Boston, MA -- (ReleaseWire) -- 01/28/2014 -- BMI View: Nigeria's hydrocarbon sector continues to struggle amid a worsening political and business environment. Most recently, Chevron's decision to move out of the OKLNG project signals that even the large upside potential of the Nigerian gas market is not sufficient to offset the degradation in investor sentiment. The weak output flows in 2012 were the consequence of flooding, repeated oil thefts and regulatory uncertainty. We estimate that total oil production for 2013 declined to about 2.4mn, and expect production to remain feeble over the coming year. Output should ramp-up more significantly as many large fields come online after 2014, more than offsetting current depletion. Adoption of the Petroleum Industry Bill, which we do not however expect before the Nigerian 2015 election, would be a strong signal for investors that Nigeria's hydrocarbons sector is ready to move forward.
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The main trends and developments we highlight for Nigeria's oil & gas sector are as follows:
- China agreed on a US$1.1bn loan deal with Nigeria bearing a very advantageous interest rate. In exchange, the West African country will allow the lender to get a privileged access to natural resources including oil. We expect that further deals as such could be an occasion for Nigeria to revive its oil and gas sector by boosting export potential for producers.
- Chevron decided to withdraw from the OKLNG project following the path Shell adopted last year. This brings another blow to Nigeria's gas market limiting further upside potential for liquefied natural gas (LNG) exports. We note, however, that the soon-to-open Escravos GTL plant could help monetise part of the gas currently flared. Disturbances and outages due to oil thieves and pipeline attacks have continued throughout 2013, with Shell having declared force majeure on Bonny Light exports several times since the beginning of the year. Several International oil Companies have divested some of their Nigerian assets throughout 2012 and 2013 as a result of this insecurity, such as Shell, Petrobras, Chevron and ConocoPhillips. Shell's November 2013 decision to sell its Nembe Creek Trunkline following losses from crude oil theft and recurrent pipeline attacks point to the seriousness of the situation. These divestments of Nigerian assets are a sign that the country's hydrocarbon sector is becoming increasingly unattractive, and are a worrying sign of Nigeria's long-term production potential should the situation not get better.
- BMI expects oil production to increase to 2.70mn b/d by 2020, as ambitious projects such as Usan peak and Bosi, Egina and the Bonga fields come on stream in the coming years. However, there is downside risks to this forecast given potential for further disruptions, the numerous project delays and the awaiting by many companies for the passing of the PIB before taking Final Investment Decisions on projects.
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