ANALYSIS-Despite price, future of Nigeria oil sector cloudy

By Daniel Flynn

LAGOS, May 8 (Reuters) - Record oil prices should mean boom times for Nigeria's oil industry, but rising militant violence, labour unrest and years of government neglect cast a shadow over its future.

Africa's largest oil producer saw its 2 million barrel-a-day production halved last month by an eight-day strike at U.S. oil major Exxon Mobil (XOM.N) and by militant attacks on pipelines and wells in the labyrinthine creeks of the Niger Delta, where most of Nigeria's crude is pumped.

The Movement for the Emancipation of the Niger Delta (MEND), a loose coalition of militant groups, has claimed five attacks on oil facilities in just over a month, helping to drive prices to more than $122 this week.

Its stop-start campaign of violence, which has reduced Nigeria's output by a fifth since early 2006, is poised to intensify with the treason trial next month of militant leader Henry Okah, who faces the death penalty.

"The Okah trial is going be a short-term focus for instability, but even if he were released the problem won't go away," said Rolake Akinola, senior West Africa analyst with Control Risks. "It can be difficult to hold negotiations with a group that doesn't always have a coherent structure."

Unlike 10 years ago, when environmental and human rights issues were at the fore, the struggle in the Delta has been hijacked by criminal gangs seeking to extort money from oil firms, local authorities and the federal government.

Pipelines in the Delta are exposed and unguarded, making them easy targets for anyone with access to explosives, and local grievances often play a part in attacks claimed by MEND.

A peace process begun by President Umaru Yar'Adua last year has stalled and the most radical militant groups have vowed not to attend a forthcoming summit. Meanwhile, the government has re-armed the military in the Delta and imposed a crackdown.