Nigerian oil attacks

Attacks by a new militant group based in the region where more than half of Nigeria’s oil is produced, has reduced the country’s output to the lowest in more than two decades.

Acts of sabotage by the Niger Delta Avengers has hit Nigeria’s output, taking it down from 2.2m barrels a day to 1.4m, according to Emmanuel Ibe Kachikwu, head of the state-run oil company. This, alongside other outages in Libya, Venezuela and Canada, has added to the upward pressure on oil prices, as well as hitting the west African country’s economy.

The price of Brent crude, the international benchmark, has risen almost $5 a barrel in the last two weeks alone, rising to almost $49 a barrel. It is up 80 per cent since January, when it hit the lowest level since 2003.

The attacks
The Avengers claimed an attack in February on an underwater pipeline forcing Royal Dutch Shell to shut the 250,000 b/d Forcados terminal — one of the country’s biggest export facilities.

Earlier this month, it took responsibility for blasting a Chevron platform, shutting the Warri and Kaduna refineries. Power outages across the country worsened as gas supplies took a hit.

Other smaller attacks, and another explosion last week, which bore similarities to the group’s tactics, closed Shell’s Bonny Light export programme.

“There is no sign of production normalising in the near future,” said Carsten Fritsch, oil analyst at Commerzbank.

The Avengers called on oil majors operating in Nigeria to cease operations within two weeks or face more attacks. Their ultimatum, via a statement published on their website — the authenticity of which cannot be verified — expires on Thursday.

“If at the end of the ultimatum you are still operating, we will blow up all the locations,” the little-known group said. “It will be bloody. So just shut down your operations and leave.”

This is alarming to security experts in Nigeria, who point out that the group has followed through on other threats to date. The incidents are also feeding into the sense that disaffection with the government is growing, said a senior Western diplomat in Abuja.

The group says it wants a greater share of oil revenues and more control over the resources from the southern Niger Delta region that are the mainstay of the country’s economy. Although Nigeria’s oil and natural gas industry is primarily located here, it is one of the country’s poorest areas.

The history
Pipeline vandalism, kidnappings and armed takeovers of oil infrastructure in the Niger Delta reached a high point during an insurgency in the mid-2000s. Shut-ins at onshore and offshore fields became common place and companies were forced to frequently declare force majeure on oil shipments. Some companies, such as Shell reduced their onshore installations, while others pulled out of Nigeria altogether. This period ended with an amnesty deal between the government and militants in 2009.

Ex-militants were paid monthly stipends for keeping the peace and their former commanders were awarded lucrative contracts from the federal government for “securing” pipelines. This allowed oil production to stabilise again under the administration of Goodluck Jonathan, who was defeated last year in the country’sfreest-ever elections.

But incidents of oil theft and sabotage have increased this year after President Muhammadu Buhari cut the budget for the amnesty programme with militant groups and cancelled security contracts as part of his effort to tackle corruption.

“Sabotage and disruption in the Niger Delta have picked up to a level not seen since the period preceding the [2009] amnesty,” FBN Capital wrote in a note to investors last week.

The response
President Buhari has said he will defeat the militants. But any escalation of the conflict could put further pressure on Nigeria’s security forces which are already fighting to end the Boko Haram insurgency in the north-east of the country, that has displaced more than 2m people since 2009.

Nigeria’s economic crisis
The oil collapse has exposed weaknesses in Nigeria’s economy. Since the price plunge began tumbling in 2014, fewer dollars have been flowing into the country, state revenue has plummeted and foreign reserves have fallen by nearly $3bn in the past year.

The 2016 budget, finally signed into law two weeks ago by Mr Buhari, assumes an oil price of $38 a barrel, but forecasts output of 2.2m barrels a day. Nigeria depends on crude oil for more than 90 per cent of hard currency earnings. Oil receipts usually make up around two-thirds of state revenues.

FBN Capital also noted that foreign exchange inflows to the central bank in January declined nearly 50 per cent year on year. This has worsened a fuel crisis that began in March. The government raised fuel prices last week and told importers to use the black market to get dollars to bring in cargoes.