Militancy Takes Huge Toll on Oil Production

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Oil barrels

BY Chineme Okafor

Renewed attacks on oil installations by militant groups in the Niger Delta have led to drop in Nigeria’s production capacity such that the country only manages to produce1.4 million barrels of oil every day.

Trailing some distance – about 800,000 barrels per day (bpd) – away from the projected production target of 2.2 million barrels per day (mbpd) that was embraced by the government in its 2016 budget, the renewed attacks by militants in the Delta appears to have taken the wind off the country’s target.

In disclosing and accepting the challenges before the country, Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, told members of the National Assembly in Abuja that some hard works would need to be put in to recover the lost volumes.

“We declined from 2.2 million barrels which was the focus of the 2016 budget to 1.4 million barrels as of today,” said Kachikwu.

He said the ministry was committed to restoring and protecting the destroyed oil facilities in the Delta, adding: “We are going to work hard to see how we will get these issues resolved and get our production back.”

Starting from February, a new militant group, the “Avengers” have carried out repeated attacks on oil installations in the country, thus reducing oil output and subsequent shut down of two refineries – the Kaduna and Warri Refineries as well as a major export terminal – the Forcados.

The group which had made several requests on the government said in an email to journalists on Thursday that it was fighting for an independent Delta and would step up its attacks unless oil firms left the region within two weeks.

Also, in their assessments, security experts explained the group have shown a level of sophistication in their attacks quite different from what was seen during the peak of militancy in the Delta between 2004 and 2009, and from which Nigeria’s production halved.

According to their assessment which was reported by Reuters, they may be getting help from sympathetic oil workers in identifying key pipelines to cause maximum damage to the country’s production.

While it had undertaken attacks which bore the hallmarks of a group, they in February acknowledged that they attacked an undersea pipeline that forced Shell to shut the 250,000 barrels a day Forcados terminal.

They have also wreaked havoc on a Chevron platform which resulted in the shutting of the Warri and Kaduna refineries. Power supply across Nigeria has also taken a dive due to cuts in gas supply to power stations.

Kachikwu, in his response during the meeting with the parliament, stated the need to develop infrastructure to promote increased and efficient oil production in the country.

His response was however more diplomatic than that of President Muhammadu Buhari , who had consistently promised the group government’s full wrath. Buhari had told the world that the group would get from the government similar treatment that members of the Boko Haram were getting in the North.

However, the military in response launched a wide-ranging hunt across the Niger Delta last week but given the lack of intelligence about the group, their quest has not yielded any significant results that could guarantee the country some respite especially with regards to crude oil revenue streams.

Possible impacts on 2016 budget

Already, the government had in its 2016 budget pegged national production at 2.2mbpd and with a price range of $38 per barrel. It expects to gain N820 billion from the oil sector to fund its N6.07 trillion budget.

What that suggest is that about 13 per cent of the national budget would have to be funded by the oil and gas sector. In a situation where oil prices are relatively unstable, oil producing countries have majorly resorted to leveraging their production volumes, and as such, Nigeria could lose vital production advantage and revenue.

The capacity of the government to comfortably fund its budget may be impaired by such drop in production.

With this in mind, the International Energy Agency (IEA) on Thursday disclosed that higher than expected, Iranian oil production has helped stabilise the global oil market by offsetting concerns generated by the renewed insurgency in Nigeria’s Delta and wildfires in Canada’s Alberta region.

IEA said in its monthly report that global oil output rose to 32.7 million barrels a day in April but that the figure was boosted by Iran whose production increased faster than expected following the lifting of international sanctions earlier this year.

The IEA also forecast a sharp drop in the global oil supply surplus by the end of the year and which it noted should push the market toward a “much-anticipated balance” after a volatile couple of years, Nigeria with the current conditions may not benefit from this shift in balance.

It noted that oil prices fell in April after leading producers failed to agree on production cuts in Doha, but have since risen after troubles in oil-producing Canada and Nigeria threatened output.

According to it, it is unclear how deeply the damage from a devastating, ongoing wildfire in Canada’s oil sands town of Fort McMurray will hurt overall production and this is in addition to Shell reportedly closing the terminal that exports Nigeria’s benchmark Bonny Light crude oil and evacuated its workers from a threatened oil field.

Chevron’s Escravos oil and gas facility also closed after a bomb attack. The IEA noted that this new deadly violence by the militants was taking a bigger share of Nigeria’s oil wealth. This is also at a time oil prices have recovered slightly to the $45 a barrel range that producers had looked towards.

Possible solutions

Kachikwu in his assessment of the situation however said the country had not done enough to upgrade her oil infrastructure and perhaps minimise the frequency or extent of breaks on them.

He said the existence of oil infrastructure with questionable integrity in the country could be aiding such easy breaks as often done by militants.

“Our pipelines are 35 years old and none has been replaced; we have not been able to put gas infrastructure in place, our refineries are next to comatose and old and we are working hard on them.

“Our critical facilities are at a breakdown stage, so no serious infrastructure has taken place.

“No country in the world will expect that the price system in the country will benefit its citizens if it doesn’t invest in infrastructure. So, the energy we put on PMS we need to begin to focus on building massive infrastructure all over the country,” said Kachikwu.

“I know how much efforts it has taken to pump products from the south to the north, to the east and to the west. It has been one battle after another, but the time has come to invest in proper pipelines, proper tracking, proper buried levels and begin to move with the world,” he further stated.