The Nigerian economy may be on the verge of collapse over the spate of force majeures often declared by International Oil Companies (IOCs) and some indigenous operators.
With oil accounting for more than half of government revenue and 90 per cent of export income, the funding of the 2018 budget may further suffer huge shocks in the face of the incessant force majeures, which almost crippled the economy in 2018, bringing oil production down to about 800,000 barrels per day.
President Muhammadu Buhari, had in November 2017, presented a N8.6 trillion budget estimate to the joint session of the National Assembly with an oil price benchmark of $45 per barrel oil and production estimate of 2.3 million barrels per day, including condensates.
Today, oil price is nearing about $80 per barrel, far above the projected $45 per barrel 2018 benchmark, while figures from the Ministry of Petroleum Resources put National crude oil production at 2.022.716 barrels per day, representing a shortfall of 0.277.284 percent.
However, since the beginning of the year, the oil industry has witnessed a number of force majeure declarations by the IOCs and some local operations.
Force majeure is a legal clause that allows companies to cancel or delay deliveries due to unforeseen circumstances.
In 2017, third party interferences caused close to 90 percent of the number of spills of more than 100 kilograms from Shell Petroleum Development Company of Nigeria Limited operated Joint Venture (SPDC JV) pipelines in 2017, leading to the shutdown of some critical gas and crude oil pipelines.
SPDC had last week declared force majeure on exports of Bonny Light crude, one of the country’s major sources of oil revenue.
Reuters quoted traders as saying that a surplus of unsold cargoes was so large that differentials struggled to hold steady.
The SPDC, the Nigerian subsidiary of Royal Dutch Shell, said it had declared force majeure on Bonny shipments with immediate effect.
It said the shutdown of the Nembe Creek Trunk Line (NCTL) had prompted the force majeure.
Exports of Bonny Light are expected to run at around 195,000 barrels per day next month.
According to traders, only one tanker is scheduled to load Bonny Light crude over the next two weeks. Shipments of Erha crude were also said to be delayed, but this had not yet had a knock-on upward effect on prices of other grades, two traders said.
Prior to the declaration of force majeure on Bonny Light exports, the nation’s crude shipments were already witnessing delays following a leak on the 200,000 to 240,000 bpd Trans-Forcados pipeline that shut down earlier last week, effectively cutting deliveries of Forcados, the country’s largest crude grade.
Trans-Forcados pipeline was shut down after a leak was found. Repairs are on-going.
About 25 cargoes of June-loading Nigerian cargoes were still available, although traders said around half of that total were held by Total and Shell.
For instance, in July 2016 alone, Nigerian Petroleum Development Company (NPDC) lost a substantial portion of crude oil estimated to be in excess of N27 billion to pipeline vandalism.
The country has so far lost over N162 billion to the shut-in of the pipeline, which took effects from February to September of 2016.
The Nigerian National Petroleum Corporation (NNPC), disclosed that a total of 1,005 pipeline points were vandalized in the last one year.
Statistics from its latest monthly financial operation report for November, 2017, stated that, “A total of 1005 vandalised points have been recorded from November 2016 to November 2017.”
Security in Niger Delta
Security in parts of the Niger Delta remains a major concern with persisting incidents of criminality, kidnapping and vandalism as well as onshore and offshore piracy. Although there has been no damage to key oil and gas infrastructure caused by militant activity since November 2016, the security situation remains volatile in this region of the country.
Operations at the SPDC JV’s Forcados Oil Terminal (FOT), were disrupted until late May 2017, while repairs to the export lines were completed after three sabotage incidents in 2016. This resulted in loss of revenue, particularly for domestic producers who rely on the FOT for export.
Facilities operated by both indigenous and international oil and gas companies continue to be vandalised by attacks and other illegal activities such as crude oil theft. This led to lower oil and gas production in 2016 particularly for indigenous producers and incidents of environmental contamination. The consequences also included a loss of revenue for the Federal Government of Nigeria and disruptions in gas supply to power electricity for industry, businesses and public-sector services.
Indigenous oil firms hemorrhaging
The Nembe Creek Trunkline (NCT) operated by Aiteo Exploration and Production was not spared in the catalogue of force majueres alongside the Trans Niger Pipeline (TNP), which are the two major pipelines used by Shell and other producing companies operating in the eastern Niger Delta to pump crude oil to the Bonny export terminal in Rivers State.
An official of Aiteo, who spoke off the record, said that the company noticed a drop in pressure, prompting the shutdown.
“We are suspecting sabotage but it is too early to conclude as investigation is still ongoing,” he added.
In the western Niger Delta, the Trans-Forcados pipeline (TFP), operated by Heritage Oil, was shut down after a leak was found on the facility on May 7.
The TFP is the major trunk line in the Forcados Pipeline System with an export capacity of 400,000 barrels per day and the second largest network in the Niger Delta after the Bonny pipeline system in the eastern Niger Delta.
International oil companies (IOCs) and Nigerian independents operating in the western Niger Delta lose 250,000 barrels per day to the closure of the TFP.