Monday, April 26, 2010

Nigeria's budget hopes for bullish oil production


ABUJA, Nigeria — Nigeria's acting president has approved a budget that increases spending by about 50 percent, riding on the bullish hopes a truce with militants in the oil-rich nation will hold and allow crude production to increase.

Acting President Goodluck Jonathan also signed a bill into law Thursday that gives preferential treatment to Nigerian companies wanting to take part in the country's oil industry, the lifeblood of Africa's most populous nation.

The 2010 budget plans to spend $30.6 billion over the year, up from $19.1 billion last year. The budget estimates the nation will pump 2.35 million barrels of oil a day from the exploration in the Niger Delta, with each barrel selling at $67.

The long illness and constitutional crisis sparked by elected President Umaru Yar'Adua's months-long absence from the country delayed the signing of the budget.

While potentially underestimating oil prices that now sit above $80 a barrel, the budget calls on the country to produce crude oil at levels unseen since militants began a campaign of pipeline bombings and kidnappings in 2006. The fighting, sparked by concerns over pollution and unceasing poverty over 50 years of oil production in the region, has cut production by as much as 1 million barrels a day.

The attacks also put Angola ahead of Nigeria as Africa's top oil producer, though Nigerian production increased after Yar'Adua reached an amnesty deal last year with many of the fighters in the region. OPEC now estimates that Nigeria pumps out around 2 million barrels a day, putting it slightly ahead of Angola, though figures fluctuate monthly.

But reaching 2.35 million barrels would require a significant investment among foreign oil companies to repair pipelines damaged by militants and thieves, as well as open new wells, said Jonas Horner, a Washington-based Africa analyst with the consulting firm Eurasia Group. The amnesty deal also faltered after Yar'Adua became ill in November and the region's main militant group, the Movement for the Emancipation of the Niger Delta, detonated two car bombs March 15 during a scheduled discussion about the amnesty.

"I think it's fair to say that (estimate) remains a sunny projection," Horner said.

New projects by oil majors in Nigeria like Royal Dutch Shell PLC, ExxonMobil Corp. and Chevron Corp. also remain unlikely as the country's National Assembly debates a bill overhauling the government-managed petroleum industry. Oil companies warn the overhaul will drastically increase taxes and make their work unprofitable, while Jonathan says the proposed bill would allow more oil money to return to Nigeria's people.

Jonathan also signed a bill offering preference to Nigerian companies wanting to explore oil blocks in the delta. The bill also requires foreign oil companies to hire more Nigerians.

Horner said more Nigerian companies are eyeing oil blocks potentially coming up for auction, as foreign oil firms appear hesitant to enter the unstable market.

"They appear to be salivating over the passage" of the overhaul bill, he said.

Oil money provides about 80 percent of Nigeria's government funding, which trickles down to states that have budgets greater than those of surrounding West African nations. But the corruption that pervades the nation often sees that money go into political leaders' pockets rather than toward government services.

Still, the outcry against the culture of graft often remains a second to concerns over production, as Nigeria's oil market can cause global prices to spike. Nigeria is the No. 3 oil exporter to the U.S., accounting for nearly 1 million barrels of crude a day to the U.S. in January.

Gambrell reported from Lagos, Nigeria.

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