Nigeria’s oil sector worse off despite price rise
As the year draws to a close, the nation’s oil and gas industry is worse off despite the rally in global crude prices, ’FEMI ASU writes
While global oil benchmark price has
risen by over 100 per cent since it hit 13-year lows of below $28 per
barrel in January, Nigeria’s oil sector has taken a turn for the worse.
The country is not able to benefit from
the rally in oil prices as a chunk of its crude oil production remains
shut in due largely to militant attacks in the Niger Delta.
Global oil benchmark, Brent crude, traded around $56 per barrel on Wednesday.
Prior to the resurgence of attacks on
oil and gas facilities, the nation’s oil sector and economy had been
battered by the steep drop in prices of oil, which the government
depends on for most of its foreign earnings and revenue.
In the past few years, a number of
projects had been suspended by International Oil Companies because of
the regulatory uncertainty occasioned by the delay in the passage of the
Petroleum Industry Bill.
The oil price slump, which began in
mid-2014, also exacerbated the situation as oil companies slashed
capital budgets and workforce, a development that was worsened by the
growing security challenge and production disruptions in the country.
According to the United States Energy
Information Administration, Nigeria’s crude oil production, which peaked
at 2.44 million barrels per day in 2005, fell to 1.9 million bpd last
year. It began to decline significantly soon after as violence from
militant groups surged, forcing many companies to withdraw their workers
and shut in production.
The nation’s crude oil production fell to as low as 1.3 million bpd in May, according to the Ministry of Petroleum Resources.
For instance, the Forcados export
terminal was attacked in mid-February, and Shell Petroleum Development
Company, the operator of the facility, declared force majeure on the
export of the crude oil grade.
The force majeure, a legal clause that
allows it to stop shipments without breaching contracts, came a week
after the Forcados export line was attacked. It has yet to be lifted as
of the time of filing this report.
According to the Nigerian National
Petroleum Corporation, at Forcados terminal alone, about 300,000 barrels
of oil per day have been shut in since February following the force
majeure declared by the SPDC.
“A number of crude oil lifting has been
deferred until the repair is completed. Other major terminals affected
by the renewed spate of vandalism include Bonny, Usan, Qua Ibo, and the
recently attacked Nembe Creek trunk line,” the NNPC said in its latest
monthly report.
Gas production from Joint Venture assets
and the Nigerian Petroleum Development Company dropped by 40.9 billion
standard cubic feet in July as attacks were mostly targeted at onshore
and shallow water assets.
Data from the NNPC showed that 139.58
billion scf and 17.70 billion scf were produced from the JV assets and
the NPDC assets, respectively in July, down from 173.8 billion scf and
24.4 billion scf in January.
In February, when the Forcados export
terminal was shut down following an attack on a subsea export pipeline,
total gas production from the JV and NPDC assets saw a decline of 15.85
billion scf over the previous month.
A partner and chair of the Energy and
Natural Resources Practice Group at Bloomfield Law Practice, Mr. Ayodele
Oni, said, “We need to have a more robust energy mix. We have said it
several times. States such as Kaduna, Lagos and even Abuja should
promote solar power. There is so much renewable energy potential in
Nigeria.
“We can also have embedded power plants.
These are power plants closer to the load centres and they can also use
alternative sources of energy like solar and wind instead of gas.”
The Petroleum Club recently stated that
production disruption had led to substantially reduced activity level in
the oil and gas industry.
It said, “Fifty to 80 per cent of
traditional onshore/shallow water oil production, which yields the
highest government revenue per barrel, has been shut down over the past
half year.
It said, “This in turn has had a
knock-on effect on contractors, service providers, banks and business
partners, resulting in severe job losses and an indefinite freeze on
further job creation possibilities.”
The group said the current crisis in the
Niger Delta must be quickly arrested through a carefully developed
combination of engagements, dialogue, disarmament and ultimate
restoration of law and order in the region.
The NNPC said the cumulative production
capacity deferred due to shut in amounted to 1.15 million bpd, adding,
“Onshore and shallow water assets, where government stake is high,
remain targets of the militants. Hence, securing onshore and shallow
water locations remains a priority to restore production.”
It said the Niger Delta Greenland
Justice Mandate recently attacked the NPDC’s 32-inch pipeline crude oil
delivery line at Effurun-Otor Ughelli South Council Area of Delta State
to thwart the ongoing reconciliation between the FG and Niger Delta
community.
“The Federal Government is planning to
establish a specialised petroleum force, comprising coastal patrol
teams, Niger Delta subsidiary police, and other paramilitary set-ups to
ensure zero vandalism in 2017,” the corporation said.
Former group managing directors of the
NNPC had at the end of a meeting with the current GMD of the
corporation, Dr. Maikanti Baru, and the Minister of State for Petroleum
Resources, Dr. Ibe Kachikwu, said the attacks were putting the nation’s
oil industry at risk of total collapse.
“If the current situation remains
unchecked, it could lead to the crippling of the corporation and the
nation’s oil and gas sector, the mainstay of the Nigerian economy,” they
said.
The recent upsurge in militant attacks
on oil and gas facilities in the Niger Delta, the source of fuel for
about 70 per cent of the nation’s power plants, also affected power
generation in the country.
The country generates most of its
electricity from gas-fired power plants, while output from hydro-power
plants makes up about 30 per cent of total generation.
But the nation’s electricity woes
worsened this year on the back of incessant damage to oil and gas
pipelines, with industry experts stressing the need for the government
to diversify the generation mix.
On February 2, the nation had achieved
its peak generation of 5,074.70 megawatts. But the attendant improvement
in supply was short-lived as generation dropped below the 4,000MW mark
later that month. It plunged to a low of 1,400MW on May 17, according to
the Transmission Company of Nigeria.
The NNPC also said over 1,500MW of power
supply was lost to the attack on Forcados, which is Nigeria’s major
artery, with gas supply from it accounting for 40 per cent to 50 per
cent of gas production in the country.
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