Oil rally from US end of Iranian waivers eludes Nigeria on subsidy cost, pipeline disruption

Oil prices rose by more than 3 percent on Monday, the highest since November 2018 after the United States announced that it is ending waivers extended to buyers of Iran’s oil.

Brent crude futures rose more than 3 percent to over $74 per barrel on Monday morning while US crude futures rose to 2.33 percent to $65.49 per barrel. Futures in London jumped as much as 3.3 percent to the highest intraday price since early November.

The United States Secretary of State Mike Pompeo, yesterday told journalists that countries that hitherto enjoyed waivers to buy oil from Iran after US imposed sanctions on the country will no longer be granted exemptions.

“We’re going to zero. We’re going to zero across the board,” Mike Pompeo, US Secretary of State told reporters after the White House made the announcement in a statement. “There are no (oil) waivers that extend beyond that period, full stop,” he said, adding that there will be no grace period for those economies to comply.

The waivers granted by the United States, were necessary to allow countries including China, India, Japan, South Korea, Italy, Greece, Turkey and Taiwan buy oil from Iran, even after it placed sanctions on Iranian exports. In an indication that the Trump administration is willing to go tougher on Iran, it is ending the waivers to further squeeze the country’s economy.

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This has resulted in temporary jump in oil prices and may even lead to higher orders from Nigeria by India who buys the most of Nigerian crude but these gains could also elude Nigeria who spent N730bn last year paying for fuel subsidies.

Ibe Kachikwu, minister of state for Petroleum Resources recently said the landing cost of petrol is now N180 per litre. This translates to a subsidy of N35 on every litre consumed and going by NNPC figures of 53million litres consumption daily means Nigeria could spending N1.855 billion on subsidy daily.

According to the latest NNPC monthly operations and financial report, the group recorded N730.9billion as under recovery, a heading under which it subsumes extra budgetary allocations including petrol subsidies.

Wumi Iledare, a professor of Petroleum Economics and Policy Research at the Centre for Petroleum Energy Economics and Law, University of Ibadan said payments of subsidy could swallow the economy and lead to the collapse of education institutions, road infrastructures and health facilities because the country spends more than one quarter of the budget subsidizing petrol which benefit the elites more than the people.

“Ghana our next door neighbour doesn’t control the price of petrol, so why do we,” Iledare asked.

To compound the situation, a disruption to the Nembe Creek Trunk line raises the spectre of militancy as the company feared sabotage in the fire incident that forced it declare a force majeure on April 21.

The NCTL has, hitherto, enjoyed smooth operations preceding this incident, raising suspicion that this fire may have occurred through an illegitimate, third party breach of the functionality of the pipeline, critical national asset, the company said in a release.

NCTL was constructed by Shell Petroleum Development Company, SPDC from 2006 to 2010 at the cost of $1.1billion to evacuate crude oil from the oil fields of OML29 for export. It begins at Nembe Creek, to a manifold at the Cawthorne Channel field on OML 18. From here, crude is evacuated the short distance to the Bonny oil terminal. The pipeline has a capacity of 150,000 per day.

Since completion, the pipeline has often been a target of oil thieves. Only one year after completion, Shell raised the alarm that thieves were breaching the pipeline. In 2012, it estimated that 140,000 barrels of crude oil valued at $16 million was being stolen daily. SPDC sold the assets to Aiteo Eastern E&P Company Ltd, a subsidiary of Aiteo Group in 2015 who have proven to be quite adept at managing the asset.

Nigeria lost a third of its production in 2016 when militants calling themselves the Niger Delta Avengers, carried out a destructive campaign on oil and gas installations of oil companies.

While there has been a significant lull in the activities of militants, the threat of militancy continues to simmer in the Niger Delta as the military intensifies campaign to rein in disgruntled elements.