Nigeria: Energy assets face renewed security threats

01 February 2018

President Muhammadu Buhari’s administration is struggling to contain security threats in Nigeria, given the collapse of a ceasefire in the Niger Delta and a persistent threat from Boko Haram. The re-emergence of militant attacks on oil and gas infrastructure will weigh on foreign exchange reserves, undermining a recent fall in currency inconvertibility and transfer risks.

Security Environment

Attacks on energy infrastructure by militant groups, including the Niger Delta Avengers (NDA), have decreased in frequency since 2016. However, in November 2017 the NDA announced an end to its year-long ceasefire, following slow progress on government promises to invest in the Delta region. The group stated that it would begin a new campaign, aiming to halt oil and gas production in the country.

Whilst the NDA has not yet followed up on its threats, the breakdown of the ceasefire will once again elevate threats to oil and gas production in the Niger Delta. Likely targets for bombing attacks include transmission stations and valve platforms, such as the Forcados terminal and the Escravos-Lagos gas pipeline, both of which were damaged in 2016 attacks. This could also exacerbate gas shortages at gas-fired power stations elsewhere in the country.

Whilst the Nigerian government has claimed a technical defeat over jihadist group Boko Haram, the group retains the ability to launch terrorist attacks on security forces and public spaces in spite of a leadership split. The Boko Haram faction loyal to previous leader Abubakar Shekau will be limited to improvised explosive device attacks close to the Sambisa Forest in 2018. In contrast, the grouping centred on Islamic Stateappointed leader Abu-Musab al-Barnawi will primarily target security forces around the Nigerian-Nigerien border. In July 2017, 69 people were killed in a Boko Haram ambush on an oil exploration team in Borno state.

Trading Environment

Currency inconvertibility and transfer risks facing power sector companies operating in Nigeria will be moderately alleviated in 2018 as foreign exchange liquidity improves. A shortage of hard currency in 2016 reduced investor confidence in Nigeria’s power sector, as firms could not access dollars to import equipment and repatriate profits. A recovery in oil sector revenue has improved foreign exchange liquidity in recent months.

The Central Bank of Nigeria (CBN) increased foreign exchange availability in 2017. Foreign currency reserves have been increasing over the last 12 months, and are expected to reach USD 28 billion in 2018, from USD 23.9 billion in October 2016. This should lead to a return of investment in Nigeria’s power sector, although foreign investors will continue to face uncertainty.
Moreover, an uptick in NDA attacks in the Niger Delta would place renewed pressure on oil revenues and hard currency reserves.

Investment Environment

Since September 2016, the government has been pursuing legal action against a number of international oil companies, claiming that they under-declared oil exports and avoided around USD 13 billion in tax. In September 2016, a federal court in Abuja began to hear evidence against Total and ENI's subsidiary Agip. The government claimed tax revenue losses of USD 635 million due to the misreporting of oil quantities. Where companies resist paying court-ordered compensation, the risk of contract alterations will be elevated.

A growing number of companies are resorting to international arbitration for the enforcement of awards granted in Nigerian courts, as the government has been slow to honour judgements. For example, in June 2017, Agip and Nigerian firm Oando lodged a complaint at a New York court, seeking payment from the state-owned Nigerian National Petroleum Corporation (NNPC). In 2014, NNPC had been ordered to pay USD 570 million to the firms by an arbitral court in Abuja, following claims that revenue had not been fairly divided at two oil blocks.


** Significant capacity constraints will likely drive up prices, as Nigerian capacity is often tied up on legacy and restructured deals. Country concerns such as foreign exchange issues will also elevate pricing.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Nigeria, Mongolia, Angola, and Vietnam all of which have been the subject of recent enquiries from JLT's client base.

JLT WRR Feb 2018

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email


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