Forcados return excites indigenous players, security concerns remain

Several indigenous players in Nigeria’s upstream oil and gas sector, including Seplat, First Hydrocarbon, Nigerian Petroleum Development Company, Pan Ocean, Midwest Oil and Gas, Neconde, Aiteo, are happy with the return of the Trans Forcados Pipeline but concerns about keeping the terminal operations free of militant activities remain.

Some industry operators told BusinessDay that the challenge before the Nigerian government is to come up with initiatives to resolve vexing issues in the Niger Delta, including addressing developmental and environmental issues, so as to keep the militants away from oil and gas facilities.

Analysts at Financial Derivatives Company, say Forcados return is good news for Nigeria. “Forcados terminal will resume with capacity of 300,000 bpd and oil production expected to increase to support external reserves. It will also improve power (associated gas),” says a note from the firm, sent to BusinessDay.

The absence of Forcados pipeline forced indigenous operators to seek alternative routes to move crude oil from the Niger Delta. Some began pumping their crude through barges. Seplat pursued alternative crude oil evacuation options through the Warri refinery, shipping over three million barrels through the route. Many suffered huge losses and were unable to service their debts.

Forcados Oil Terminal is one of Nigeria’s largest crude grades carrying Forcados , a gasoil-rich sweet crude blend, averaging some 250,000 barrels per day of output. It conveys the crude grade to the Forcados export terminal in Delta state.

“We think that the worst is behind us,” said Pade Durotoye, CEO of Oando Plc recently. “Before the end of June, we will have Forcados back, which would take us comfortably back to 2.2 million bpd.”

Oil traders were said to load at about two 950,000-barrel cargoes of Nigeria’s Forcados crude in May, according to trading sources shipping data tracked by S&P Global Platts recently.

With Nigeria’s excess crude account at about $2.3billion as at May 24, a lot is riding on the return of Forcados terminal.

“We have been reliably informed that crude production at Forcados terminal will soon commence and this will in no small way help the economy and the stabilisation of the economy and for us to get out of recession as quickly as possible,” said Rochas Okorocha, governor of Imo state, while briefing journalists after the National Executive Council meeting on May 25.

Attacks on Forcados have been the most determined and also the most impactful, crippling the ability of both Shell and some indigenous operators, including Seplat, Midwestern, Neconde, NPDC to move crude along the pipeline.

But intense engagement with militants by Yemi Osinbajo, Acting President, and Ibe Kachikwu, minister of state for petroleum resources, have led to a lull in militancy but has not eradicated the menace.

“We remain cautiously optimistic on the upstream oil & gas space, especially given that the TFP should be operational  soon – positive not only for Seplat, but also for Nigerian oil production; the TFP will likely increase Nigeria’s production by about 200,000 bl/d to about two million barrels per day,” said  analysts at Renaissance Capital in a note to BusinessDay.

A volatile oil market makes an even stronger case to ramp up efforts to resolve issues in the Niger Delta. Analysts at Financial Derivatives said factors that would impact oil market includes the recent exit of the Paris Agreement by the United states which will raise shale production, controversy in the middle east over Qatar’s dealings with Iran could further worsen prospects for the oil market.

 

ISAAC ANYAOGU