Rising violence against foreign workers in Nigeria has delayed investment in some energy mega-projects and is forcing multinationals to rethink their plans, executives and analysts said on Friday.
Militant attacks have already shut down a fifth of the OPEC member’s oil and gas industry for a year and driven thousands of workers away from Africa’s oil heartland in the Niger Delta.
As the crisis worsens, investors are asking more questions about the long-term prospects of new projects to drill for reserves, operate plants and ship oil and gas from Nigeria’s restive tropical swamps to markets in the West.
“Some projects are slowing down tremendously,” a top Western energy executive said, asking not to be named. “People are also reviewing the long-term viability of projects because of security, but nothing has gone to the wall yet.”
Nigeria, the world’s sixth largest oil exporter according to the U.S. government, has a slate of multi-billion dollar projects pending — from giant oilfields located offshore in deep water to natural gas export plants in the delta itself.
Kevin Rosser, head of oil and gas consulting at security company Control Risks, said insecurity had already delayed investment decisions and construction plans in some cases.
“The longer the instability continues, the more long-term questions there are about viability of projects and security of supply,” he added.
The closure of Shell’s oil and gas production in the western delta after militant attacks last February has deprived Nigeria of about $10 billion in revenue so far.
This has been partially compensated by new offshore oilfields that have come on stream in the interim. While the big offshore oil projects have been largely immune to the crisis so far, several smaller schemes in the swamps led by Shell and Chevron have been delayed.
GAS PROJECTS VULNERABLE
Two natural gas export projects — Brass LNG and OK LNG, together worth about $20 billion in investment — are now approaching their final investment decisions and they are seen as most vulnerable to declining security.
Both plants are located in the swamps and were originally due to get their final green light from shareholders last year.
The $8 billion Brass LNG, a consortium of Eni , ConocoPhillips , Total and Nigeria’s state company, is located in a conflict hotspot next to an oil export terminal where militants seized four foreigners in December. Two Italian hostages are still in captivity 11 weeks later.
A spokesman for the project declined to comment.
Contractors have not been allowed to visit the site for months because of security fears, and the shareholders have commissioned a comprehensive security review before going any further, sources close to the project said.
“The number one issue is security,” one source close to the project said. “We cannot go to the site when our people are being held and there are constant threats against staff.”
In the long term, there are also questions about the security of gas supply from the swamps and about protection by a poorly equipped and de-motivated Nigerian military of a planned 8 km-long loading jetty.
The $12 billion OK LNG — a consortium of Chevron , Shell, BG and Nigeria’s state company — will be built in Ondo state, outside the core Niger Delta, but it will also source much of its gas from the high-risk delta swamps.
Nigerian National Petroleum Corp said this week that President Olusegun Obasanjo, who is due to step down in May, would lay a foundation stone on both projects next month.
But foreign investor sources said this would be a piece of political theatre with no bearing on the investment decision.
The security challenge comes on top of other risks to these projects, including an expected change of government in May, new tax laws on gas, government funding shortfalls and rising construction costs, investors said.