Background
Nigeria's hydrocarbon resources are the mainstay of the country's economy but production and growth of the oil and natural gas sectors are often constrained by instability in the Niger Delta. The Nigerian economy is heavily dependent on the oil sector which, according to the International Monetary Fund (IMF), accounts for over 95 percent of export earnings and about 65 percent of government revenues. The oil industry is primarily located in the Niger Delta where it has been a source of conflict. Local groups seeking a share of the oil wealth often attack the oil infrastructure and staff, forcing companies to declare force majeure 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. The industry has been blamed for pollution that has damaged air, soil and water leading to losses in arable land and decreasing fish stocks.

In addition to oil, Nigeria holds the largest natural gas reserves in Africa but has limited infrastructure in place to develop the sector. Natural gas that is associated with oil production is mostly flared but the development of regional pipelines, the expansion of liquefied natural gas (LNG) infrastructure and policies to ban gas flaring are expected to accelerate growth in the sector, both for export and domestic use in electricity generation.

In order to remedy some of the above mentioned problems, the Nigerian government is currently debating a Petroleum Industry Bill (PIB) that is designed to reform the entire hydrocarbon sector (see oil section). Parts of the PIB have recently been made into law while the Bill in its entirety continues to be debated by the National Assembly.

According to the International Energy Agency (IEA), in 2007, total energy consumption was 4 Quadrillion Btu (107,000 kilotons of oil equivalent). Of this, combustible renewables and waste accounted for 80.2 percent of total energy consumption. This high percent share represents the use of biomass to meet off-grid heating and cooking needs, mainly in rural areas. IEA data for 2008 indicate that electrification rates for Nigeria were 47 percent for the country as a whole. In urban areas, 69 percent of the population had access to electricity compared to rural areas where electrification rates were 26 percent. Approximately 81 million people do not have access to electricity in Nigeria.

Oil
Nigeria has been an OPEC member since 1971. The country has the second largest oil reserves in Africa and is the continent's primary oil producer. The light, sweet quality of Nigerian crude makes it a preferred gasoline feedstock. According to the Oil and Gas Journal, Nigeria had an estimated 37.2 billion barrels of proven oil reserves as of January 2010. The majority of reserves are found along the country's Niger River Delta and offshore in the Bight of Benin, the Gulf of Guinea and the Bight of Bonny. Current exploration activities are mostly focused in the deep and ultra-deep offshore with some activities in the Chad basin, located in the northeast of the country.

Since December 2005, Nigeria has experienced increased pipeline vandalism, kidnappings and militant takeovers of oil facilities in the Niger Delta. The Movement for the Emancipation of the Niger Delta (MEND) is the main group attacking oil infrastructure for political objectives, claiming to seek a redistribution of oil wealth and greater local control of the sector. Additionally, kidnappings of oil workers for ransom are common. Security concerns have led some oil services firms to pull out of the country and oil workers unions to threaten strikes over security issues.

The instability in the Niger Delta has caused significant amounts of shut-in production and several companies to declare force majeure on oil shipments. EIA estimates Nigeria's nameplate oil production capacity to have been around 2.9 million barrels per day (bbl/d) at the end of 2009 but as a result of attacks on oil infrastructure, monthly crude oil production ranged between 1.6 million bbl/d and 2.0 million bbl/d. Disruptions have been attributed to direct attacks on oil infrastructure as well as pipeline leaks and explosions resulting from bunkering activities.

Nigeria is an important oil supplier to the United States. Close to 40 percent of the country's oil production is exported to the United States and the light, sweet quality crude is a preferred gasoline feedstock. Consequently, disruptions to Nigerian oil production impacts trading patterns and refinery operations in North America and often affect world oil market prices.

More recently, in light of the Deepwater Horizon explosion in the U.S. Gulf of Mexico, attention has been drawn to the environmental damage caused by oil spills in the Niger Delta. According to the Nigerian National Oil Spill Detection and Response Agency (NOSDRA) approximately 2,400 oil spills have been recorded since 2006. The amount of oil spilled in Nigeria has been estimated to be around 260,000 barrels per year for the past 50 years according to a report cited in the New York Times. The oil spills have caused land, air, and water pollution severely affecting surrounding villages by decreasing fish stocks, contaminating water supplies and arable land.

Production
In 2009, total oil production in Nigeria was slightly over 2.2 million bbl/d, making it the largest oil producer in Africa. Crude oil production averaged 1.8 million bbl/d for the year. Recent offshore oil developments combined with the restart of some shut-in onshore production have boosted crude production to an average of 2.03 million bbl/d for the first quarter of 2010.

Recent developments in the upstream sector include the start up of the Chevron-operated Agbami field in September 2008, which reached its estimated peak production of 250,000 bbl/d in 2009 as well as Eni's startup of the Oyo field in 2009, producing approximately 25,000 bbl/d. Non-crude production was boosted in 2009 with Total's Akpo condensate field that started up in 2009, adding about 180,000 bbl/d of liquids to total production.

As a member of the Organization of Petroleum Exporting Countries (OPEC), Nigeria has agreed to crude oil production limits that have varied over the years but are currently set at 1.673 million bbl/d. OPEC quotas do not appear to have an impact on production volumes or investment decisions to the same degree as unrest in the Niger Delta.

Exports
In 2009, Nigeria exported most of its 2.2 million bbl/d of total oil production (approximately 1.9 million bbl/d were exported). Of this, close to 800,000 bbl/d (40 percent) was exported to the United States, making Nigeria the 5th largest foreign oil supplier to the United States for the year. Due to recent increases in Nigerian production, U.S. total oil imports from Nigeria are 962,000 bbl/d for the first quarter of 2010. These volumes represent a decrease from highs of over 1.1 million bbl/d seen in 2004-2007. Part of the decline can be attributed to the volatility in Nigerian oil supplies leading some U.S. refiners to stop purchasing Nigerian crudes.

Additional importers of Nigerian crude oil include Europe (24 percent), Asia (20 percent), Brazil (10 percent), and South Africa (4 percent). Despite shut-in production, Nigerian trade patterns appear to have remained stable over the past year, most of which can be attributed to capacity additions combined with slightly decreasing domestic consumption and declining world demand.

According to the Energy Intelligence Group's International Crude Oil Market Handbook, Nigeria's export blends are light, sweet crudes, with gravities ranging from API 29 - 47 degrees and low sulfur contents of 0.05 - 0.3 percent. Most Nigerian crudes trade at a premium to Brent, the North Sea benchmark crude.

International Oil Companies
Foreign companies operating in joint ventures (JVs) or production sharing contracts (PSCs) with the Nigerian National Petroleum Corporation (NNPC) include ExxonMobil, Chevron, Total, Eni/Agip, Addax Petroleum (recently acquired by Sinopec of China), ConocoPhillips, Petrobras, StatoilHydro, and others.

Shell has been working in Nigeria since 1936 and currently operates the most nameplate crude oil production capacity, estimated to be between 1.2-1.3 million bbl/d. However, the company has been hardest hit by the instability as much of its production is onshore. More than half of Shell's crude oil production capacity is currently shut-in, some since early 2006.

ExxonMobil operates fields producing approximately 800,000 bbl/d (700,000 bbld/ of crude) in partnership with NNPC. Although most of ExxonMobil's production is offshore, the company has also been forced to shut-in production. In 2008, supply disruptions took place as a result of worker strikes carried out by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) that shut-in all of ExxonMobil's production for about 10 days in late April/early May. The company is currently dealing with oil leaks around its Qua Iboe facilities.

Chevron operates between 600,000 and 700,000 bbl/d of production capacity, some of which has been shut-in since January of 2005 (Escravos Field). Total's smaller share of production has been unaffected in recent years whereas Eni/Agip has had some incidents, specifically at the Brass River terminal that have shut-in varying volumes of production since December of 2006.

Refining
In 2009, Nigeria consumed approximately 280,000 bbl/d of oil. The country has four refineries (Port Harcourt I and II, Warri, and Kaduna) with a combined capacity of around 500,000 bbl/d. As a result of poor maintenance, theft, and fire, none of these refineries have ever been fully operational. Attacks on oil infrastructure have also interrupted the flow of crude into refineries. Industry analysts estimate that 0-15 percent of the refining capacity was operational in 2009. As a result, the country is currently importing all (or mostly all) of its required products. According to the IEA, product imports combined with subsidized consumption cost the Nigerian government $3 - 4 billion a year. As part of the energy sector reform described below, the government plans to end price subsidies and privatize the refining sector.

Sector Organization
In 1977, Nigeria created NNPC. At that time, NNPC's primary function was to oversee the regulation of the Nigerian oil industry, with secondary responsibilities for upstream and downstream developments. In 1988, the Nigerian government divided the NNPC into 12 subsidiary companies in order to better manage the country's oil industry. The majority of Nigeria's major oil and natural gas projects are funded through JVs, with the NNPC.

Recent Developments
The government has been planning to transform NNPC into a more profit-driven company that can seek out private funds in the market. While these discussions have been underway for many years, a Petroleum Industry Bill (PIB) is currently being debated by the National Assembly. The PIB is designed to reform the entire hydrocarbon sector to increase the government's share of revenue; increase natural gas production; streamline the decision making process by dividing up the different roles of NNPC into a profit-driven company; privatize NNPC's downstream activities; and promote local content. The Bill would also provide for a greater share of oil revenues to the producing communities and expand the use of natural gas for domestic electricity generation.

Parts of the bill have recently been approved as stand alone laws (see below) while the different agencies and roles of the new National Oil Company and the NNPC have yet to be fully defined. Differing versions of the PIB are currently being debated, especially around more contentuous points such as the renegotiation of contracts with international oil companies, the changes in tax and royalty structures and clauses to ensure that companies use or lose their assets.

As part of the energy sector reform, in April 2010, then acting president (now president) Goodluck Jonathan signed the Nigerian Content Development Bill (NCD) into law. The bill is aimed at increasing the role of Nigerian companies in all aspects of the oil and gas industry. The new law requires that Nigerian companies obtain contracts and win bids so long as the local company is capable, the Nigerian content is higher, and the bid is not more than 10 percent higher than the otherwise winning bid. According to the African Oil and Gas Monitor (Afroil) the NCD applies to all contracts worth over US$1 million and also applies to insurance, banking, and other sectors tied into the oil industry.

Natural Gas
The Nigerian natural gas sector is expected to grow as new infrastructure is developed and the government implements zero gas flaring policies.

Overview
Oil and Gas Journal (OGJ) estimates that Nigeria had 185 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2010, which makes Nigeria the eighth largest natural gas reserve holder in the world and the largest in Africa. In 2008, Nigeria produced about 1,400 Bcf of marketed natural gas, ranking the country as 23rd in the world (gross production was 2,600 Bcf).

The majority of the natural gas reserves are located in the Niger Delta and the sector is also impacted by the security issues affecting the oil industry. Projects are often delayed or shut-in as a result of sabotage, bunkering, and general insecurity. Most recently, the Escravos Gas to Liquids (GTL) project was delayed until 2013 (from 2010).

Top proven natural gas reserve holders 2010

In 2008, Nigeria consumed around 430 Bcf, mostly for electricity generation where, according to the International Energy Agency (IEA) natural gas accounts for slightly over 65 percent of generated electricity. The remaining gas was vented (140 Bcf) and flared (530 Bcf) with about 500 Bcf being reinjected for enhanced oil recovery. Most of Nigeria's marketed natural gas production is exported as liquefied natural gas (LNG).

Gas Flaring
Because many of Nigeria's oil fields lack the infrastructure to produce and market associated natural gas, it is often flared. According to the National Oceanic and Atmospheric Administration (NOAA), Nigeria flared 532 Bcf of natural gas in 2008, down from 593 Bcf in 2007. While there are no current estimates as to the cost of flaring the natural gas, in 2007, the NNPC claimed that flaring cost Nigeria US$ 1.46 billion in lost revenue.

The government of Nigeria has been working to end natural gas flaring for several years but the deadline to implement the policies and fine oil companies has been repeatedly postponed with some analysts pushing the date forward as far as 2012. In 2009, the Nigerian government developed a Gas Master Plan that would promote new gas-fired power plants to help reduce gas flaring and provide much-needed electricity generation.

Exports
Liquefied Natural Gas (LNG)
A significant portion of Nigeria's natural gas is processed into LNG. In 2009, Nigeria exported close to 500 Bcf of LNG. Of this, 13.3 Bcf went to the United States, providing 3 percent of total U.S. LNG imports (2 percent of Nigerian exports). Most of Nigeria's LNG was exported to Europe (66 percent), mainly Spain (31 percent), France (15 percent) and Portugal (13 percent). Other export destinations include Asia (15 percent) and Mexico (16 percent). Nigerian LNG Exports were down close to 30 percent from 2008 volumes which can also be attributable to problems in the Niger Delta, specifically problems at the Soku gas processing facility.

Nigeria's main natural gas project is the Nigeria Liquefied Natural Gas (NLNG) facility on Bonny Island. Partners including NNPC, Shell, Total and Agip completed the first phase of the facility in September 1999. NLNG currently has six trains and a production capacity of 22 million tons per year (1.1 trillion cubic feet). A seventh train is under construction but this addition has been delayed until 2012.

Three additional LNG plants with a total of seven trains are expected to come online after 2012, these include OK LNG (4 trains), Brass LNG (2 trains), and Progress LNG (1 train). However, these are in varying stages of development and investment decisions will depend heavily on security, world LNG markets, and Nigerian efforts to expand the use of natural gas for domestic electricity generation.

International Pipelines
In addition to LNG, Nigeria began exporting some of its natural gas via the West African Gas Pipeline (WAGP) in early 2010. The 420-mile pipeline carries natural gas from Nigeria to Ghana via Togo and Benin. Exports should reach initial capacity of 170 million cubic feet per day (MMcf/d) by the end of 2010 and plans are underway to expand capacity to as much as 450 MMcf/d and possibly extend the pipeline further west to Cote d'Ivoire.

Nigeria and Algeria continue to discuss the possibility of constructing the Trans-Saharan Gas Pipeline (TSGP). The 2,500-mile pipeline would carry natural gas from oil fields in Nigeria's Delta region to Algeria's Beni Saf export terminal on the Mediterranean. In 2009 the NNPC signed a memorandum of understanding (MoU) with Sonatrach, the Algerian national oil company in order to proceed with plans to develop the pipeline. Several national and international companies have shown interest in the US$ 12 billion project including Total and Gazprom.

Profile
Energy Overview
Proven Oil Reserves (January 1, 2010) 37.2 billion barrels (Oil and Gas Journal)
Oil Production (2009) 2.21 million barrels per day, of which 1.8 million bbl was crude oil.
Oil Consumption (2009) 280 thousand barrels per day
Crude Oil Refining Capacity (2010) 505 thousand barrels per day
Major Refineries Port Harcourt-Rivers State (150,000), Kaduna (110,000), Warri (125,000), Port Harcourt-Alesa Eleme (120,000),
Proven Natural Gas Reserves (January 1, 2010) 188 trillion cubic feet (Oil and Gas Journal)
Natural Gas Production (2008) 1,159 billion cubic feet
Natural Gas Consumption (2008) 432 billion cubic feet
Recoverable Coal Reserves (2006) 210 million short tons (World Energy Council)
Coal Production (2008) 0.009 million short tons
Coal Consumption (2008) 0.012 million short tons
Electricity Installed Capacity (2007E) 5.898 gigawatts
Total Energy Consumption (2007E) 4 quadrillion Btus*, of which Combustible Renewables and Waste (80.2%), Natural Gas (9.9%), Oil (9.4%), Hydroelectricity (0.5%), Coal (0%), Nuclear (0%) (IEA data)
Total Per Capita Energy Consumption (2006) 7.8 million Btus
Energy Intensity (2007) 5,000 Btu per $2005-PPP**

Environmental Overview
Energy-Related Carbon Dioxide Emissions (2008) 101 million metric tons
Per-Capita, Energy-Related Carbon Dioxide Emissions (2006) 0.8 metric tons
Carbon Dioxide Intensity (2008) 0.86 Metric tons per thousand $2005-PPP**

*The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power.
**GDP figures from Global Insight estimates based on purchasing power parity (PPP) exchange rates.

Sources
Africa Oil and Gas Monitor (Newsbase Afroil); Agence France Presse; BBC News; Business Monitor Online; CIA World Factbook; Energy Intelligence Group- International Crude Oil Market Handbook; Eurasia Group; FACTS Global Energy; IHS Global Insight; International Energy Agency; International Monetary Fund; International Oil Daily; New York Times; Oil and Gas Journal; OPEC Statistical Bulletin; Petroleum Africa; Petroleum Economist; Petroleum Intelligence Weekly; Reuters; Rigzone; Transparency International; World Bank