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Buhari’s Delta gamble

Fresh violence in Nigeria’s oil heartland is cutting output and threatening upstream investment

AFTER several years of relatively subdued activity, violence in the Niger Delta has erupted again, escalating beyond a spate of attacks on oil pipelines to an assault on a Chevron-owned oil platform in early May. Oil production has been badly hit and producers must once more review their strategies in the region. The upsurge in unrest followed a change of tone in government relations with militants in the Niger Delta – the heart of the country’s oil industry – who have waged a decades-long campaign to win a greater share of the country’s oil wealth for their still largely impoverished region.

President Muhammadu Buhari, who came to power after last year’s elections, has kept in place some financial and political measures introduced by his predecessors to assuage local concerns, including a general amnesty in place since 2009 and substantial payments to ex-militants and communities – running into tens of millions of dollars or more – in return for a cessation of violence and cooperation with this government.

But Buhari has ended lucrative “protection” contracts with ex-militants to safeguard pipelines and decided to distribute other payments directly to people in the wider community, rather than via ex-militant and community leaders. He also issued an arrest warrant in January for former militant chief Government Ekpemupolo – one of those now purporting to work with the government – on corruption charges.

Add to this a general mistrust of the new president in the mainly Christian Delta region (Buhari is from the Muslim north of the country) and there is no shortage of reasons for discontent among various groups in the Delta.

Guerrillas in the mist

The attack on Chevron’s Okan offshore platform on 4 May, claimed by a group calling itself the Niger Delta Avengers, resulted in the facility being shut in, costing 35,000 barrels a day of production destined for the Escravos terminal, and triggered a spill clean-up operation. The same group also claimed responsibility for an attack on a subsea Shell oil pipeline in February, which closed down the 250,000 b/d Forcados export facility. It will not reopen until June at the earliest.

Various other pipeline leaks have also been reported, which may be due to sabotage. Meanwhile, workers at Shell’s Bonga oilfield were also evacuated in early May following a threat from militants.

All this has resulted in a slump in oil production to levels not seen for more than a decade. Unplanned supply outages have been fairly routine, even in recent relatively tranquil years, and oil theft remains rife, but the scale of disruption now is a blast from the past.

By some estimates more than 400,000 b/d – roughly 20% of production – was shut in by mid-May, bringing output down to at best 1.6m b/d at a time when the government had been hoping crude oil production this year would nudge up to around 2.2m b/d. Output last year averaged 1.9m b/d.

Finding a resolution to the situation is complicated by the youth of the new militants. Little is known of the Niger Delta Avengers, but it seems they are younger fighters, not tied to the older generation of militants with whom Nigerian governments have reached accommodations in the past.

It remains uncertain if they are sufficiently resourced to carry out a sustained sabotage campaign, but they may be harder to appease than the older generation. Communication channels between them and the government may be limited and trust virtually non-existent.

The youth of the Delta region have not necessarily benefitted directly from the financial incentives to fighters offered in the 2009 amnesty deal – believed to have run into tens of millions of dollars or more. And, financially, oil thieves have been hit by the commodity’s price collapse as hard as any other oil trader.

Installing members of the Nigerian military’s Joint Task Force (JTF) to replace ex-militant guards on the pipelines also looks like a risk, given the JTF’s reputation for human-rights abuses

Web material purporting to come from the Niger Delta Avengers draws a distinction between their methods of achieving their stated aim of an independent Niger Delta region and those of their “elder brothers” such as Ekpemupolo, whom it refers to as kidnappers. The group claims to be more interested in action against property rather than people.

Some of those older militants who negotiated and benefitted from the 2009 amnesty, including Ekpemupolo, have distanced themselves from the current attacks. Some have offered to track down the perpetrators.

Encouraged risk

So, with the region’s politics perpetually on a knife edge and its oil reserves accounting for around 70% of Nigeria’s state revenues, why has President Buhari chosen to upset a delicate status quo? Part of the answer lies with his pledge to tackle corruption.

Installing members of the Nigerian military’s Joint Task Force (JTF) to replace ex-militant guards on the pipelines also looks like a risk, given the JTF’s reputation for human-rights abuses at the height of Delta unrest in the early part of the last decade. Their presence is unlikely to instil confidence among much of the local population. But they have already arrested some suspected militants and may prove effective in rounding up those involved in the recent sabotage attacks.

Just three of the ten or so mooted new projects with IOC involvement have been given the green light – and only one of those is either sizeable or offshore

Buhari hopes that the benefits will outweigh the discontent caused by these measures, but it is clearly a big gamble.

The international oil companies (IOCs) must now weigh up the threat of further violence and disruption to their Nigerian operations. These projects are already under scrutiny at a time of low oil prices and continuing uncertainty over the country’s future investment and operational frameworks.

Buhari’s reformist agenda and an overhaul of the Nigerian National Petroleum Corporation (NNPC), under way, may yet result in greater clarity for the IOCs, which have been waiting in vain for new legislation governing the sector to emerge since a Petroleum Investment Bill – yet to be enacted – was first drawn up in 2008. In the interim, the firms have been selling off more peripheral assets – largely to local firms – and delaying investment decisions on projects that Nigeria was counting on to boost oil revenues and depleted state coffers.

A number of projects are in the offing, potentially adding more than 1m b/d to Nigerian production between them. But, as the US Energy Information Agency shows in a country report published in May, most of them have little prospect of coming to fruition in today’s climate and have been booted into the long grass of the 2020s.

Just three of the ten or so mooted new projects with IOC involvement have been given the green light – and only one of those is either sizeable or offshore. Total’s deepwater Egina project, being developed with Petrobras and China’s Cnooc, is due on stream in 2018. The $3.5bn-plus floating production, storage and offloading vessel-based project, operating in water depths of up to 1,700 metres, is expected to yield around 200,000 b/d of oil.

The last major project to start up was Chevron’s deepwater Usan field, in early 2012, which produces 125,000 b/d. New production since then has been largely restricted to add-ons to existing projects, such as Shell’s 40,000 barrel-of-oil-equivalent-a-day Bonga North West field in mid-2014 and Bonga Phase 3 – scheduled to add 50,000 boe/d – in September 2015. ExxonMobil’s Erha North Phase 2 project, expected to add 65,000 b/d of oil, started up in October 2015.

The limited scale of these projects has done little more than offset some output decline in mature fields elsewhere. Production in 2015 dipped slightly from 2014 levels, in part due to the impact of those declines.

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