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Clouds are forming in Nigeria

The prospect of further violence in the Niger Delta risks undermining the country's efforts to woo investors back to the hydrocarbons sector with improved legislation

After a period of relative calm in the Niger Delta, Nigeria's oil production has risen close to the 1.8m-barrels-a-day cap imposed under Opec's current quota system, while progress on new legislation governing the sector prompted talk of an improved investment climate.

But an announcement in early November by the Niger Delta Avengers (NDA), the most high-profile militant group in the region, that it was abandoning a 14-month long ceasefire, has raised the prospect of a return to the way things were in 2016. During that year, attacks on oil and gas infrastructure halted exports from some of the principal terminals and at times cut production by more than a third.

The NDA have also threatened action against the floating production, storage and offloading (FPSO) vessel en route from Samsung's shipyard in South Korea to Total's Egina field, around 150km (93 miles) offshore. This is set to provide the country's only significant new oil production—up to 200,000 b/d, with a start date later next year.

"We are presently tracking and monitoring its movement; and God willing it shall not operate successfully in amidst the return of the fury of the Niger Delta Avengers," said a statement announcing the break in the ceasefire on the group's website.

Audacious raids have been launched on some offshore infrastructure—notably Chevron's shallow-water Okan platform in May 2016—but the group typically operates close to or within the Delta. An attack on the Egina field itself would seem unlikely, given the distance to shore; and an assault on the Lagos shipyard where the FPSO is due to arrive in early 2018 for completion before deployment would also seem a tough proposition.

Malte Liewerscheidt, an Africa analyst at UK-based consultancy Verisk Maplecroft, noted that the NDA's operations in 2016 were confined to the areas west of Warri, between the Benin and Forcados Rivers. "It is highly likely that any potential future assaults will take place within the same area, which includes the important Escravos oil export terminal," he said.

The breakdown in the ceasefire comes after a period of progress, which coincided with several visits to the Niger Delta earlier this year by Yemi Osinbajo, the country's vice-president. He was acting head-of-state at the time, because President Muhammadu Buhari was receiving medical treatment in London. Buhari is back in the country, but is maintaining his practice since his current term in office began with staying away from the Delta-a planned visit in mid-2017 was cancelled amid talk of security threats.

The NDA seem to have lost confidence in both the government and the group of elders from the Delta region negotiating with the authorities, with a view to bringing a greater slice of oil revenues and improved economic prospects to the local communities. Many people in the Delta region remain impoverished, despite decades living amid oil and gas infrastructure, which has also been the origin of significant environmental damage due to pipeline leaks and sabotage.

The NDA will be aware that just the threat of further unrest will damage government efforts to attract investment back to the sector. It will unsettle both international and domestic companies that have recently shown willingness to invest in Nigeria, notably in new refining and onshore pipeline capacity.

Energy minister Emmanuel Ibe Kachikwu told an African oil and gas conference in Cape Town in late October of the challenge the country still faces in attracting a limited pool of international funding. Opportunities in US shale and elsewhere provide faster returns in a more stable environment. Prospects of wooing money back have been enhanced by a clamp-down on corruption, signs of progress in getting long-stalled hydrocarbons sector reforms through Nigeria's National Assembly—and relative peace in the Delta.

An unwieldy Petroleum Investment Bill, in various incarnations, has been constantly rebuffed by sceptical lawmakers over the last decade. That has resulted in a legislative vacuum, which has largely dissuaded international oil companies from investing in costly offshore exploration and production and new liquefied natural gas export projects.

In an effort to get reforms into law, the energy ministry has split the legislation into separate bills, among them a Petroleum Industry Governance Bill designed to streamline regulation of upstream activities; and a Fiscal Regime Bill, which could include a tax structure more favourable to IOCs, though its content has yet to be finalised.

Kachikwu claims the strategy is working. "The indications that we have are that by the end of December, the governance law will be passed," he said at the conference, adding that the fiscal bill would be passed "hopefully in the first quarter of 2018".

He added that getting this legislation enacted before the end of 2018 would be "a major, major move in terms of certainty". That's certainly the case, but Kachikwu's bullishness may not energise the industry just yet, given the number of false dawns it has witnessed over recent years—and the breakdown of talks with the NDA won't have helped the mood one bit.

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