… Experts say militancy will be determining factor
Within the last six months, three out of four of Nigeria’s major crude grades – Bonny Light, Qua Iboe and Brass River, have emerged from force majeure – a legal clause that absolves parties to a contract from liabilities due to – rising optimism towards realising 2017 projected 803m crude oil barrels production.
If oil fields produce at full capacity, oil traders are assured of 990,000 bpd with the removal of restrictions on the delivery of these crude grades.
At the current crude oil price of $54, foreign exchange earnings could well rise to $53m daily. This will boost Nigeria’s capacity to fund its N7.3trillion 2017 budget and crude oil earnings of N1.9trillion.
However, oil and gas industry experts place a caveat: as crude oil prices look to be stable at $50, this possibility is now hinged on resolving militancy in the Niger Delta.
Last week, Eni lifted restrictions on Brass River crude grade declared in April 2016 after a pipeline caught fire, shutting out around 140,000 bpd. The crude grade was restored on February 11, after repair work was completed.
In September, Shell lifted force majeure on around 150,000 bpd Bonny Light crude grade exports, after the Nembe Creek Trunk Line was repaired and reopened. Nembe Creek is a key pipeline that brings oil from the Niger Delta to the coast for exports.
Aiteo, the operator of the pipeline, did not report on the cause of the leak that it said was responsible for the closure.
ExxonMobil lifted force majeure on Qua Iboe crude grade in October 2016 after three months, helping to shore up production by adding 400,000 bpd.
Only Forcados which averages between 250,000 – 300,000 bpd remains under force majeure effectively, since February 2016 after militants calling themselves the Niger Delta Avengers took out the Trans-Forcados pipeline.
Austin Avuru, chief executive officer of Seplat Petroleum Development Company hinted that it may be opened soon.
“On the whole, we think that into the second half of the year, we should be back to decent production,” Avuru told Reuters in January.
Meanwhile, a new crude export grade, called Forcados Light, independent of the regular export grade Forcados, is being shipped through a terminal at the 125,000 bpd capacity Warri Refinery.
The crude for the new grade comes from OMLs 4, 38, and 41 in Delta State, operated by Seplat. Traders told Platts in January that exports are currently around 10,000 – 15,000 bpd with a cargoe being exported every four to six weeks.
Analysts however worry about the threat of militancy which still poses a hazard.
“The risk of militant activity in the Delta has declined significantly ,following the decision to resume stipend payments, but further attacks cannot yet completely be ruled out, as all the underlying drivers of the conflict have not been addressed,” Corbus de Hart, senior economist at NKC African Economics, told BusinessDay by email.
Hart further said, “More importantly, it seems that it is taking longer to get some for the country’s largest export terminals back online, as repair work is taking longer than anticipated, so we may only witness a gradual recovery in oil output as the year progresses.”
Ibe Kachikwu, minster of state for petroleum resources, on February 10 at the resumed dialogue with Niger Delta stakeholders in Bayelsa state, said that Nigeria loses at least $80billion yearly to vandalism of oil facilities in the region.
Yemi Osinbajo, vice president of Nigeria, has been engaged in shuttle diplomacy in the Niger Delta, suing for peace as military action has achieved little.
“It is likely that Buhari will want to manage the process more carefully due to his diminishing approval ratings, in order to attempt to ensure success,” said Luke Doogan, analyst at West Sands Advisory, in an e-mail response.
Nigeria’s 2017 budget is planned to be financed through the sale of 2.2m bpd at a benchmark price of $44.
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