil and gas facilities in order to gain political attention and concessions for the region in the elections. Depending on the likelihood of a Jonathan victory, these groups could seek to disrupt production again either before or after the first round of the elections.
If Jonathan loses, there is a high risk of a return to militancy as the region would no longer preserve the same level of political power or patronage as before. Renewed militancy would not only imperil oil production but would also severely test the capacity of the military, which is already preoccupied with the fight against northern militancy in the form of Boko Haram.
Nigeria’s government estimates combined crude and natural gas liquid (NGL) output will fall from a yearly average of 2.38 million b/d in 2014 to 2.27 million b/d in 2015, mainly due to crude theft and sabotage of pipeline infrastructure in the Niger Delta.
According to the IHS report, oil production in Rivers state (estimated around 330,000 b/d on average) is most at risk of disruption during the elections, while production in Bayelsa and Delta states is at high risk should Buhari win.
