Nigeria is percolating. Whether it will explode and make a mess of things or simmer down and continue semi-routinely producing its approximately 2.3 million barrels of oil per day is a question foremost on the minds of energy traders, producers, and consumers.
At face value, the culprit is the nation's presidential elections that were held on April 14, resulting in the election of ruling party candidate Umaru Yar'Adua, who, with 24.6 million votes, won an easy victory over his two primary competitors, Atiku Abubakar and Muhammadu Buhari. The latter was a one-time army strongman. The difficulty with the election, which reportedly has resulted in up to 200 deaths in subsequent violence, involves the results having been "blatantly rigged," according to Buhari, who took second place with 6.6 million votes.
Nigeria, which therefore is on tenterhooks, is among the world's top 10 oil producers. It is also the fifth-largest exporter of oil to the United States and a member in good standing of OPEC. Should the current percolation result in a boil-over, the world's currently precarious hydrocarbon supply-demand balance could be jeopardized, almost certainly inducing a substantial hike in already elevating crude prices.
At present, Nigeria's oil sector accounts for near 20% of the nation's gross domestic product. Most of its production and development projects are jointly owned by the government's Nigerian National Petroleum Corporation (NNPC) and a host of private companies, including Royal Dutch Shell
For some time, the company's energy operations, which generally are located in the nation's Niger delta where the key city is Port Harcourt, have been subject to random violence mostly perpetrated in part by members of local tribes, who generally have been excluded from holding relatively lucrative energy-related jobs in favor of members of the nation's more powerful inland tribes.
And so the local tribes have taken to attempting to stifle the energy production of which they are not a part. That violence has occurred both in the delta and on a growing number of offshore platforms.
Now then, with OPEC representing nearly a third of the world's approximately 85 million barrels of daily crude production, we have Iran almost perpetually misbehaving, Venezuela nationalizing technically tricky production in its Orinoco basin, Iraq in whatever condition one wishes to ascribe to that nation, and, as I've noted, Nigeria percolating precariously. I'm therefore wondering how many Fools will give me strong odds that none of those nations will experience significant reductions in their crude production in the reasonably near term?
All this leads me again to urge you to pay close attention to the progressively more important energy sector in your investment allocations. My favorite companies, given their international scope, are ExxonMobil, Chevron
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Fool contributor David Lee Smith does own shares in Schlumberger but not in the other companies mentioned. He welcomes your questions or comments. The Motley Fool has a disclosure policy.
