Closure of Trans-Forcados Pipeline May Threaten 2018 Budget

  • Crude oil price drops on concern over OPEC supply

Ejiofor Alike with agency report

The recent closure of the Trans- Forcados Pipeline (TFP) following the May 7, 2018, suspected explosion on the facility at the Diebiri-Batan community in Warri, South West Local Government Area of Delta State, has raised concerns among stakeholders over the capacity of the federal government to finance the 2018 budget of N9.12 trillion, THISDAY has learnt.

There are, however, strong indications that the flow of crude oil along the pipeline has started to ramp up again, as Salvic Petroleum Resources Limited, handling the emergency repairs is said to be working round the clock to bring the pipeline back up in a matter of days.

This is coming as crude oil prices eased yesterday, under pressure from a potential increase in output by the Organisation of Petroleum Exporting Countries (OPEC) to cool the market’s recent rally and cover any shortfalls in supply from Iran and Venezuela.

The budget, which was passed recently by the National Assembly, was predicated on the production of 2.3 million barrels per day of crude oil, $51 per barrel oil price benchmark and an exchange rate of N305 to the dollar.

However, there are concerns that with the TFP down, about 250,000 barrels of crude oil per day from the impacted fields are shut in, equating to a combined loss of export revenues approximating $19 million daily, as crude price averaged $76 per barrel in the last week.

Apart from the impact on the host communities, The TFP is strategically important to the Nigerian economy as the 87-kilometre trunk line stretches from the Ughelli Pump Station (UPS), transporting crude oil from about 15 fields in the Western Delta, including those of NPDC, Seplat, Neconde, Shell, Pan Ocean and others, to the Forcados export Terminal (FOT).

Investigations revealed that it has been over two weeks since the shut of the TFP and there are concerns on the likelihood of another protracted shut down period.

THISDAY gathered that apart from the short-term loss of export revenues, the producing companies operating in the western Niger Delta have also expressed fear of a repeat of what an official of one of the companies called “the 2016 debacle, when Force Majeure was declared on the TFP lasting 15 months from February 2016 to May 2017.”

According to him, all companies that were dependent on the pipeline for crude evacuation recorded near zero production throughout the period.

“It was in May 2017 that Salvic Petroleum Resources Ltd, under a Technical Services Agreement with the operator of OML30, Heritage Energy Operational Services Limited, rehabilitated the Forcados Pipeline in what was reported to be ‘record time’ and sustained an uptime of over 85 per cent in the twelve months of operations until recent events,” he said.

However, the abrupt termination of the Technical Services Agreement was announced last month with a notice period ending May 17 2018.

THISDAY’s investigations have revealed that both companies have been locked in negotiations on the exit terms in the last four weeks.

A source close to Salvic told THISDAY wednesday that despite the dispute and termination, Heritage requested Salvic and its affiliate companies to bring in their technical expertise and execution capacity to help with the emergency repair of the TFP.

“When Heritage invited Salvic, the company requested for a written invitation formally requesting it to return to site since the contract had been terminated. Heritage made a formal request and Salvic returned to site,” he said.

“The main motivation for Salvic’s return to site is the consideration of the importance of Forcadosto the national economy and Niger Delta communities. The imperative is to maintain the right atmosphere that had secured the pipeline and ensured high availability to enable crude and condensate export to the FOT for the past twelve months. Any disruption to sustained production is not good for the economy especially when oil prices are this high,” the source explained.

THISDAY gathered that Salvic is currently managing the repairs with its affiliates, using host community contractors.

According to an official of one of the companies that pump crude through the pipeline, repair work is going on both day and night with the cooperation of all parties, including Heritage and security contractors, Eraskorp.

A source in Salvic said the company was doing everything to ensure aquick turn-around to bring the pipeline back up in a matter of days.

Reuters reported that the flows of crude oil along the pipeline have started to ramp up again after an outage of almost a week of outage.

Shell, which operates the Forcados oil terminal, said exports had not been disrupted by the closure, but agency reports quoted industry sources as saying that June-loading cargoes of Forcados crude had already been deferred to July because of the temporary shutdown.

In a related development, crude oil price eased wednesday, under pressure from a potential increase in OPEC crude output to cool the market’s recent rally and cover any shortfalls in supply from Iran and Venezuela.

Brent crude futures were last down 53 cents at $79.04 a barrel, while U.S. crude slipped 24 cents to $71.96 a barrel.

Oil prices have gained nearly 20 per cent this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by the OPEC and partners including Russia.