After dropping to the lowest levels in more than two decades this summer, Nigerian oil production is poised to rebound further in the near term following an amnesty agreement between the government and key militant leaders.
Crude production is on course to top 2 million barrels per day after the amnesty deal halted attacks on oil facilities, but the country may have its work cut out simply holding on to its current oil production capacity in the short-term.
Shell last week said it had taken advantage of a ceasefire and was repairing damaged pipelines but had yet to restore 800,000 b/d of production lost to earlier militant attacks.
The country hopes to raise production to 4 million b/d in the next decade, but it is unlikely to reach even half that figure in the year ahead.
In fact, government numbers released earlier this month prove that Nigeria is being realistic about expansion of its oil production with levels projected to average 2.088 million b/d next year and 2.275 million b/d in 2011.
Any increments in production capacity will almost certainly arise from deepwater offshore fields, unaffected by years of unrest and growing maturity but international oil companies (IOCs) already appear to be treading cautiously with investment plans. Nigeria's lower OPEC production target level -- 1.7 million b/d according to Platts calculations, OPEC having declined to publish individual quotas under the current 24.845 million b/d target for 11 members -- also appears to be constraining IOC investment decisions for more expensive projects.
Excluding current shut-in production, the Paris-based International Energy Agency estimates Nigeria's output capacity at 2.46 million b/d by 2014. The lower capacity picture largely reflects delays in agreeing timeframes for expansion of some of Nigeria's ultra-deepwater field developments, some of which are running at least three years behind original planned targets.
President Umaru Yar'Adua's amnesty offer, which ended on October 4, signals the type of bold strategy that is needed if Nigeria's government is going to make any real progress to end the long-simmering crisis in the southern oil patch.
Up to 15,000 gunmen have surrendered their arms and accepted Yar'Adua's unconditional pardon and there are signs that the period of relative calm has allowed Nigeria to increase output, with production rising to 1.87 million b/d in October.
Moreover, Yar'Adua's investment plans to jump-start development projects in the region appear to show a sincerity on the part of the government to address the core issues at the heart of the Niger Delta crises.
For all the grandstanding announcements, the devil is in the detail and not much as been said on how the government would apportion a 10% stake of its joint ventures to the people of the Delta. Three decades of corruption and mismanagement of revenue accruing from oil and lack of transparency in detailing how oil money is allocated and spent have engraved a litany of mistrust between the stakeholders.
Nigeria, which for long had remained Africa's leading oil producer, recently lost that distinction to Angola and must find ways to end the steady decline in its oil production.
Encouraged by the successful disarmament of the Niger Delta militias, the government has increased pressure on the National Assembly to pass the stalled Petroleum Industry Bill (PIB) before the end of the year.
While efforts to inject greater accountability and transparency in the energy sector have been welcomed, the multinationals fear the tough fiscal terms in the legislation will making Nigeria one of the least investor-friendly countries in the world.
They say the aggregate impact of multiple taxes, high royalties and loss of incentives under the bill will have a significant negative impact on investments.
Analysts say IOCs operating are not inclined to plough several more billions into new oil and gas projects when the fiscal terms under the new PIB will make some of those future investments uneconomic.
This poses a problem at a time when new investment in the critical hydrocarbon sector has already been threatened by the security crisis in the delta.
And despite government expectations that Asian companies are grappling to invest billions of dollars in Nigeria's energy sector, there is as yet no evidence that any Asian player is willing to replace the investment gap left by the IOCs.
In reality, Asian companies have secured little more than a handful of blocks out of several hundred awarded over the past fifty years to the IOCs and western independents, and not a single barrel of oil has yet been produced by them.
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