• Friday, March 29, 2024
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BusinessDay

Niger Delta crisis threatens Nigeria’s oil revenue amid rally

Oil-rig

Despite rallying crude oil prices, Africa’s biggest oil producing country looks set to suffer a decline in oil revenue, no thanks to perennial militant crises in the country’s Niger Delta. This is as exports of two Nigerian crude grades are suffering significant disruptions following a turbulent week in the oil-producing delta region.

Renewed attacks on oil installations by militant groups in the Niger Delta would inevitably result in a drop in Nigeria’s oil production capacity and revenue generation from oil, going by past experience.

Royal Dutch Shell on Monday declared force majeure on exports of Nigeria’s Bonny Light crude following the closure of one of two export pipelines, according to Reuters, while Amenam, operated by oil major Total, is also under force majeure. Both grades of crude are light and sweet, typically suitable for gasoline production.

Bonny Light exports had been planned at 222,000 barrels per day (bpd) in June and 184,000 bpd in May, but trading sources said they were awaiting new loading plans. Shell said the export terminal continued to run.

A port source told Reuters that oil-well shutdowns had reduced Amenam’s daily production and led to force majeure. Exports of Amenam are typically around 100,000 bpd, and trading sources said loadings had been delayed by roughly 25 days.

“After elections there is always interest and conflict which is part of the terrain. Also, as oil prices rally, it’s always attractive to vandalise pipelines because there is higher demand and incentives,” Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), told BusinessDay on the phone.

The Nigerian National Petroleum Corporation-operated joint ventures with Shell, Exxon Mobil Corp., Chevron Corp., Total SA, Eni SpA and other indigenous players pump most of the nation’s oil.

Aiteo, an independent oil producer, declared a force majeure on Nembe Creek Trunk line following a fire outbreak on April 21, while Shell said it had declared force majeure on April 25 after two of its oil workers were kidnapped, an escalation that helped prompt state police to step up security operations.

“Oil price was above the budget benchmark last year. What did the present government do with the excess money they were making?” Henry queried.

Attacks on pipelines and other facilities in the Niger Delta in 2016 cut the nation’s crude oil output from a peak of 2.2 million barrels per day to near 1 million bpd.

That, combined with low oil prices and other factors, pushed the country into its first recession in a quarter of a century. Crude sales make up two-thirds of government revenue and 90 percent of its foreign exchange.

However, while prices of oil today are rather going northwards, a southward movement in crude production as a result of the new threat by the militants would see Nigeria lose vital production advantage and revenue to fund its budget.

Although Federal Government key assumptions and micro-framework for the 2019 budget are based on a projection of 2.3 million bpd oil production, oil price benchmark of $60 and exchange rate of N305 to the dollar, the country’s crude production remains below 2 million bpd.

Secondary sources say Nigeria recorded 1.73m bpd in March, while S&P Global Platts survey puts the nation’s output at 1.84m bpd from 1.88m in February.

“You can’t bury the Niger Delta issue. What alternatives have you created for them? Have you created jobs or solved the problem of unemployment?” Henry said.

Successive governments have failed for decades to deal with the Niger Delta problem since ethnic minorities in the area began protesting against environmental damage and its impact on their fishing and farming livelihoods.

After the military government in 1995 executed nine Ogoni activists, including the writer Ken Saro-Wiwa, regional unrest spiralled into full-blown armed militancy in the past 15 years.
While armed assaults in the region have eased, sabotage, protests and crude theft for local refining and sale to rogue vessels offshore are undermining Africa’s biggest oil industry.

With Nigeria’s oil exports close to being crippled in 2008 by militant attacks, the then government of President Umaru Musa Yar’Adua cut a deal: stop the raids in return for amnesty and a rehabilitation plan for fighters, and a commitment to address the region’s demands for more local control of oil.

More than 20,000 former fighters signed on, receiving skills training and monthly stipends, while several former militant commanders received pipeline-protection contracts. Relative peace returned and oil output increased, reaching 2.2mbpd by the time Buhari was elected in 2015.
When Buhari started to cancel the deals, attacks resumed and oil production plunged. While he eventually resumed the payments, nothing has been done to address a 16-point set of demands for more local control of oil resources and investment in infrastructure to achieve peace presented to Buhari by the Pan-Niger Delta Elders Forum in December 2016.

More than two years later, the discussions haven’t advanced, according to Edwin Clark, the 93-year-old leader of the forum.

Buhari now faces the choice of resolving the delta problem or kicking the can down the road as most of his predecessors did, according to Ledum Mitee, a minority rights activist who led the government panel that initiated the amnesty plan in 2008.

 

DIPO OLADEHINDE