Yemisi Izuora With Agency Report
Political events can have a significant influence on the price of oil, but the price of oil also has a strong influence on political events.
In 2016, the latter was in full force, with enormous geopolitical consequences from the downturn in the price of oil, according to a new report from Marsh.
Its 2017 Oil and Gas Risk Reward Index quantifies and ranks a country’s attractiveness within the context of the oil industry, based on the balance between the risks and rewards of entering and operating in different countries.
Marsh reports that low oil prices combined with other socioeconomic factors have been responsible for an ongoing recession in Nigeria.
“Unrest in the oil-producing Niger Delta remains the starkest risk to Nigeria’s hydrocarbon sector,” it warned. Negotiations are ongoing between militant groups, Niger Delta leadership, and the federal government, but Marsh suggests: “Until a settlement is found, the threat of further attacks to energy infrastructure in Nigeria from militant groups, such as the Niger Delta Avengers and other smaller groups, remains high.
“The intensity of the 2016 attacks – and the inability of the government to thwart them – will live long in the memory of investors, leading to a loss of investment in Nigeria’s hydrocarbon sector.”
More positively, it notes, production is forecast to average 2.14 million barrels per day (bpd) this year, up from 1.8 million bpd in 2016. Rising oil revenues will help ease the current fuel shortage in the country.
Several large final investment decisions (FIDs) are required to secure Nigeria’s production in the long term; however, the likelihood of projects reaching FIDs in next two years has fallen sharply, which could lead to production declines post-2018.
Should ongoing negotiations prove to be successful, it would enable oil production to recover.
Looking north to Libya, the report notes that, post-Gaddafi, Libya has been wracked by conflict between two rival governments.
“Given the high level of fragmentation, weak institutional capacity and a chronic security vacuum, the operating environment will likely remain critically unstable in 2017,” it states.
“Due to deep divisions along multiple political, religious and tribal lines, progress towards forming a unified government is slow. If the peace process collapses, the country’s oil infrastructure would form a focal point for the conflict, which would disrupt both exports and revenues.”
In December 2016, Libya set a goal to raise its oil production to 900,000bpd, by reopening the Sharara and El Feel fields.
However, recent history has shown that output can slump to as low as 50,000 bpd.
The Marsh report concludes: “Regardless of the outcome of the peace process, widespread damage to infrastructure and chronic underinvestment will continue to impact production, and it will therefore take time to raise output to a level significantly above the one million bpd mark. The country will retain several hallmarks of a failed state for some years to come.”