EXTRACTIVE INDUSTRIES

Nigeria's rich natural resource wealth includes both petroleum and natural gas. The country produces 25% of all African crude oil and 3% of the world total. It is a member of the Organization of Petroleum Exporting Countries (OPEC).

Nigeria had 36.2 billion barrels of proven oil reserves as of January 2007. In 2006, total oil production, including lease condensates, natural gas liquids and refinery gain, averaged 2.45 million billion barrels per day (bbl/day), of which 2.28 million was crude oil.

Since December 2005, Nigeria has experienced increased pipeline vandalism, kidnappings, and attacks on oil facilities in the Niger Delta by the Movement for the Emancipation of the Niger Delta (MEND) and other militant groups. As of April 2007, an estimated 587,000 bbl/day of crude production was shut in due to the resulting insecurity. The majority of shut in production is located onshore in the Niger Delta, although militants demonstrated their capacity to affect offshore production with their attack of Shell's Bonga platform in June 2008.

The government continues to bring new projects online and hopes to increase oil production capacity to four million bbl/day by 2010. Along with attracting the necessary investment, this objective will depend on the security situation in the Delta—increased militant activity has actually led production to fall in 2008 to an average of around 2 million bbl/day.

Six joint venture (JV) arrangements dominate oil production in Nigeria. Government, acting through the national oil company, controls a majority share and Shell, Chevron, Mobil, Agip, Elf and Texaco serve as minority shareholders and operators. In recent years, government has struggled to fulfill its financial contributions to these arrangements (its so-called "cash calls"), forcing it to take out oil-backed debts from the operating partners and impeding investment in the jointly controlled assets.

While JVs control the largest producing areas, offshore production is rising after several large finds. Shell's Bonga field has current production capacity of 220,000 bbl/day, and Chevron's Agbami is expected to reach similar levels next year. These and other offshore assets are governed by Production Sharing Contracts (PSC) which will account for an increasing share of production in the coming years. The fiscal terms of the PSCs will give the government a significantly smaller take per barrel than in the joint ventures. This has significant implications for revenues should PSC production continue to grow faster than joint venture production.

Since 2005, Nigeria has made efforts both to increase indigenous participation and to diversify the players in its oil sector. In the last three bid rounds, a number of new Nigerian companies won blocks and many more participated as local partners. Developing local participation remains a priority issue for government, although implementation has been hampered by controversies and accusations of political favoritism. New foreign companies, including several national oil companies, are also entering the scene often through controversial "rights of first refusal" which give upstream preference to companies willing to invest in the downstream power sector. These companies include Korean, Indian and Chinese national oil companies, and Gazprom has also recently indicated a growing interest in Nigeria.

Revenues from the production and sale of crude oil are collected centrally by the Nigerian federal government. In every year since 2004, the federal budget specifies a benchmark crude price ($59 USD per barrel in 2008). Revenues received above that price go into an Excess Crude Account held by the Central Bank. The rest are allocated to the three levels of government—federal, state and local—with an additional 13% going to the oil producing states. In 2008, several states are challenging the constitutionality of the Excess Crude Account, and President Yar'Adua has withdrawn billions of its balance for allocation to the states.

In August 2007 President Yar'Adua reportedly signaled his intention to restructure the national oil and gas sector. He appointed an Oil and Gas Implementation Committee which submitted a plan for how to achieve this goal in September 2008. If implemented, the reforms will feature a new energy sector legislative framework, the commercialization of the national oil company, the strengthening of government regulatory and policymaking institutions and, possibly, the incorporation of the existing joint venture arrangements. Motivating the reform is the stark contrast between the Nigerian National Petroleum Corporation (NNCP, the national oil company) and its peers such as Petronas, Petrobras and even Sonangol. The former has assumed an overly expansive mandate (often eclipsing the policymaking and regulatory functions of other bodies) and is not capitalizing on high oil prices or expanding its exploration and production (E&P) capacities. Efforts at NNPC commercialization, along with some of the other recommendations, have cropped up repeatedly over the past 20 years, but thus far implementation has not followed suit.

Natural Gas

Nigeria flares more natural gas than any other country in the world. OGJ estimates that Nigeria had an estimated 182 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2007, which makes Nigeria the seventh largest natural gas reserve holder in the world and the largest in Africa. The USGS puts undiscovered potential to be as high as 600Tcf. The majority of the natural gas reserves are located in the Niger Delta. In 2004, Nigeria produced 770 billion cubic feet (Bcf) of natural gas, while consuming 325 Bcf. The government plans to raise earnings from natural gas exports to 50% of oil revenues by 2010, although it must balance export activities with the use of gas to address the country’s large power needs. The Gas Master Plan being facilitated by the NNPC estimates infrastructure investment of about $20 billion is necessary to meet its natural gas development goals by 2014.

The major foreign companies in Nigeria are British Gas BP, Chevron, ConocoPhilips, Deminex, ENI/Agip, ExxonMobil, Nexen, Petrobras, Shell, Sinopec, Statoil, Sun Oil, Tenneco and Total.

Solid Minerals

Nigeria also has large deposits of gold, tantalum-niobium, lead, zinc, coal and bitumen. The Mining and Minerals Decree (Law No. 34 of 1999), invests all mineral rights in the federal government. Currently the solid mineral sector in Nigeria is underdeveloped. In 2006, the Ministry of Solid Minerals Development (MSMD) completed the revalidation of 1,450 mining licenses, including 33 provisional approvals.