Energy & Mining

Bleeding Oil

The Delta Avengers

7e84dd38-730b-4589-b067-059a22e72e23.jpg

Bleeding Oil

d782223a-7877-4ae0-a2fa-3c447a739282.jpg

Bleeding Oil

€‹A spate of attacks on Nigeria's oil pipelines and export terminals has hampered production and brought exports to a 30-year low in May.

The Niger Delta Avengers (NDA)—a formerly unheard of group of militants—has been orchestrating attacks on a range of pipelines, forcing multinationals and indigenous companies to shut operations for several months, putting a strain on government revenues.

Attempts to appease the group have so far been unsuccessful, with a ceasefire literally forgotten. The group announced on Twitter that it “never remembers having any agreement on ceasefire.”

The oil militants’ resurgence in activity is largely due to the government winding down a 2009 amnesty program that paid 30,000 militants to guard the installations they once attacked, and are now attacking again. Though the program has now been extended, President Buhari’s administration has made it clear that it regards it as a potential vehicle for corruption that cannot be continued indefinitely.

Since the attack on the export line, companies like Shoreline have had zero production, which equates to zero revenue. Shell was running the repair, and it was set to be ready by mid-June, but on nearing completion, the Delta Avengers blew it up again. It is unsure whether or not the line will be up and running again in August.
Ladi Bada, Managing Director & CEO of Shoreline Natural Resources, explained what this means: “It is a terrible thing because several companies would have been down with zero production for up to seven months of the year. Because of the divestments of the IOCs in the last three to five years most of the companies affected are actually indigenous companies.”

One of the players affected is Frontier Oil, a wholly owned Nigerian exploration and production (E&P) company formed in 2001 and awarded the Uquo Marginal Field in February 2003. Dada Thomas told TBY how when they were initially choosing a field in 2002, a key criteria was that it would be in a quiet part of the Delta. He explained, “With one act, the group removed nearly 400MW of power from the national grid and cut down our production from nearly 135 million scf per day to 25 million scf per day.”

As a result of the attack on the gas pipeline, through which Frontier Oil sells its gas, the company lost eight days of production, and was unable to supply the Calabar Power Plant in Cross River State and the Alaoji Power Plant, which is the second largest power plant in Nigeria. Earlier in January, the Nigerian National Petroleum Corporation (NNPC) had been forced to shut down Kaduna and Warri refineries following an attack on pipelines in Gbaramatu area of Delta State.

Nigeria has four refineries, two in Port Harcourt and the affected two refineries, which produce 135,000bpd between them, of the total installed capacity of 445,000bpd. Although the country is one of Africa’s largest oil producers, its refining sector struggles to produce enough fuel to meet local needs, and the country was importing 150,000 bpd in 2014, according to the US Energy Information Administration.

In April, Angola took over Nigeria as the continent’s leading oil producer, as Nigeria’s crude oil production fell by 67,000bpd as a result of the attacks. As Abiodun Awosika, MD & CEO of Excel E&P explained, “We are beginning to lose credibility in the international community because of the disruptions associated with oil and gas production in Nigeria.” Excel E&P owns Eremor oil field in OML 46, and have recently completed its pipeline installation and tied in and hooked up to a nearby Shell manifold, as well as completed the installation of an oil processing facility. All of which is currently not being used following the Forcados Terminal shut down.

For the large IOCs these repetitive attacks have been painful, as the offensives have been targeted infrastructure operated by companies such as Shell, Agip, and Chevron. But beyond hurting the production figures for these large corporations, many local players rely on the IOC’s infrastructure. For example, 15 companies use the Fircados export terminal. What is particularly pressing is that local companies do not have the bank balances to cover long-term downtime. As Awosika explained, “Every time there is a break in oil production, there is a break in meeting your bank loan repayment obligations.”

It is not only the private sector that is looking at its shrinking wallet, but also the cash-strapped federal government, too. The administration has an $11 billion deficit for this year’s budget, and many state governments have not paid salaries for months. Further shaving the buzz-cut oil revenue expectations will not be easing any headaches in Abuja, especially with the long-awaited Petroleum Industries Bill, which has been languishing in legislative limbo since its first drafting in 2007. The government is under pressure to find a balance that works for both the host community and the investing exploration companies.

It will be no easy task. The root of the problem precedes Buhari’s administration, with years of oil revenue money being misallocated. For example, former Delta State Governor James Ibori is in prison in the UK for fraud and money laundering for failing to use billions of dollars in oil revenue allocated in his budget for development. With local farming and fishing wiped out by decades of oil spills, some morbidly joke that the Niger Delta Avengers are becoming the biggest employers in the region.

Turning to the oil market, oil demand growth for 2017 is expected at 1.2 mbpd, around 0.3 mbpd above the last 10 years’ average. Unless Nigeria can find a way to pacify militants in the Delta region, players in the sector will miss out on their slice of this already shrunken cake.

You may also be interested in...

samuel-alabi-yfTGmbOzMR0-unsplash

Economy

Nigerian Elections 2023

Bola Tinubu has won the vote, but will he also win broader approval in the populace?

View More
Turkish Lira Devaluation in 2022

Economy

Worst-Performing Currencies of 2022

As high inflation rates persist, many national currencies are struggling with devaluation in 2022.

View More

Green Economy

Wildlife in Africa

The Future of Conservation

View More

Economy

Nigeria and AfCFTA

Membership of the African Bloc

View More
Flag,Of,Nigeria,On,The,Car’s,Fuel,Tank,Filler,Flap.

Energy & Mining

Gas in the tank

Fuel subsidies in Nigeria

View More
Daytime,Aerial,View,Of,Lagos,Island,,Nigeria

Transport

Joining Up the Dots

Nigeria’s big-ticket infrastructure projects

View More
The,Naira,Is,The,Currency,Of,Nigeria.

Real Estate & Construction

Create the Bedrock

Infrastructure tax credit scheme

View More
The Welcome Disruptor

Telecoms & IT

The Welcome Disruptor

How tech is disrupting Nigeria’s key sectors

View More
Stepping Forward

Industry

Stepping Forward

Manufacturing ahead of AfCFTA

View More
View All Articles