Nigeria is bracing itself for another stern test this year as it hopes to restore its oil production fully while at the same time maintaining the fragile peace in the restive Niger Delta.

Nigeria's crude and condensates output, which plummeted to a near 30-year low of 1.1 million b/d in mid-2016 due to renewed militancy in the Delta, has been climbing gradually and has averaged just over 2 million b/d in the past few months.

The government has also pledged to prevent fresh outbreaks of militancy and violence in the Niger Delta.

But it faces stiffer challenges next year as the country heads into a volatile presidential campaign ahead of the February 2019 elections.

President Muhammadu Buhari's 2018 budget includes a 30% increase for amnesty program payments along with a sizable increase to the budget of the Niger Delta ministry as it bolsters its charm offensive to keep militants on side.

"Buhari's conciliatory moves indicate that while he will continue to fight corruption, he will also attempt to mollify the Niger Delta Avengers and other militant groups as Nigeria heads into presidential campaign season," said Scott Modell, managing director of consultancy Rapidan Energy.

The government will need to keep on engaging with the community leaders and the Niger Delta stakeholders to keep the region peaceful.

"The capacity to grow production and increase government revenue is there alright, but what operators need is for the government to keep the Niger Delta community away from bursting pipelines and production facilities," one Western oil company official said.

Modell said he doesn't expect outages as a result of attacks by Niger Delta militants next year to exceed 100,000 b/d.

Nigeria's only way of meeting its ambitious production target of 2.3 million b/d in 2018 is by focusing more on condensate production than crude as it has been asked to keep crude output at 1.8 million b/d next year as part of the OPEC/non-OPEC cutdeal.

Both oil minister Emanuel Kachikwu and state-owned Nigerian National Petroleum Corp's managing director Maikanti Baru have admitted the government will now focus on growing condensate production to meet the 2018 target.

In late-November, Kachikwu said that "a lot more energy will now go to building condensates as opposed to building crude expansion production."

Nigerian condensate production has been in a range of 300,000-400,000 b/d this year, according to government estimates.

PRODUCTION GROWTH

With relative peace in the Niger Delta and oil prices comfortably above $60/b, oil producers have said there is no better time than now for Nigeria to increase drilling and oil production and grow its reserves.

The country's biggest project, due to come online by the fourth quarter of next year, is the deepwater Egina field operated by Total, which will add 200,000 b/d of oil to Nigeria's production.

"We are set for an expansive growth drive in 2018, to increase equity production to 300,000 b/d from the current output of 180,000 b/d," Yusuf Matashi, managing director of state-run Nigerian Petroleum Development Company, said.

Nigeria said it was revamping its four ailing refineries to push capacity utilization at the facilities to 90% of their combined 445,000 b/d nameplate capacity, ahead of the plan to end gasoline imports by 2019.

It also has ambitious plans to refine more of its crude at domestic refineries and be less dependent on product imports, and also start exporting refined products to the wider region.

But these plans look unachievable until Dangote Industries' 650,000 b/d refinery comes online in early 2020, and reform on its current refineries is desperately needed.

In the short term, the government is struggling to contain the country's latest spate of gasoline shortages.

Sparked by a dispute between contract holders under the official crude and product purchase program (DSDP) and NNPC, which accounts for more than 90% of the gasoline imported, the government plans to review the program for 2017/2018.

PETROLEUM BILL

This year might also be crunch time for the Petroleum Governance Bill or PIGB, which lays down the framework for creating a new national oil company.

The repeated delays in passing the bill has stunted investment in Nigeria's oil industry, particularly in deepwater oil and gas fields, costing the country $200 billion worth of potential investment.

This beleaguered bill has been in the making for almost a decade, and it now faces a big test as it is being debated in the lower legislative chamber, the House of Representatives.

Kachikwu and Baru are both banking on the bill being passed sometime next year.

"The PIGB is still in the assembly, we are working with them, the last commitment have from them is that it would be organized by the first two quarters next year," the minister said in late November.