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Forcados shutdown: Nigeria loses N356.6bn in five months

By on July 29, 2016

Five months after it was attacked and shut down, Shell’s Forcados export line remains offline, causing the country a loss of about $1.6bn (N356.6bn) in revenue.

It is still uncertain when the pipeline would come back on stream, although the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had said earlier this month that repairs would be completed by the end of July.

In February 21, Shell declared force majeure – a legal clause that allows it to stop shipments without breaching contracts – a week after militants blew up a pipeline feeding the Forcados export terminal, knocking out at least 250,000 barrels per day.

The International Energy Agency had in April estimated that Nigeria could lose an estimated $1bn (N197bn) in revenue by May, when repairs of the Forcados terminal was expected to be completed.

The IEA said, “The Forcados terminal in Delta State, one of Nigeria’s biggest terminals, was scheduled to load 250,000 barrels of crude per day. At $40 per barrel, Nigeria could stand to lose an estimated $1bn between February, when force majeure was declared, and May, when repairs are expected to be completed.”

At an average oil price of $40 and exchange rate of N197 to the dollar, the country lost at least N246.4bn as of June 19 and N110.2bn from June 20 to July 27 (using $290/$).

The Nigerian National Petroleum Corporation had said the deficit and low revenue recorded by its exploration and production subsidiary, Nigerian Petroleum Development Company, from February to April, was due to production shut-in, resulting in loss of entire NPDC’s revenue from crude oil sales of about N20bn occasioned by vandalism of Forcados export line.

The corporation said recent upsurge in vandalism had negatively impacted on the Nigerian crude oil production output, losing its African top crude oil producer to Angola.

It said, “About 380,000barrels per day remained shut in due to vandalism of the 48-inch subsea export line on February 15, 2016.

“Also, the nation has lost over 1,500MW of power supply to the damage as gas supply from Forcados, which is Nigeria’s major artery, accounts for 40 to 50 per cent of gas production. Incessant pipeline vandalism poses the greatest threat to the industry.”

Nigeria’s oil production is now 700,000 bpd lower as a result of persistent militant attacks on oil pipelines and infrastructure, Reuters reported, quoting the NNPC.

In addition to Forcados, Qua Iboe and Brass River are also under force majeure, while Escravos and Bonny Light are facing significant loading delays.

The militant group, Niger Delta Avengers, has claimed most of the strikes, which continued even during a one-month ceasefire announced by the government in late June. Other groups have also claimed attacks.

The groups have primarily targeted pipelines belonging to oil majors Shell, ENI and Chevron, NNPC itself, and Nigerian company Aiteo.

“As one terminal comes back online, another goes offline,” analysts at Barclays wrote in a note, adding that “with militants wanting a greater share of the country’s oil wealth, outages are likely to prevail until any agreement can be made.”

This month, Shell shut the Trans Niger pipeline, which is one of the pipelines that carry crude to the Bonny light export terminal, following a leak in Ogoniland.

While crude export was briefly reduced to 30-year low at the peak of the attack, Nigeria’s export has recovered sharply.

Analysts at Ecobank Capital, led by Mr. Dolapo Oni, in a report said, “However, indigenous operators in the country are expected to be significantly affected by the shutdowns. Most of the country’s indigenous producers operate onshore fields which require the loading terminals for export.

“The local producers could see 2016 financial performance worsen considerably due to the security challenges of the region.”

 

[Punch]