According to Oil and Gas Journal (OGJ), Nigeria had an estimated 36.2 billion barrels of proven oil reserves as of January 2009. The majority of reserves are found along the country’s Niger River Delta and offshore in the Bight of Benin, the Gulf of Guinea and the Bight of Bonny. Current exploration activities are mostly focused in the deep and ultra-deep offshore with some activities planned in the Chad basin, located in the northeast of the country.

Nigeria is an important oil supplier to the United States. Over half of the country’s oil production is exported to the United States (see exports below) and the light, sweet quality crude is a preferred gasoline feedstock. Consequently, disruptions to Nigerian oil production impacts trading patterns and refinery operations in North America and often affect world oil market prices.

Since December 2005, Nigeria has experienced increased pipeline vandalism, kidnappings and militant takeovers of oil facilities in the Niger Delta. The Movement for the Emancipation of the Niger Delta (MEND) is the main militant organization attacking oil infrastructure for political objectives, claiming to seek a redistribution of oil wealth and greater local control of the sector. Additionally, kidnappings of oil workers for ransom are also common and security concerns have led some oil services firms to pull out of the country and oil workers unions threatening to strike over security issues for their members.

The instability in the Niger Delta has caused significant amounts of shut-in production and several companies declaring force majeure on oil shipments. EIA estimates Nigeria’s effective oil production capacity to be around 2.7 million barrels per day (bbl/d) but as a result of attacks on oil infrastructure, 2008 monthly oil production ranged between 1.8 million bbl/d and 2.1 million bbl/d. Additional supply disruptions for the year were the result of worker strikes carried out by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) that shut-in 800,000 bbl/d of ExxonMobil’s production for about 10 days in late April/early May.

In 2008, Nigerian crude oil production averaged 1.94 million bbl/d, making it the largest crude oil producer in Africa. If current shut-in capacity were to be back online, EIA estimates that Nigerian production could have reached 2.7 million bbl/d in 2008. As a member of the Organization of Petroleum Exporting Countries (OPEC), Nigeria has agreed to abide by allotted crude production limits that have varied over the years but do not appear to have an impact on production volumes or investment decisions to the same degree as unrest in the Niger Delta.

The major foreign producers in Nigeria are Shell, Chevron, ExxonMobil, Total, and Eni/Agip. Recent developments in the upstream sector include the start up of the Chevron-operated Agbami field in September 2008, with expected peak production of 250,000 by the end of 2009.

Non-crude petroleum production was about 230,000 bbl/d in 2008, bringing total oil production to 2.17 for the year. This amount should increase in the short-term with Total’s Akpo condensate field coming onstream in 2009 and expected to peak at 180,000 bbl/d.

In 2008, Nigerian exported most of its 2.17 million bbl/d of oil production (approximately 1.9 million bbl/d were exported). Of this, 990,000 bbl/d (44 percent) was exported to the United States, making Nigeria the 5th largest foreign oil supplier to the United States. The light, sweet quality of Nigerian crude makes it a preferred gasoline feedstock. Consequently, disruptions to Nigerian oil production impacts trading patterns and refinery operations in North America and affects world oil market prices. Over the past year, volatility in Nigerian oil supplies has led some U.S. refiners to stop purchasing Nigerian crudes.

Additional importers of Nigerian crude oil include Europe (25 percent), Brazil (7 percent), India (11 percent) and South Africa (4 percent). Despite shut-in production, Nigerian trade patterns appear to have remained stable over the past year, most of which can be attributed to capacity additions from the Chevron-operated Agbami oilfield in September 2008 combined with slightly decreasing domestic consumption and declining world demand.

Nigeria has six export terminals including Forcados and Bonny (operated by Shell); Escravos and Pennington (Chevron); Qua Iboe (ExxonMobil) and Brass (Agip) with deeper offshore production being exported directly from the Floating Production Storage and Offloading (FPSO) platforms. According to the Energy Intelligence Group’s International Crude Oil Market Handbook, Nigeria’s export blends are light, sweet crudes, with gravities ranging from API 29 – 47 degrees and low sulfur contents of 0.05 – 0.3 percent. Most Nigerian crudes trade at a premium to Brent, the North Sea benchmark crude.

In 2008, Nigeria consumed approximately 286,000 bbl/d of oil. According to the OGJ, Nigeria has four refineries (Port Harcourt I and II, Warri and Kaduna) with a combined capacity of around 500,000 bbl/d. In February 2009, a Nigerian National Petroleum Corporation (NNPC) official reported that only one of these refineries was operational but running below capacity. As a result, the country is currently importing almost 85 percent of refined products . Problems in the refining sector are attributed to corruption, poor maintenance, theft, and fire. Recent conflicts have also interrupted the flow of crude into the refineries and forced them to shut down.

In order to increase investment and improve performance of the refining sector, the government has ongoing plans to privatize the refineries and end price subsidies. Current subsidy schemes lead producers to sell crude overseas rather than to local refineries and therefore add to increasing volumes of refined product imports. However, these plans are regularly opposed by workers unions and opposition parties.

In 1977, Nigeria created NNPC. At that time, NNPC’s primary function was to oversee the regulation of the Nigerian oil industry, with secondary responsibilities for upstream and downstream developments. In 1988, the Nigerian government divided the NNPC into 12 subsidiary companies in order to better manage the country’s oil industry. The majority of Nigeria’s major oil and natural gas projects (95 percent) are funded through joint ventures (JVs), with the NNPC as the major shareholder. The largest JV is operated by Shell Petroleum Development Company (SPDC). Additional foreign companies operating in JVs with the NNPC include ExxonMobil, Chevron, ConocoPhillips, Total, Agip and Addax Petroleum. The remaining funding arrangements are comprised of production sharing contracts (PSCs), which are mostly confined to Nigeria’s deep offshore development program.

The government has been planning to transform NNPC into a more profit-driven company that can seek out private funds in the market. While these discussions have been underway for many years, a reform bill was submitted to the National Assembly in early 2009 that would restructure NNPC into an independent limited liability company.