Question

Write a 1,500 word report in which you analyse the investment decisions and project risks for the new petroleum discovery in Nigeria.

What are the operational uncertainties that impact on your investment decisions?

How will the demand and supply of contracting markets impact project viability?

What are the main risks of the project, and how will this impact on stakeholders?

What ownership, financing configurations and credit rating issues are envisaged?

Answer 1

Th petroleum discovery in Nigeria is a very important factor in the economic structure of the country and could possibly alleviate the country out of poverty and chaos. However, it could also be the beginning or the start-point for a long age of wars and conflict if the resource is not handled carefully or if the government sells itself out to other governments.

There are many factors that could adversely affect the situation in Nigeria. The operational uncertainties we are talking about could range from the exploration of oil to its refining to its sale and further realization of dues from the buyers.

There are many key aspects to look into at this point of time> firstly, this discovery comes at a time when there is a major focus being put by various countries and global organizations stating the need for sustainable usage of the petroleum resource owing to its large effect on climatic changes and also the need to save for future generations. When we look at the issue from this viewpoint, there is sufficient reason to believe that the UN, politically motivated by the influential interest of a few countries would try to veto this issue into a state of ineffective operations. Secondly, Nigeria is at the brink of economic bankruptcy coupled with a great deal of political instability. All these will add up to low motivation or strength among investors to invest large sums of money into a dying state. Even if they invest, the interest rates charged could be massive meaning that the net benefit would not percolate to the benefit of the masses and would eventually stay in the pockets of the few rich in the society. Thirdly, even if this production is somehow initiated, there arises the issue of finding buyers for this oil. This is again a tricky situation as the US generally tries to impose sanctions if there is any country willing to break free of the petroleum dominance of its close ally - the OPEC as was recently seen in the case of Iran.

The markets for commercial usage of petroleum are contracting rapidly. This is mainly due to the push from all major economies of the world to start with Electric Vehicles. Many countries have already issued a last date within which all cars need to be converted from petroleum to electric. This means that the demand is falling and will continue to fall in the future. This will mean that the country has very little time to reap the benefits of its petroleum reserves in the country. The supply is also on a rise due to the discovery and viable production of shale gas in the US.