Activities of militants in the Niger Delta are taking their toll on the Nigerian and global economyBy Oluokun Ayorinde
For key government officials, military chiefs and operators in the Nigerian oil industry, the past week was an extremely busy one as they contemplated the appropriate response to penultimate Thursday’s attack by Movement For Emancipation of Niger Delta, MEND militants on the country’s biggest offshore oil platform, the Shell Bonga Field. The destruction led to a further cut in Nigeria’s oil production by 250,000 barrels per day.
But the renewed exasperation about the activities of the militants is not just about the quantity of the loss to the country in oil production. Rather, the attack on the Bonga field located about 120 kilometres offshore Bayelsa State was significant because it was the first time the militants would be going that far into the high seas to sabotage an oil facility. Before now, the belief among operators in the oil industry was that such facilities were beyond the reach of militants in spite of the sophistication they have displayed in some of their sabotage activities.
Indeed, offshore operations of oil companies had before now escaped the disruptive activities of the militants. As a result, there has been increasing investments in offshore by oil prospecting companies in the past few years. “Bonga oil field is about 150 kilometres off Nigerian shores. If the militants could get that far and attack oil facility, then there is cause for worry. We have to find out what measures are being put in place now by the executive to sort out this problem. We cannot sit down and hide under the guise of insecurity and allow investments in the industry to go down the drain,” Chairman of the House of Representatives Committee on Petroleum (Upstream), Tam Brisibe, noted in a newspaper interview last Tuesday. Chairman of the House Committee on Media and Publicity, Eziuche Ubani, spoke in the same vein: “The House is disturbed over the attack on Bonga oil field by militants. We had thought that the militants would not be able to get to the field which is about 150 kilometres away from the shore. We should do something drastic and urgently too about the situation in the Niger Delta. Bonga oil field is the country’s major oil field and the attack is likely to have serious consequences on the economy. The executive arm of government should do something fast,” Ubani, who added that the attacks may have a negative impact on the 2008 Budget, added.
The militant group also realised it has accomplished a major feat with the attack on the Bonga field. “The location for today’s attack was deliberately chosen to remove any notion that offshore oil exploration is far from our reach,” the group said in an e-mail statement. MEND added that the attack is just the beginning, as they warned oil industry operators of more of such sabotage activities in the months ahead. According to them, not even the order by President Yar’Adua will dissuade them from carrying out similar sabotage on oil production facilities. “For underrating our capabilities, the military has been ridiculed worldwide after the attack on Bonga. If they want to further expose their weaknesses, then we challenge them to launch an attack on any of our positions. An attack on any militant position is tantamount to a declaration of oil war. The type of war they are expecting is far from what we plan to engage in…. Long live the Niger Delta!” the group said in a statement.
Even as the top echelon of the military continues to rue the challenge thrown by MEND, the concern of the nation’s economic managers will no doubt be the impact of the consistent attacks on the oil industry from which over 90 per cent of the country’s revenue earning is derived. The country has so far been able to escape the negative impact of reduction of its projected revenue from crude oil export as a result of continuously soaring prices of oil in the international market.
But for Nigeria, it has been a catalogue of losses since MEND formally announced its fight for a better deal for the people of Niger Delta in January 2006, with the bombing of a an estate populated mostly by Shell workers in the heart of Port Harcourt, the capital city of Rivers State. This was followed by a series of kidnappings of expatriate oil workers and high tempo of attacks on key oil production facilities.
These initial attacks resulted in 10 per cent reduction in the country’s oil production and Shell was forced to withdraw over 300 of its employees from the region. “Our aim is to totally destroy the capacity of the Nigerian government to export oil…” MEND said in one of the earlier e-mails it sent to media houses. The group may not have completely succeeded in this avowed commitment to stop Nigeria from exporting crude oil.
What cannot be denied is that the group, in conjunction with similar groups in the region has done incalculable damage which has resulted in vastly reduced revenue yield to government from the sale of black gold. A Security Report on the Niger Delta published on the Internet by Bergen Risk Solutions AS (Limited) for instance indicated that there have been about 106 attacks on oil facilities in Nigeria between 2006 and 19 March 2008. It was also revealed in the report that 167 foreigners, mostly oil workers, were kidnapped in 2007, while 70 were kidnapped in 2006. Bergen Risk Solutions also indicated that the continued crises in the Niger Delta had cost the Shell Group in Nigeria some $14bn loses as at November 2007.
Also, in its 2007 Sustainability Report, the Anglo-Dutch oil giant identified insecurity of staff and facilities and under-funding from its joint venture partner, the Nigerian National Petroleum Corporation, NNPC, as major impediments to its operation in Nigeria. “In 2007, the security situation in the Delta remained serious. Forty-seven staff and contractors were kidnapped by militants. Thankfully, all were safely released. Tragically, two others were killed in assaults and a third died as a result of a fire caused by criminals stealing oil from a pipeline,” the oil company noted.
Basil Omiyi, Managing Director, Shell Petroleum Development Company of Nigeria, SPDC, a couple of months ago revealed at a conference in Abuja that Shell shut down production in most of the Western Niger Delta, including the offshore EA Field, shutting in some 477,000 barrels of the oil per day for most of 2006 and 2007. The SPDC official who is also the Chairman of the Oil Producers Trade Section, OPTS of Manufacturers Association of Nigeria, MAN, noted that the country also missed out on $14. 4billion it could have earned in tax and royalty income as a result of the disruptions in oil production by the activities of the militants.
Omiyi added that apart from the revenue losses, attacks on flow stations and pipelines have had significant environmental consequences, pointing out that cases abound where oil companies could not secure access to clean up oil spills, repair damaged pipelines or even undertake routine maintenance of facilities. The 19 June attack on the $3.6 billion Bonga facilities, according to oil industry sources, will result in a total shut in of over one million barrels daily oil production for Nigeria with a conservative estimate of daily loss of $84 million in revenue to the country.
Many foreign contractors operating in the industry have also closed down their Nigerian operations. Such was the risk associated with working in the Niger Delta that some oil companies have been finding it difficult to get expatriate workers. Chairman, Niger Delta Peace and Conflict Resolution Committee, Senator David Brigidi, recently disclosed that the country has been losing an average of 300,000 barrels per day in oil production since 1999, when violence in the oil-rich region escalated. He put the revenue loss to unrest in the region in the past nine years at over $458.3 billion.
There has also been a spillover of the destructive activities of the militants to the other sectors of Nigerian economy. For instance, NNPC had claimed that one of the key reasons the nation’s four refineries located in Warri, Kaduna and Port Harcourt had remained comatose was because crude oil cannot be supplied to them as a result of the vandalisation of the pipelines being used for the purpose. The NNPC was, however, able to put the refineries in Kaduna and Warri back on stream early this year.
Yet, there were reports last Wednesday that the Kaduna refinery may have been shut again barely three months after it resumed operation. This was reportedly due to the inability of the refinery to be supplied crude as a result of the worsening problems in the Niger Delta. The persistent attacks on gas pipelines have also been indicated as one of the factors responsible for the country’s persistent power supply problem. For example, an attack on SPDC Utorogu/Ughelli 300 million metric standard cubic feet of gas per day capacity condensate pipeline in October 2007 resulted in the shut down of the Egbin thermal power plant, the largest generating facility of Power Holding Company of Nigeria, with a resultant loss of 800MW.
Also, the Nigerian Gas Company, NGC, was for many months unable to assess its vandalised gas pipelines in Okerenkoko area of Delta as a result of activities of militants. The gas supply disruption has also led to a reduction of about 1,200 megawatts electricity generation. Gas pipelines that have been the target of militants who have no regret about throwing Nigerians into persistent darkness include the Escravos-Chanomi gas pipeline which carries gas from the Chevron gas stations in Delta State through creeks and swamps to the Egbin Thermal station in Ikorodu, Lagos and the Akakiri gas pipeline which carries supply from the Shell gas fields in Rivers State to the Afam power station. The organised private sector (OPS) has consistently noted that the cost of goods and services produced in Nigeria are 20 per cent higher due to energy problem.
While submitting its report last Tuesday in Abuja, Rilwan Lukman, the Chairman of Power Sector Reform Committee set up by President Umar Yar’Adua noted that Nigeria has enough gas to power its electricity demand for the next 150 years. The hope of a reliable power supply for the citizenry, according to him, will remain a pipedream until the problem of agitations by people of Niger Delta where the gas resources are located is solved. Lukman, who is also an Honorary Adviser on Energy to President Yar’Adua, said this is more so since about 60-70 per cent of the country’s electricity requirement would be dependent on gas. He added that gas supply is the single most important element in ensuring Nigeria’s adequate power supply to Nigerians. Beyond the shores of Nigeria, the consistent attacks on Nigeria’s oil production facilities have also been a source of serious headache to other oil consuming nations.
News of disruptions in Nigeria’s oil production always drives up prices of crude oil in the international market and there have been more than a few such spikes in recent times. Prices of crude oil futures surged to a record level of $117 a barrel in April this year for example, following news of an attack on a key SPDC pipeline in the Bonny area of Niger Delta. SPDC subsequently declared a force majeure on April and May deliveries from the Bonny terminal as a result of the attack. There was a similar spike in prices following the attack on Bonga facility.
The United States of America, a major consumer of Nigeria’s oil, is reportedly looking elsewhere for oil as it now considers Nigeria too unstable a supplier. The US Department of Energy has reportedly said the persistent political crisis and militant activities in the Niger Delta are signs that Nigeria would be unable to maintain regular supply of oil to the United States. Nigeria is currently the fourth largest oil supplier to the US. It was gathered that the Yankees have communicated their concerns to the Nigerian government as oil supplies from Nigeria to the US are reported to have reduced by as much as 40 per cent, due to the problems in the Niger Delta.
Sebastian Spio-Garbrah, an analyst with the Eurasia Group in New York, told the international magazine that “while an attack in Nigeria may not shut in that much [oil output], the headlines are enough to push jittery markets up”. The high oil price has led to inflation in the US and the other countries. It has also led to the frantic search of alternative sources of energy in Europe and America.
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