Nigeria, the Next Powder Keg?

Jim Brown
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Nigeria postponed parliamentary elections hours after they were scheduled to begin due to widespread organizational problems. The parliamentary elections were the first of three elections this month. Nigeria has seen a long history of flawed and violent elections.

The new date for the parliamentary elections is April 9th. Presidential elections on April 16th and April 26th for governor and state assembly polls.

The parliamentary elections were supposed to have been on Saturday but were postponed after long lines formed because the election materials were not delivered in many areas.

Nigerian elections are notoriously violent with protest groups including the MEND rebels disrupting the process. Reportedly there was sabotage that held up or destroyed some of the materials.

The country recently installed an electoral commission in hopes of breaking the long standing election problems. The first task was throwing out the old election rolls and starting over. The electronically scanned fingerprints and registered 73.5 million people in an effort to prevent double and triple voting and voting in the name of deceased persons.

The MEND rebels have played a pivotal role in past elections by sabotaging the process, blowing up oil installations and generally playing havoc with the process. Earlier this year they warned against the elections and the government control of the people. They warned they could bomb oil facilities and take hostages from the oil workers if their demand were not heard.

Following Saturday's postponement of the elections the MEND rebels issued a communiqu? saying they had suspended its planned bombings in order to allow for a safe general election. This about face was unexpected. They did warn "if we see no signs by the new government for a dialog addressing the key issues, we will commence our struggle which will be very detrimental to all oil companies operating in the Niger Delta."

In recent months the government has been paying off the MEND rebels using an amnesty program to buy their cooperation. Last week a group of rebels turned over more than 300 guns, mines, rocket propelled grenades and assorted weapons to the government in exchange for training outside the country. The government promised them amnesty and will pay for schooling.

A week ago I believe most analysts were worried the election and the threats by MEND stood a good chance of disrupting oil production in April. Now that is not looking like a possibility.

The problem for the rest of the world is the 2.6 mbpd of oil produced by Nigeria. It is light crude and another shortfall in light crude today could quickly send prices over $150. In 2007-2009 the rebels succeeded in cutting production back to just over 1.0 mbpd. That would be a dramatic disruption today. After two years of amnesty and bribes of various sorts it appears the MEND rebels are losing their will and capability to fight.

This has been a major problem for Shell Oil. Since that shutdown Shell has been dumping its holdings in Nigeria. Apparently they had repaired too many facilities too many times and called a force majeure too often for Shell management.

They announced last week the sale of its stake in Niger Delta License OML 40 to a UK-Nigerian consortium. Shell has already sold four onshore licenses and is currently negotiating to sell three more. The value of the eight licenses was thought to be in the range of $4 billion. Shell said the decision to sell was in line with the government's plan to promote indigenous participation in the industry. Strange, because that is exactly what the MEND rebels wanted, local ownership.

If the worry over the Nigerian elections and attacks by MEND rebels has passed for this election cycle then the threat of any production shortfalls has also passed. Assuming the elections are carried off according to the new schedule we could see a calm until late in the year.

Given the extreme unknowns in Libya this is welcome news that could lead to a temporary decline in crude prices. News out of Libya today was the expected arrival of an oil tanker on Tuesday to load some oil from rebel-controlled areas. If they are successful in getting a load to market it will probably lead to other loads following soon thereafter. Unfortunately they will be small because most production has been halted. Only a few fields are producing and at a very low level. Since you have to crawl before you can walk this could be a first step in the long-term process.

The true value of a barrel of oil today (WTI) is said to be in the $90 range according to JP Morgan. The rest is security premium due to Libya and violence in the MENA nations. With WTI expiration in two weeks and very limited storage available at Cushing we could be headed into a volatile period.

Jim Brown

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