Nigeria Energy Profile: Largest Oil Producer In Africa – Analysis
Nigeria is the largest oil producer in Africa, holds the largest natural gas reserves on the continent, and was the world’s fourth leading exporter of liquefied natural gas (LNG) in 2012. Nigeria became a member of the Organization of the Petroleum Exporting Countries (OPEC) in 1971, more than a decade after oil production began in the oil-rich Bayelsa State in the 1950s. Although Nigeria is the leading oil producer in Africa, production suffers from supply disruptions, which have resulted in unplanned outages as high as 500,000 barrels per day (bbl/d).
The oil and natural gas industries are primarily located in the Niger Delta region, where it has been a source of conflict. Local groups seeking a share of the wealth often attack the oil infrastructure, forcing companies to declare force majeure (a legal clause that allows a party to not satisfy contractual agreements because of circumstances that are beyond their control that prevent them from fulfilling contractual obligations) on oil shipments. At the same time, oil theft, commonly referred to as “bunkering,” leads to pipeline damage that is often severe, causing loss of production, pollution, and forcing companies to shut in production.
Aging infrastructure and poor maintenance have also resulted in oil spills. Also, natural gas flaring, the burning of associated natural gas that is produced with oil, has contributed to environmental pollution. Protest from local groups over environmental damages from oil spills and gas flaring have exacerbated tensions between some local communities and international oil companies (IOCs). The industry has been blamed for pollution that has damaged air, soil, and water, leading to losses in arable land and decreases in fish stocks.
Nigeria’s oil and natural gas resources are the mainstay of the country’s economy. The International Monetary Fund (IMF) estimates that oil and natural gas export revenue accounted for 96% of total export revenue in 2012. For 2013, Nigeria’s budget is framed on a reference oil price of $79 per barrel, providing a wide safety margin in case of price volatility. Savings generated when oil revenues exceed budgeted revenues are placed into the Excess Crude Account (ECA), which can then be drawn down in years when oil revenues are below budget, according to the IMF.