Energy and Security Implications of Nigeria’s Election

February 1, 2015 Updated: February 1, 2015

Video Transcript

Cole Altom: Welcome everyone. I’m Cole Altom, I am the Compass editor here at Stratfor. With me today is Matt Bey. He is our expert on Africa and energy issues. Matt, we don’t get to talk too much about Africa, especially for a product like Compass. But the elections are actually pretty important, obviously for the people who live in Nigeria but also for the oil companies that do business there. We know that whoever does win is going to inherit all of Nigeria’s problems, not least of which is of course the energy industry. Talk about that.

Matt Bey: So, the energy industry has been declining to certain degree over the last five to ten years. Production has more or less been stabilized since the late 1990s around 2.2, 2.3 million barrels per day. That has stayed the same but what we have seen is Nigeria’s oil production move further and further away from land. When they started back in the 1960s, it almost all onshore. Then they began shallow development. And then they eventually went into the deepwater. So, now Nigeria’s oil production is roughly 33 percent onshore, 33 percent shallow and 33 percent deepwater. The problem is that it is tending toward the deepwater, which is where a lot of the growth is going to replace declining production from the older fields that have been in production for twenty to thirty years on shore. In order to do that they need to make these big investments.

The problem with the investments has been that they have stalled because of the Petroleum Industry Bill, which is a big, wide-ranging bill meant to reform several aspects of the energy sector including re-doing some of the contracts, setting up a petroleum host fund, which will funnel money into communities that actually host petroleum-bearing wells. And then also, down-stream some regulatory aspects in terms of pricing for diesel fuel, petrol and similar products. Now, the big aspect for the deepwater is that the contracts that had originally been signed in the 1990s when oil prices were really really low. Now we are at a point where they are a little higher. Obviously they have fallen in the past year, but they are renegotiating these contract models to make them more appealing to Nigeria. What we have seen on the other side are oil companies not really understanding the regulatory system going forward have delayed a lot of their projects.

Oil is a big problem for whoever is coming into power, but the more immediate concern is actually going to be the economy as we are in a period of low oil prices. The Nigerian naira has fallen dramatically since November, the budget has been slashed significantly and austerity has become an issue. We have actually seen President Goodluck Jonathan start to maybe even reduce the petroleum subsidy program. The petroleum subsidy program is a very politically dicey program. A lot of the Nigerians when they think of the economy and the economy’s health, they think about their petrol costs. So if he starts to cut these subsidies that is going to lead to social unrest. That is going to be a challenge that Jonathan or presidential candidate Muhammadu Buhari if he wins will face at the beginning of their term. The difficulty of the Petroleum Industry Bill will take longer, more like two or three years.

Cole: Now, Matt, for many Nigeria has become synonymous with Boko Haram — the very famous, now infamous militant group in the northeast — how will they play into the elections?

Matt: So, Jonathan has tried to actually take some measures against Boko Haram, but his supporters are in the south — that is his core constituency. What happens with Boko Haram in the northeast is an issue that as long as it does not effect Jonathan’s re-election chances or undermine his power, it is something that he can live with without having to put too much pressure on it. Obviously, he has done a lot to do that — look for the girls and things such as that. Buhari, by contrast, is from the north. He is a former military commander. He has some constituents in the northeast that would want him to bring a much stronger push against Boko Haram. He actually has better connections than Jonathan does to do it. Even if Buhari does with, he faces a number of constraints actually ending the movement — there will still be a lot of violence.

Cole: Well, the election is only two weeks away, so whatever happens we will not have to wait long. Thank you for joining me, if you want to find out more about Compass visit us at Stratfor.com or you can read our issue of Compass, which comes out on Feb. 2. Thank you for joining.

Compass Preview: Energy and Security Implications of Nigeria’s Election” is republished with permission of Stratfor.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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