Trans Forcados pipeline shut down for 3rd time in one month

Despite repeated claims about Nigeria’s daily crude oil production ramping up, the country is still contending with the challenge of having seamless crude export through the Trans-Forcados Pipeline which has been shut down three times in the last one month.

The latest of such shut down happened about three days ago according to a source close to those companies that use the facility.  The source however said that the pipeline suffered from a mechanic problem and not as result of any vandalism. Meaning  that about 300,000 barrels of crude may have  been shut in  on those  occasions that the  pipeline was out of service.

The facility resumed transport of crude oil on June 8th after it was shut down for over one year after it was bombed by militant group, the Niger Delta Avengers (NDA) in February 2016. The pipeline resumed exports in October 2016 after it was repaired but was shut down in November after the militants bombed the subsea facility for the second time.

It is also not certain whether the country would still be able to meet its target of 1.8 million barrels per day, by next month, with the shutting down of the pipeline.  There is no certainty about when the repairs on the pipeline would be completed.

It is however not certain how this latest development would influence the decisions expected to be taken by OPEC’s technical advisory committee, which will meet on Saturday, ahead of a full ministerial meeting next Monday. It is speculated that Nigeria may be asked to cap its production level at the meeting.

Before the militant attacks, the Forcados stream accounted for  about 300,000 barrels per day.

Following the repeated attacks on the Forcados pipeline, companies that fed crude into the Forcados stream have been working around the long-term pipeline outage, exporting oil via barges .

The sharp increase in crude oil output from Libya and Nigeria led to a decline in the OPEC’s compliance rate to just 78 percent in the month of June 2017,down from 95 percent in the previous month.

Saudi Arabia also increased its production by120,000 barrels  per day (bpd) in the same period .

According to IEA in its latest Oil Market Report, it stated that higher production from OPEC is likely going to delay the rebalancing of the oil market.

Analysts said the concerns about oversupply have not gone away, so there are questions about how much more room oil has to run from the producers.

Meanwhile, Saudi Arabia is hoping to cut oil exports to the U.S. in a bid to drain American oil inventories, a strategy that could see the U.S. imports of Saudi crude dropping to just 800,000 bpd in August.

Even though the news about higher OPEC production  has be making more headlines in the past weeks, oil traders are said to be at ease with the situation because of the  of IEA reports which say oil demand is growing faster than previously expected. The agency said that demand would expand by 1.4 million barrels per day (mb/d) this year, or about 0.1 mb/d faster than it previously thought.

Barclays Bank, in a research note  last week, said  there is no way the price of oil would get to $50 per  barrel any time soon, as it slashed its three-month oil price forecast from $57 to $49.This is latest in a series of price downgrades at major investment banks.

“The recent weakness reflects the market’s need to price in a lower [U.S.] shale break-even and absorb the unexpected return of around 300-400 [kbpd] of Libyan and Nigerian oil,” Barclays said in the report.

It stated that with inventories still quite high, government stockpiles available, and cuts providing OPEC with additional spare capacity, there are plenty of plugs to fill any hole,” it added.

Furthermore, S&P Global, it said that if the price of oil stays at below $50 per barrels through 2018, it would put oil majors’ credit ratings at risk.

“If oil prices stay below $50 per barrel through 2018, it would threaten the credit ratings of even the largest oil companies, S&P Global said last week. If oil prices persistently trend below our price assumptions ($50/bbl on average until the end of 2018), downgrade pressure for many ratings would increase without material and sufficient further cost and capex efficiencies, disposals, or other countermeasures against weak credit metrics for a sustained period,” S&P said in a report.

Olusola Bello