Attacks by Niger Delta Militants led to a sharp drop in Nigeria’s crude oil production to a one year low of 1.65 million barrels per day in July 2016, the latest report by the Nigerian National Petroleum Corporation (NNPC) published Nov.4 has shown.
In July, Nigeria could only produce 52.29 million barrels of crude oil, which came to an average production of 1.65 million barrels a day, the lowest daily production recorded by the country since August of 2015. The July 2016 production is 22.43% lower than the comparable production figures in July 2015.
NNPC says the “shrinkage in the July production is due to subsisting force majeure at Forcados Terminal, which accounts for 300,000 bopd.”
Other factors that negatively impacted on production include Force Majeure at Que Iboe terminal, following damages on the export loading line 2, the Trans Niger Pipeline, the Claugh Creek-Tebidaba pipeline and the Escravos terminal delivery pipeline.
But the NNPC also noted that “Productions from the deep-water assets, which are beyond easy reach by Militants, remain steady.”
However, Onshore and Shallow water oil assets, where government take is high, are the worst hit by the militant attacks.
The impact of the attacks has been seen in the sharp drop in revenues that come into the federation for sharing among local, states and the federal government. Revenues shared by the three tiers of government dropped by N105 billion to N420 billion in October despite the positive impact on naira revenues from a weaker naira. Revenues from crude oil sales hits the federation account, three months after crude oil sales have been made, hence the July impact of the low crude oil production was only felt in October.
The attacks have also translated to a slump in tax revenue for government following the profit declines for affected oil companies, brought on by less crude exports and the high cost repairing damaged oil infrastructure.
However, sources familiar with the crude oil industry expect a sharp pick up in crude oil production, as militant attacks near end after some of the major militant groups agreed to a cease fire in August.
The NNPC report discloses that there was a 28.94% drop in pipeline attacks in August compared to the previous month, raising hopes of increased revenue flows to the government. The Minister of State for Petroleum Resources also recently told BusinessDay that the nation’s crude oil production has increased to about two million barrels per day due to the slowdown in militant attacks.
The increased dollar inflows from crude oil sales is expected to have a positive impact on the country’s naira value, as it will boost external reserves, which is now below $24 billion.
However, Muda Yusuf, the director general of the Lagos Chamber of Commerce and Industry (LCCI) is apprehensive of the near term possibility of a ceasefire between government and the militants.
“Reaching an agreement to halt pipeline vandalisation in the Niger-delta region appears more complex than it seems,” Yusuf said, as he recalled the recent bombing of the Trans Forcados oil pipeline only hours after Nigerian officials said they held a dialogue with the militants to reach a consensus for a ceasefire on Monday, Oct.31.
“The problem here is that Nigeria may not be talking to the right people but how can you ascertain who is and who is not? However they must not give up till they reach a truce because the costs of damage inflicted by the militants are too costly on the economy,” Yusuf added.
One of the damages caused by plunging petrodollars due to production cuts is a currency market with no dollars, in a country where food imports alone gulp $20 billion yearly.
Yusuf, however, notes that increased petrodollars may be unsustainable if authorities don’t unshackle autonomous dollar inflows.
Bismarck Rewane, Managing Director, Financial Directives Company forecasts a N180 billion increase in revenues to the federation in November to N600 billion because of the drop in militant attacks noticed from August.
This will bring huge relieve to state governments which have been struggling to pay salaries and debt obligations. Currently, 27 of Nigeria’s 36 state governments are said to owe their workers’ salaries and also account for seven percent of non-performing loans on the books of banks in the country.
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