NIGERIA - Part 1 - The Prospects & Geology.

Nigeria's sustainable oil production capacity has fallen to 2.2m b/d, from 2.4m b/d in mid-1999. Actual production is averaging close to the OPEC quota of 1.993m b/d. This quota is to be reduced from Sept. 1, in line with OPEC's July 25 decision to cut production by 1m b/d to 23.2m b/d from the beginning of September - with Iraq excluded.

During a visit to Washington in May 2001, Nigerian President Olusegun Obasanjo reiterated that the country's oil production capacity will reach 3m b/d by 2003 and 4m b/d by 2010. Freely elected on Feb. 27, 1999 to replace a military regime, Obasanjo also repeated that Nigeria's proven oil reserves will be raised from 25 bn barrels to 30 bn barrels by 2003 and to 40 bn barrels by 2010. To encourage this process, Nigeria has begun open and competitive licencing rounds (see Gas Market Trends of this week)

Nigeria, rich in natural resources, has been impoverished as a result of negative politics and military regimes since the 1960s. It has been forced occasionally to import fuels to offset shortages locally. Although oil price increases since March 1999 have allowed the government to raise its annual budgets, still there are serious problems in the local energy market and in the economy (see Downstream Trends).

Nigeria needs to spend over $3 bn to maintain its current production capacity and another $5.5 billion to expand it to 3m b/d by 2003. The state-owned Nigerian National Petroleum Corp. (NNPC) must fund almost 60% of the investment required by its oil producing JVs. The rest is covered by the foreign partners.

NNPC has always had difficulty in funding obligations towards the oil JVs. The six main JVs, accounting for most of Nigeria's oil output, involve Shell, ExxonMobil, Chevron, Agip, Elf (now part of TotalFinaElf), and Texaco (now part of Chevron). For years they have warned that Nigeria's production capacity would fall below 2m b/d if NNPC funding keeps being delayed and if the unrest in the oil-rich south continues. Due to the unrest and other problems, Shell's output has fallen from 1m b/d to about 800,000 b/d. Output by other foreign operators has been affected as well (see profiles of operators and the fields in Part 2).

NNPC markets its share of crude oil production. Like most other NOCs in OPEC, it prefers to sell crude oil to end-users rather than to traders. Since early July 1999, it has limited oil contracts to bona fide firms. (see exports & logistics in Part 3). Nigeria is becoming a major exporter of LNG and natural gas by pipeline (see Gas Market Trends No. 7).

President Obasanjo is directly involved in the decision making process for the petroleum sector. He has made Rilwanu Lukman his chief advisor for this sector, having removed the military officers from it. Lukman, one of Nigeria's former oil ministers, has served as OPEC secretary general until end-2000 (see who's who in Part 4).