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News Extra: Nigerian oil production falls to 20-year low due to attacks and sabotage

18 May 2016

Nigeria’s oil industry is suffering increased disruption that has led to the lowest production levels in 20 years, as attacks against facilities in the energy-rich but impoverished nation increase in number and audacity. The fresh round of attacks come after President Muhammadu Buhari vowed to stamp out corruption and oil theft.

Niger Delta - Image: NASA
Niger Delta - Image: NASA

Chevron said on May 6 it had shut down about 90,000 barrels per day (bpd) of output following an attack on an its Okan offshore facility after it was “breached by unknown persons” and had sent resources to respond to a resulting spill. The facility, which feeds crude and gas into Escravos, one of the country’s largest export facilities, is jointly owned by the US company and state-owned Nigeria National Petroleum Corp.

A group calling itself the Niger Delta Avengers said on its website that it was responsible for the attack.

Even before that strike, Nigerian oil production had fallen below 1.7 million bpd for the first time since 1994, according to data compiled by Bloomberg.

Observers say some of the latest attacks do not seem to be motivated by money, but rather to a return to the anti-government militancy waged by groups calling for a more equitable distribution of oil wealth and political power in the Niger Delta which peaked between 2006 and 2009 and cost the Nigerian government billions of dollars of lost oil revenue.

That violence abated after thousands of fighters accepted an amnesty from a previous government and disarmed, in exchange in some cases for monthly payments from the government.

But lower oil prices have restricted the amount of money available for handouts to these groups and protests are increasing as a result.

The Nigerian government is struggling to contain the economic damage of the slump in energy prices and separate attacks in the north of the country by the Boko Haram Islamist insurgency. The country’s foreign reserves have fallen to less than $27 billion, the lowest since 2005.

In February, Royal Dutch Shell Plc declared force majeure -- a legal clause that allows it to stop shipments without breaching contracts -- after a bomb attack on a pipeline feeding the Forcados terminal, which has a capacity of 300,000 bpd.

Italian oil major ENI reportedly also declared force majeure on Brass River exports at the end of April after another attack.

The International Energy Agency estimated last month that Nigeria could lose an estimated $1 billion in revenue by May, when it expects repairs on Forcados to be completed. The terminal may not restart until June, Nigerian Oil Minister Emmanuel Kachikwu said on April 20.

Oil majors such as Shell, Chevron, Total, Eni and ConocoPhillips, which for five decades dominated the Nigerian oil industry, have been selling onshore and shallow water oil fields in the Niger delta to local companies, concentrating their investments in deep-water fields outside the reach of militants.

In April, Shell said theft of crude oil from the pipeline network of its Nigerian subsidiary fell to 25,000 bpd in 2015, down 32% on the previous year. Sabotage-related spills on the SPDC network declined to 93 in 2015, compared with 139 the previous year, Shell said in its annual sustainability report.

It attributed the decrease to divestments in the Niger Delta and increased surveillance and security by the Nigerian government, but said theft and sabotage were still responsible for around 85% of spills from SPDC operations.

President Buhari has said theft siphons as much as 250,000 bpd of crude of its roughly 2 million bpd of production and in a speech in April promised to crack down on groups responsible for pipeline attacks, and has deployed the military to defend oil infrastructure in the Delta since the start of 2016.

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