Economy slump to continue as Shell suspends Forcados repairs

Hopes of a quick rebound in the Nigerian economy from increased dollar earnings and crude oil output were further dashed yesterday as oil giant, Shell Petroleum Development Corporation suspended the repairs of Forcados oil terminal since it cannot guarantee the safety of its workers.

Chief Financial Officer (CFO) of Shell, Simon Henry said the company had to withdraw repair crews last week after a second attack against the 48-inch Forcados export pipeline that links onshore storage tanks with an offshore port.

“We cannot operate or repair if our people are threatened,” Henry said in an interview at Shell’s annual capital markets day yesterday.

While the company previously said it planned to complete repairs on the facility, first attacked in February, this month, the CFO said that it was “not possible” at this time.

Furthermore, the recovery of 40 per cent of the nations’s gas supply to the power sector will also remain inaccessible because of the damaged  caused the pipelines.

Four of the nation’s power plants get gas supply directly through the pipeline.

The government had recently expressed concerns that the gas projects, under the operation of Shell, meant to beef up domestic supply of gas in the country needed to be speedily completed.

The damage of Shell’s Forcados export terminal pipeline and the vandalism of the Lagos Escravos pipeline in February, has resulted in the constraint of 3,132 megawatts (MW).

According to the Vice President, Yemi Osinbajo while making reference to the incident : “What is going on here affects the Nigerian people and the economy. The damage done to Forcados affects our oil earnings but also as important is the power aspect. It (Forcados) is a major source of gas, about 40 per cent of our gas supply is affected leading to the problem of power supply in the country.”

Osinbajo bemoaned the current situation of power supply in the country, describing it as a real problem.

The terminal was initially blown up in February and the company mobilised to effect it repairs which was expected to have been completed by end of May. Unfortunately  before  this  could be completed another devastating attack was carried out  by  the  militants  on  the  same facilities thereby endangering  the lives of the  workers.

Last week Friday, the militant group Niger Delta Avengers (NDA) in a series of Twitter messages claimed responsibility for fresh attacks on the Forcados 48 inches under-repair terminal in Burutu Local government area of Delta State.

The terminal which was bombed in February knocked out about 300,000 barrels of crude oil per day.

Forcados pipeline conveyed Forcados grade of crude oil to the over 400,000 barrels per day Forcados Export Terminal, Nigeria’s biggest export terminal in the Niger Delta.

Shell’s resignation over the disabled pipeline suggests a new level of insecurity as a wave of violence hits the oil-rich Niger Delta, leaving production at its lowest level in nearly three decades.

In the past, energy companies were able to repair pipelines after attacks, barring a few exceptions deep into the region’s swamps and creeks. The attacks are more destructive than in the past,” Henry said.

“There is clearly better organisation and targeting,” according to the CFO.

The militants, which back in 2009 were loosely grouped around the Movement for the Emancipation of the Niger Delta, now call themselves the Niger Delta Avengers. They claim to represent the people of the oil-rich region, portraying themselves as freedom fighters rather than rent seekers.

The Avengers aim to bring production by foreign oil companies in Nigeria to “zero,” according to a statement on a recently created website.

Brent for August settlement rose 62 cents to $51.17 a barrel on the London-based ICE Futures Europe exchange. Prices on Monday closed at the highest since Oct. 9.

The resurgent conflict in Africa’s largest economy has a long history, interweaving corruption and poverty with regional rivalries and presidential politics, but at its core is money.

Between 2006 and 2009, when the oil-rich region was rocked by similar campaign of violence, the then president, Umaru Musa Yar’Adua, came up with a controversial solution: He offered a pardon and monthly stipends to fighters willing to disarm.

After his death in 2010, former President Goodluck Jonathan doubled down on the strategy, awarding security contracts worth millions of dollars to rebel leaders, who went from blowing up pipelines to protecting them.

Thousands of fighters accepted the presidential amnesty, joining new private security companies formed by their leaders and enjoying monthly payments from the government. The revolt, which at its worst point had sunk oil production by about a third to 1.65 million barrels a day, quickly ended.

President Muhammadu Buhari, a 73-year old former general elected last year on an anti-corruption platform, ended all pipeline security contracts and reduced the monthly stipends. In a wave of attacks this month, the militants responded by blowing up key pipelines, cutting oil output to a 27-year low of 1.4 million barrels a day.

The Forcados, Brass River and Bonny Light export terminals in Nigeria are under force majeure, a legal term that allows companies to walk away from export commitments after several attacks. The Escravos terminal is delaying shipments after attacks against facilities operated by Chevron Corp., while a force majeure for Quao Iboe was lifted last week after Exxon Mobil Corp. carried out repairs.

The militants — perhaps building on the knowledge of their operations won through their security contracts — are striking firms including Shell Plc, Eni SpA and Chevron where it really hurts: key oil-gathering hubs that knock down thousands of barrels of production at once as well as difficult-to-repair underwater pipelines.

While the government has promised to quell the insurgency through military force, Shell said a more comprehensive solution was needed.

“The issue cannot be resolved through security only,” Henry said.

OLUSOLA BELLO & ISAAC ANYAOGU