Business Today: As oil Price makes history, Nigeria bleeds

Business Today: As oil Price makes history, Nigeria bleeds
Business Today

Shell, Nigeria’s biggest international oil company (IOC) in terms of asset and production, last Thursday halted crude exports on a 97 kilometre, 150,000 barrels of oil per day Nembe Creek Trunk Line (NCTL) as it declared force majeure on Bonny Light crude exports, one of the major crude grades from Nigeria.

Cargoes of oil from the Bonny Light stream, for which exports are expected to reach around 195,000 barrels per day in June, had already been delayed for a week.

The force majeure is a contractual term on unforeseeable circumstances that prevent someone from fulfilling a contract came just as crude oil hit $80 per barrel, the highest level it had reached since November 2014.

Grounds for action
A leak on the 240,000 barrels per day capacity Trans-Forcados pipeline that shut down earlier last week also effectively cut down deliveries of Forcados, the country’s largest crude grade.
The shutdown of the Nembe Creek Trunk Line (NCTL) by the operator, Aiteo Eastern E&P Company Ltd, a spokesperson for Shell Petroleum Development Company of Nigeria Ltd (SPDC) said in a statement, led to the force majeure.

He stated that all enquiries on the cause of the leak and repair of the pipeline should be directed to the operator.

“The Shell Petroleum Development Company of Nigeria Ltd (SPDC) declared force majeure on Bonny light exports effective 08.00hrs Nigerian Time, May 17, 2018 following the shutdown of the Nembe Creek Trunk Line (NCTL) by the operator, Aiteo Eastern E&P Company Ltd,” the statement read.

Bonny Light oil is a high grade of Nigerian crude oil with high American Petroleum Institute (API) gravity (low specific gravity), produced in the Niger Delta basin and named after the prolific region around the city of Bonny.

The very low sulfur content of Bonny Light crude makes it a highly desired grade for its low corrosiveness to refinery infrastructure and the lower environmental impact of its byproducts in refinery effluent.

The price surge
Further supporting the high prices, Reuters reported last Thursday, the news about shell’s action (RDSa.L) on Thursday in Nigeria.

The company said, “It was halting crude exports from a major Nigerian pipeline,” the agency reported.

Concerns that Iranian exports could fall because of renewed United States (U.S.) sanctions, it was also gathered, also contributed to the price surge, as the sanction reduces supply in an already tightening market.

Brent crude futures LCOc1 reached an intraday high of $80.18 a barrel before receding to $79.67 at 1326 GMT.

U.S. West Texas Intermediate (WTI) crude futures were up 41 cents at $71.90 after also hitting their highest since November 2014, at $72.30 a barrel.

U.S. President Donald Trump’s decision this month to withdraw from an international nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC’s third-largest producer has boosted oil prices.

France’s Total (TOTF.PA) last Wednesday warned that it might abandon a multibillion-dollar gas project in Iran if it could not secure a waiver from U.S. sanctions, casting further doubt on European-led efforts to salvage the nuclear deal.

A rapid decline in Venezuela’s crude production has further roiled markets in recent months.
“The geopolitical noise and escalation fears are here to stay,” said Norbert Rücker, head of macro and commodity research at Swiss bank Julius Baer. “Supply concerns are top of mind after the United States left the Iran nuclear deal.”

Global inventories of crude oil and refined products dropped sharply in recent months owing to robust demand and OPEC-led production cuts.

Looking inwards
Although the cause of the leak that led Aiteo into shutting down the NCTL is yet to be unraveled, the country has vandalism of pipelines to contend with as a major problem for its inability to always enjoy high oil prices at the global market.

This pipeline vandalism in Nigeria severely damages the economy – the latest data released by the Nigerian National Petroleum Corporation (NNPC) showed that there was still no end to vandalism threats.

The corporation said it had registered 340 cases of vandalism for the first five months of 2017.
In a recent update from the Financial and Operations Reports, the NNPC Group General Manager, Mr. Ndu Ughamudu, talked about the rise of oil and gas pipeline vandalism in Nigeria. He did mention that the situation has slightly improved in comparison with the previous year when NNPC had 259 cases of vandalism in March 2016.

In addition, Ughamudu gave assurance that despite these acts of vandalism, the petroleum supply was more than enough for monthly consumption. But regardless, the situation is still not stable. Pipeline vandalism at the beginning of the year, it had registered 60 cases of vandalism.

In February 2017, the number of vandalism decreased to 49. However, in March, that number rose to 94 cases. April 2017 showed a decline to 82 cases. In May 2017, it registered 55 cases of vandalism.

Losses to our undoing

According to the Central Bank of Nigeria (CBN), the first quarter of the year provided N817.5 billion from the oil industry. It could have been better results if there was no vandalism at all. Nevertheless, the Federal Government policies have shown some results, and the vandalism in the oil industry is declining. The Vanguard Newspaper disclosed that vandalism in the oil industry is orchestrated by militants. This is most likely as a result of underfunding in this branch of the economy over the years. The second problem for the oil industry in Nigeria is the low oil prices in the world.

Going back memory lane

Meanwhile, NNPC has provided graphic details of how the activities of pipeline vandals have complicated the free flow of petroleum products and crude supply in its pipeline system, leading to a colossal cost of over N174.57 billion in product losses and repairs of its pipelines within the 10 years period between 2005 and 2015.

The Corporation revealed, in a document detailing pipelines‘ impairment that the advent of illegal bunkering, pipeline vandalism and product theft have massively impacted on the capacity of Nigeria’s massive oil and gas assets to function optimally.

In 2015, NNPC said, “a total of 16,083 pipeline breaks were recorded within the last 10 years”, adding that while 398 pipeline breaks, representing 2.4 per cent were due to ruptures, the activities of unpatriotic vandals accounted for 15,685 breaks, which translates to about 97.5 per cent of the total number of cases.

According to records, the System 2E/2EX, which conveys products from the Port Harcourt refinery to Aba- Enugu-Makurdi depots onwards to Yola-Enugu-Auchi appears to be the haven of pipeline vandalism in the country particularly the Port Harcourt-Aba/Isiala-Ngwa axis.

In all, 8,105 breaks were recorded along the system 2E within the period, representing about 50.3 per cent of the total number of petroleum products pipeline breaks in the country. The attacks left NNPC with a cost of N78.15 billion in product loses and pipeline repairs.

The System 2A product pipeline route, which conveys products from Warri-Benin-Suleja/Ore depots ranks second on the scale of pipeline break points with 3,259 cases representing about 20.2 per cent of the total volume of products pipeline breaks in Nigeria. The figure also came with a loss of over N20.39 billion in products and pipeline repairs.

The System 2B, which carries products from the Atlas Cove-Mosimi-Satelite-Ibadan-Ilorin depots recorded 2,440 breaks leading to a loss of over N73.6 billion in products and pipeline repairs.

“Crude oil was introduced into the Warri-Kaduna segment, on the 9th of February, 2015. Since then, 47 line breaks for crude theft have occurred on this segment resulting in condensate loss and repairs at an additional cost of N1.66 billion,’’ the document read.

As a way out of the pipeline vandalism, the NNPC helmsman called on the armed forces to intervene urgently to secure these vital national assets.

“Vandalism on oil and gas pipelines facilities remain the single most critical challenge facing our industry. The amnesty policy of government appears to be working but some criminal elements are still at work,’’ he added.

He stated that for deregulation of the downstream sector to be successful, there was every need for the country’s refineries to remain operational without incidences of pipeline vandalisation, noting that in the last 24 hours, three points of the pipelines were vandalized across the country.

Last line
The Federal Government should up its game in securing pipelines – flow lines, exports lines and products’ lines across the country. While cases of vandalism is popular, the lack of integrity of pipelines by operating companies, too, is a serious area government should focus on. The country’s losses to these impairments are huge and they should be stopped immediately.

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