Nigeria’s energy unions cry wolf as markets dismiss threat
The energy market has grown increasingly dismissive of Nigeria’s oil and gas unions and their seemingly empty threats to shut in the county’s energy exports
At the end of last week, the white-collar Petroleum and Natural Gas Senior Staff Association of Nigeria (Pengassan) and the blue-collar Nigeria Union of Petroleum and Natural Gas Workers (Nupeng) threatened to join a general strike called in response to the federal government’s decision to scrap fuel subsidies.
Pengassan claimed that, had it carried out its threat, it would have cut 2.3 million barrels a day (b/d) of crude exports. With Bonny Light crude trading at $115 a barrel, the shut in would have seen Nigeria’s federal government lose about $264.5 million a day of oil revenue. A country-wide production shut-in would also have cut gas output and liquefied natural gas (LNG) exports. Nigeria’s annual LNG exports total 18.2 million tonnes, amounting to 8% of the global LNG trade in 2010, according to Cedigaz.
But the unions called off industrial action after President Goodluck Jonathan reinstated part of the fuel subsidy on 16 January. But Pengassan warned that if the federal government moved to reduce or cut subsidies again, shutting production remained an option. "Any time the labour unions tell us to shut down, we can," the union said.
While the threat of a production halt rattled nerves in the capital Abuja, shutting down Nigeria’s oil exports is no easy task, said IHS Sub-Saharan Africa analyst Sebastian Boe. “Automated production systems, skeleton crews of non-unionised and foreign workers, and well-secured infrastructure all point to the ability of the industry to continue producing – albeit possibly at a reduced rate,” he said.
Boe pointed to similar Nupeng strikes in the past resulted in only slight production dips. “While there is no doubt an open-ended strike by members of both unions would eventually have a significant impact on the operations of oil installations in the Niger Delta, and throughout the white-collar sectors of the industry, the government and the economy are able to weather the storm in the immediate term,” he added.
There are other factors to consider, too. Oil-sector employees are some of the highest-paid workers in Nigeria, which has made them reluctant to join general strikes in the past. But the country’s violent reaction to the sudden, sharp increase in fuel prices once the subsidy was removed caught the government off-guard.
“The government was adamant it would not reverse the cut and that fuel subsidies must go, but it must re-examine how this subsidy removal will be phased in and address the people’s concerns about soaring transport and food costs,” senior analyst at IHS Energy, Uchenna Izundu, said. “It has taken longer than expected for the government to realise how deep the grievances of the people are.”
The general strike was called off after the government’s climb-down, but fuel subsidies remain at the centre of a national debate. Although Jonathan said the $7 billion the federal government would save by cutting the subsidy would be spent on infrastructure and health projects, Nigerians are sceptical.
“There is general lack of trust in the government’s ability to use prudently any purported gains resulting from saving on subsidy removal,” said Ambrose Awenlimobor, chief executive officer of Nigerian oilfield services company Ugbebig. “The government admitted that there is huge-scale corruption in the administration of subsidy disbursement to importers in 2011, but no action has been taken against these people,” he added.
The IMF has also called for an end to fuel subsidies. It argues that they are not cost-effective, encourage overconsumption and also likely to lead to smuggling and encourage the growth of a black market.