Nigeria Oil and Gas Report Q3 2012

BMI View: With several projects in the pipeline or due to come onstream over the next few years, such asUsan (180,000b/d) and Egina (150,000b/d-200,000b/d), we expect Nigerian oil output to risesubstantially over our forecast period to 2021. In addition, attempts to cut gas flaring will boost theoutlook for gas production. Nevertheless, OPEC quotas, the risk of project delays and Nigeria’s politicalenvironment, particularly vis-a-vis the PIB, still imply a significant amount of uncertainty.

The main trends and developments we highlight for Nigeria’s Oil and Gas sector are as follows:

BMI expects oil production to increase from an estimated 2.53mn barrels per day (b/d) in 2011to 2.75mn b/d by 2021, as ambitious projects, such as Usan (180,000b/d ) and Egina(150,000b/d-200,000b/d) come onstream.

Consumption of crude is forecast to rise at an annual average of 6.29% rate between 2011 and2021, boosted by anticipated strong GDP growth. We forecast that consumption will rise froman estimated 286,000b/d in 2011 to hit 549,000b/d by 2021.

BMI forecasts that gas production will increase from an estimated 34.71bn cubic metres (bcm)in 2011 to 82.61bcm by 2021, as the authorities and companies reduce the practice of flaring andstart monetising associated gas resources.

Gas demand is set to rise at an annual average growth rate of 12.60%. Booming demand fromthe government’s ambitious power sector plans and large export engagements will thus bolsterproduction growth. We see Nigerian gas consumption rising from an estimated 5.72bcm in 2011to 17.19bcm by 2021.

Nigerian oil reserves are forecasted to peak at about 40.05bn barrels in 2015-2016, beforecoming down to 27.90bn barrels by 2021, whereas gas reserves are expected to peak at 5.95trncubic metres (tcm) in the 2014-2016 period, before falling back to 5.80tcm in 2021.

In terms of infrastructure, the authorities have ambitious plans in liquefied natural gas (LNG)and refining. However, the downstream sector remains highly inefficient and, despite anameplate capacity of 505,000b/d, actual output is often around 100,000b/d. Many projects havebeen proposed, but there has been no update indicating that any are progressing. Considering thecountry’s past woes in the sector, we have decided not to include these projects in our forecasts.

Nigeria’s dependence on energy prices leads to high volatility in the country’s export revenues. Ourassumptions of tight supply due to booming demand in emerging markets is clearly an opportunity for thecountry. As a result, we assume OPEC basket oil prices to increase from US$107.52 per barrel (bbl) in2011 to US$111.47/bbl in 2012, thus creating an upside risk for the Nigerian macroeconomic outlook.