April 4, 2011

Nigeria: Another Crisis Brewing

From the Wall Street Journal
The civil war raging in Libya and unrest across the Middle East pushed oil to triple digits in recent weeks. But the threat of disruptions to Nigeria's 2.2 million barrels a day of crude output has barely factored into prices, despite a history of attacks on the West African nation's oil infrastructure during election season.
"It's not on the market's radar," said Barclays Capital oil analyst Amrita Sen.

Nigerians will vote for their president, representatives to their national assembly and governors of the country's 36 states over the next four weeks, but there have already been problems. On Saturday, Nigeria postponed parliamentary elections due to failed logistics, and on Sunday pushed back all votes one week.

Police, military and other security agencies are being deployed nationwide after political rallies turned violent over the past month. And rebel groups have already acted.

More than 10% of U.S. oil imports come from Nigeria, according to Department of Energy, so any supply drops would be taxing for U.S. energy consumers data. In January, the U.S. imported 968,000 barrels a day from the country, making Nigeria the fourth-largest oil supplier after Canada, Saudi Arabia and Mexico. . . .

In Nigeria, a blast on March 16 rocked an oil facility run by the subsidiary of Italian energy major Eni SpA. The Movement for the Emancipation of the Niger Delta, a militant umbrella group, claimed responsibility and pledged further action.

The attack is a reminder of the supply disruptions that came with Nigeria's 2007 elections. Attacks on the country's oil infrastructure stopped the flow of as much as one million barrels a day of oil, forcing customers to scramble for supplies and leaving oil consumers wary of buying Nigerian crude for fear of future disruptions.

A supply drop of that magnitude could add as much as $8 a barrel to current prices, said Andy Lipow, president of oil-trading adviser Lipow Oil Associates.

It is troubling for the U.S. market ahead of summer-driving season. Domestic refineries rely on Nigeria's coveted, low-viscosity crude to boost their output of gasoline. Roughly 40% of Nigeria's exports flow to the U.S.

But so far, the market has kept its gaze centered on Libya. Fighting between rebels and forces loyal to Moammar Gadhafi over the past month has curtailed the country's 1.6 million barrels a day of oil production, with Saudi Arabia and others pledging to make up for the lost supplies.

"Every day, what goes on in Libya is taking precedence over what's happening anywhere else, even Nigerian elections that are only two weeks away," said Phyllis Nystrom, an energy-markets analyst with Country Hedging. . . .
However, as Steve Levine notes, matters may not turn out that bad:
The Movement for the Emancipation of the Niger Delta, or MEND, the most active militant group operating in the oil-rich Niger Delta, has retracted a threat to attack oil installations during the election period, according to local on-line The Nation. Authorities are better-prepared for what trouble does arise, reports Agence France Press. "There will be pockets of violence," Victor Ndukauba, an analyst with Afrinvest Advisers, told the French agency. "However, there is much better awareness of a lot of the [militant] foot soldiers. ... There will be violence, but we don't think it will be as bad." Some analysts actually think that the country will increase production in the coming weeks and months by some 300,000 barrels a day.

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