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Market holds breath as Nigeria goes to polls

Energy markets have been on edge in case Nigeria’s month-long elections spark violence against oil and gas installations in the volatile Niger Delta

THE ENERGY industry has been targeted during previous elections by militant groups seeking greater freedom and a larger share of oil revenues for the region.

Worries were heightened by delays in holding the first stage of the polls – which should have taken place earlier in April – because of a failure by the electoral commission to ensure voting equipment was installed in time. So far, there have been deadly riots in northern Nigerian regions after incumbent Goodluck Jonathan won the presidential election in early April, with the markets braced for more violence during and after the state gubernatorial polls on 26 April.

Hundreds are feared dead in the mainly Muslim north after Jonathan, a Christian from the country’s south, won the election, although there has been comparatively little violence relating to the energy sector.

An oil flow station in the Delta, operated by Eni’s Agip unit, was attacked in mid-March, but the Nigerian military said the explosion was caused by local youths rather than an organised militant group and turned out to be an isolated incident. Meanwhile, liquefied natural gas (LNG) brokers report no disruption to production or exports during the closing days of the campaign – a story repeated in the oil sector.

This is a far cry from the not so distant past, when energy company staff were kidnapped and facilities blown up. Nigeria LNG (NLNG), which runs the 22m tonnes a year (t/y) Bonny Island export facility, the largest in sub-Saharan Africa, said pipeline sabotage had cost it over $2bn in lost production in 2009. The country exported around 2.1m barrels a day of oil in 2009, according to Opec, and nearly 16m t/y of LNG in the same year, according to Cedigaz.

The PDP looks set to remain the leading party in both the Senate and the House of Representatives, but with a reduced majority compared with the last vote in 2007

The first round of voting, for the bicameral National Assembly, returned a reduced share of the vote for Jonathan’s ruling People’s Democratic Party (PDP), which suggests the country’s political landscape could be changing. That could usher in greater transparency in the hydrocarbons sector, but nothing can be taken for granted.

The PDP looks set to remain the leading party in both the Senate and the House of Representatives, but with a reduced majority compared with the last vote in 2007. That could give opposition politicians more clout, potentially helping to force through radical energy-sector reforms, which despite heavy government promotion, have struggled to make headway in the legislature.

During the election campaign, President Jonathan made energy industry development the main plank of his campaign. He unveiled a strategy to increase the country’s domestic gas infrastructure, which remains acutely underdeveloped, despite access to extensive gas reserves that could help eliminate the power shortages that have plagued Nigeria for years.

Jonathan is the first Nigerian president to hail from the Niger Delta and is popular in the region. Crucially, he has won support from leaders of key militant groups, which agreed in 2010 to cease violence in return for reforms. But those groups will be expecting the next government to deliver on those pledges.

Politicians campaigning on an anti-corruption ticket claim Jonathan – who became president on the death of his predecessor, Umaru Yar’Adua, and was not elected – remains part of the problem rather than the solution. They say the PDP was responsible for years of economic mismanagement and for squandering billions of dollars of oil and gas revenues.

Jonathan is the first Nigerian president to hail from the Niger Delta and is popular in the region

Anti-corruption candidates may have benefited from a reminder of the country’s murky past in early April, when Japan’s JGC said it had agreed to pay a $218.8m fine to avoid prosecution in US courts over charges that it was part of a scheme to bribe Nigerian officials to win $6bn of contracts to build pipelines and processing facilities at NLNG.

JGC was part of the TSKJ consortium, along with Kellogg Brown & Root, Technip and Snamprogetti Netherlands (now part of Saipem), all of which have agreed to pay penalties relating to bribery covering four contracts between 1995 and 2004. The firms involved have agreed to pay some $1.5bn in total, according to the US Justice Department.

Unrest in the Delta, an uncertain investment environment and a failure to pin down enough guaranteed gas supply have dogged efforts to get Nigeria’s next LNG project off the ground. Brass LNG has been almost a decade in the planning, but its owners appear to be inching closer to a final investment decision.

State-owned NNPC, which holds 49% of the project, is reportedly negotiating with LNG Japan, Itochu and Sempra Energy of the US on taking stakes. NNPC’s existing partners, ConocoPhillips, Eni and Total, each have 17% stakes in Brass LNG, which is envisaged as a two-train, 10m t/y project. The group will be hoping the post-election climate in the energy sector is benign enough to encourage potential investors to sign on the dotted line.

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