confidentially speaking

Ahead of Nigeria’s Presidential elections from 9 April, militants are auditioning for money from the government amnesty programme. President Jonathan has bought a short-term calm before the national vote. The long-term cost may be greater insecurity in West Africa’s gas and oil-rich Atlantic waters.

Nigeria’s 2011 elections are already marred by bombings and pre-emptive allegations of vote-rigging. Yet there is also a sense that this is make or break; that for the first time since a turn back to democracy from military rule in 1998, Nigerian voters are presented with real choices in candidates and policies.

Jonathan is expected to return as President but it may be a proper contest this time. Governorships – the other public offices where real money and power reside – may not go the way his ruling People’s Democratic Party would like.

Some of the most hotly contested seats are in the President’s oil producing Delta homeland, where thousands of armed youths wait around in camps. Since they were deployed to fix 2003’s elections, these young men have taken part in a prolonged mass uprising against the Federal government and oil companies like Shell.

Though officially 'stood down', they’re armed. The money for rations and weapons comes from government coffers and militant godfathers, who run illegal oil refining operations as well as having lucrative, legitimate pipeline building, maintenance and 'security' contracts.

To remain relevant, and demonstrate how they’re still part of the big political equation a Nigerian President must make, militants – mainly the loose network trading as the MEND ideology – continue to issue threats and set off bombs, the most recent targeting Agip’s flow stations on 17 March.

More bombings in Nigeria are bound to add to concern in world oil markets and to a renewed cycle of speculation. The loss of 1 million barrels per day (bpd) of oil production in Libya earlier in March had already refocused attention on the stability of supplies from the Niger Delta, Nigeria’s main oil-producing region. Bonny crude is sweet and light, making a good substitute for the highly naturally refined Libyan oil.

In early March, the price of Brent crude for April hovered around $115 a barrel on expectations that OPEC countries would see further cuts in production. In late February the price had peaked at $119.79, the highest since the record $147.50 in 2008.

'The real risk is that the remaining spare capacity cannot accommodate an escalation in disruption right now,' a Goldman Sachs report said. All major energy consumers – especially the United States, China and Europe – watched the fluctuations in the cost of petroleum with growing concern.

Every major world recession of recent years has been presaged by a spike in oil prices, as happened in 2008 prior to the collapse of Lehman Brothers and the banking crisis. A new price spike could kill off the fragile recovery in Asia, on which the broader hopes of global recovery depend.

The return to 'business as usual' in the Gulf of Guinea mirrors many of the pre-crash conditions in 2008. Nigeria has eight of largest oil reserves in the world, approximately 37 billion barrels, and the fifth largest untapped gas deposits by some estimates. Nigeria is the major oil economy in the region, and the fifth biggest producer in OPEC, in many ways setting the conditions for the rest of West Africa.

As in 2008, an apparent period of calm in the usually fractious relations between Nigerian Federal government forces, oil companies and armed militant groups breeds confidence that production from the Delta – currently estimated at between 60 – 75 per cent of full capacity – can be boosted.

In February, Nigeria's oil ministry said combined oil and condensate output was around 2.4 mn. bpd, but that the country had production capacity of around 3 mn. bpd. Speaking for the state oil company, NNPC, Levi Ajuonoma said, 'We will do whatever OPEC asks its members to do. Whatever is needed under OPEC directives.'

Analysts agreed that there is a slim margin for increased production but doubted the government estimates. 'They can probably go slightly higher, maybe by around 200,000 barrels per day but even that would help to stabilise the oil market,' Bismarck Rewane, head of Lagos-based consultancy Financial Derivatives, told Reuters.

Another factor that will contribute to a drop in output is scheduled maintenance on Shell's Bonga offshore facility. Exports from the facility have dropped from 184,000 bpd in January, to 32,000 bpd in March.

Bonga is of increasing importance to Shell’s long-term plan for its investments in Nigeria, which involve a progressive move offshore. This is broadly inline with predictions made by British financial and information company WAC Services Limited in 2004, which in a report to Shell stated that the oil company would be driven offshore entirely due to the deteriorating security environment.

There has been intense bidding for four onshore Oil Mining Leases (OMLs 26, 30, 34, 40 and 42) and facilities located in them, which Shell owns with its partner Italy’s ENI. The result of the bid for the fields – some of the blocks contain reserves of up to 2 bn. barrels, and are valued at between $150 mn. and $2 bn. – is due this week.

While the rest of the West African coast is experiencing a boom in finds of new deposits, shaping long-term global strategy about 'energy security', Nigeria’s workable reserves may have peaked. In 2010, Wada Andrew Obaje, Director of Department of Petroleum Resources raised the alarm over the declining rate of Nigeria’s crude reserves, saying it has dropped by 1.6 bn. barrels in just one year. Obaje told the press that the drop was due to energy companies concentrating more on drilling and production rather than exploration.

This may mirror a global trend of peak oil and declining production of reserves 'on the books'. A recent comparison of forecasts made in the journal Energy Policy gave a list of 56 countries already past peak production. The report concludes that it’s 'at best optimistic and at worst implausible' to forecast the global peak of oil production as more than a few decades away.

In the short to medium-term, parallels between the first two quarters of 2011 and 2008, when there was a flurry of exploration and speculation in West Africa, are striking. In June 2008, China’s state CNPC oil company spent a staggering $5 bn. to acquire Niger’s Agadem oil block. It hoped to link the fields by pipeline to loading platforms in blocks already acquired in the Niger Delta by China National Offshore Oil Corporation (CNOOC), which in a 2006 $2.27 bn. spending spree acquired a 45 per cent stake in Nigeria's Block 130.

Despite an official amnesty programme with militants, administered for President Jonathan personally by Kingsley Kuku and cutting state governors out of the deal, pipelines remain insecure. The new ones that CNPC and others hoped for aren’t being built.

Despite the amnesty delivering a limited period of calm for existing oil production to recover, military operations continue. In early March, the military Joint Task Force used around 100 soldiers in gunboats and helicopters to set fire to makeshift refineries in a six-hour raid on the Mbiama area, one of the largest single military operations ever in the President’s home state of Bayelsa.

Not only do illegal refining activities continue to threaten the viability of onshore production, there are other security impacts of a static level of state-endorsed criminality. While attacks on the military and oil infrastructure have lessened due to the amnesty, piracy emanating from Delta creeks threatens all shipping in the Gulf of Guinea, and so the viability of new finds of oil and gas along the entire coast.

At its height in 2009, Delta piracy was second-only to Somali waters, according to the International Maritime Bureau. Buisness analysts Risk Intelligence predict that while overall maritime attacks in the Niger Delta in 2010 fell to just 58, compared with 91 in the previous year, as Delta pirates spread out from their usual sphere of operation there will be increased risk to offshore shipping in 2011. In addition to the long-term risk to new finds, this adds an extra headache for world oil markets in the short-term (and especially if supplies are interrupted from the Persian gulf).

There are many reasons that a lasting political solution to the militancy problem is left off politician’s agenda, not least of all because of the elections. In Jonathan’s native Bayelsa, his successor as governor for the President’s People’s Democratic Party – Chief Timipre Sylva – faces a serious challenge from the Labour Party’s Ndutimi Alaibe. Alaibe is former Special Advisor to the President on Niger Delta Affairs and the previous manager of the amnesty programme.

Sylva has used a combination of militants and police to crack down on opposition ahead of the April vote. Alaibe has been the target of numerous assassination attempts. It’s expected that Alaibe has a fighting chance, but Sylva will dispute the result if he loses. The Independent National Election Committee is preparing to fast-track any legal resolution, to avoid a simmering dispute like the one over the governorship of Delta State which has lasted for more than two years.

Sylva has 'Generals' Boyloaf, Africa and others on his payroll if it comes down to a fight. Alaibe has retained money from the official amnesty in his war chest. Militant boss of bosses, High Chief Government Ekpemupolo – who has diversified from insurrection into arms trafficking and legitimate pipeline work – now acts as a guarantor of the amnesty. He deals directly with the President’s office through Kingsley Kuku. In his home state of Bayelsa, it’s felt Ekpemupolo will side with whichever candidate makes the best offer.

All the conditions are now in place for a post-election escalation of conflict like the one in 2003 between militant firebrand Asari Dokubo and gang boss Ateke Tom. Both were retained and armed to rig the elections for former Rivers State Governor Dr Peter Odili, but they fell out over who was the vote-rigger-in-chief. This dispute led to the birth of MEND, which in turn contributed to the 2008 global oil price spike.

Like the militants and gangsters, Nigeria’s military and political elite operate with deadly impunity. There has been no official investigation of last year’s JTF attack on Ayakoroma village which left 10 dead but failed to apprehend breakaway militant ‘General’ JohnTogo.

(Togo has recently resurfaced, offering to work with government but not if has to negotiate through Kuku and Ekpemupolo. Togo wants the kudos of dealing directly with the President's office, and his own lines of funding).

A military attack the previous year on Gbaramatu hasn’t been officially investigated. The JTF used 3,000 troops, two warships, 14 boats and at least four helicopter gunships to get one man, Ekpemupolo, who now works with the government. Other notorious massacres – Odi and Odiama – have become part of the mythology of the Delta people’s suffering but no judicial process – in Nigeria or internationally – has been pursued.

The violence of 2008, which in part contributed to the record $149 a barrel oil price spike, was the direct consequence of Nigeria’s 2007’s election cycle. By late 2007, money that kept armed youths on side – to act as election enforcers and as leverage with central government – was running out. The growing numbers of young militants were increasingly restive, desperate to cash in and escape the poverty and unemployment that define life for the majority in the Niger Delta.

Middle Eastern revolutions... predictions of peak oil production in existing oil producing countries... a likely re-escalation of armed violence in Bayelsa... a resultant risk of more piracy on the West African coast and hazards to shipping affecting newly found oil fields...

With all this uncertainty, it’s the perfect time for Shell to produce one of its philosophical musings on the state of the world soul.

In a new report – with the positively Baudrillardian title ‘Signs & Signposts’ - Shell says that the world faces an upcoming 'zone of uncertainty' between now and and 2050, a 'zone of extraordinary opportunity or misery'.

In the Delta, it may be both.