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| The government says the removing of fuel subsidies was necessary to free funds for infrastructure [Reuters] |
Nigeria, Africa's largest oil exporter, sends about 40 per cent of its oil to the US, making it the fifth largest producer of oil to the United States.
However, Nigeria relies on imports for around 85 per cent of its domestic consumption because it lacks refining capacity. Strikes over the lifting of a popular fuel subsidy that has led to prices more than doubling at the pump are now threating oil output.
The OPEC member's biggest oil union said it was ready to halt oil output if the government did not reinstate the subsidy, piling pressure on President Goodluck Jonathan to reach a compromise.
But Robin Mills, head of consulting at Manaar, a Dubai-based energy consultancy, told Al Jazeera that the halting of production will not have much impact in the short term and that Nigeria can keep up the exports.
"If a strike does happen to go on for more than a few days, then there is the risk of the fuel reserves in the Niger Delta getting depleted," he said.
The strikes, which have been going on for almost a week, have not hit oil exports yet, according to traders and oil officials.
This is partly due to the fact that processes are automated and offshore operating platforms are not dependent on unionised workers.
However, the threat of a cut in oil output was still apparently a deciding factor in prompting the government to start negotiations with union leaders.
Ports closed
Strikes have already forced ports to close, resulting in tankers being held outside ports at the expense of charterers.
"Ports are shut, so yes it is affecting things. Nothing in or out at the moment," a fuel trader said.
| Inside Story: Is Nigeria sliding into chaos? |
Demurrage costs, about $8,000 a day, are payable to a ship owner by a charterer. However, shippers say these costs have not increased despite the current strike.
"They [Nigerian shipments] are fairly prone to delays anyway but even more than usual now with the strike. So far it's fairly flat," a shipping source said.
Fighters in the Niger Delta have caused widespread disruptions in the past by attacking oil facilities, workers and also stealing oil.
Mills said this violence in the delta is more significant than the union strikes.
The Movement for the Emancipation of the Niger Delta (MEND), the main group responsible for such disruptions, claims to be seeking a redistribution of oil wealth and greater local control of the sector.
While the government has managed to reconcile with them and achieve relative calm, the risk of violence is still high.
"There is always the risk of disruption in the delta due to the lack of delivery of public services," Mills said.
Little oil benefits
The government says the removing of fuel subsidies was essential to allow much of the $8bn a year to be ploughed into improving the country's woefully inadequate infrastructure.
But people are united in anger against the scrapping of subsidies, which they view as their only benefit from the nation's oil wealth.
"The subsidy issue is politically very difficult - the government will be saving lots of money that it could spend in the right way, but the subsidy is the only thing that people see. They don't trust the government to deliver," Mills said.
"Most of the oil is exported, and on top of that, most of the refining is done out of the country - the local refineries are state owned and are run corruptly."
Mills said that because the refined oil prices are very low, there is lots of smuggling of refined product back out of the country.
"And very important people are involved in this illegal trade in one way or the other," he added.
The NNPC has four refineries, two in Port Harcourt, and one each in Kaduna and Warri - however, three of them are regularly out of service.
Nigeria's refineries operate on a very low level, forcing them to re-buy all their oil on the open international market for gasoline sales, said Elizabeth Dickinson, a journalist covering Africa.
Nigeria imports refined petroleum products from neighbouring Ivory Coast as well as from Holland and England, Austin Oniwon of the Nigerian National Petroleum Corporation (NNPC) was quoted as saying in a daily national newspaper.
The Abuja-based Leadership newspaper reported in December that out of the 445,000 barrels of oil allocated to the NNPC daily, only 170,000 were refined in the country.
