Nigeria struggles to boost oil output


Abuja - Nigeria’s progress in curbing militant attacks hasn’t much boosted its oil output. While that’s bad news for a country mired in its worst economic slump in 25 years, it’s making life easier for fellow members of the Organisation of the Petroleum Exporting Countries (Opec) members.

Africa’s largest economy was pumping about 1.5 million barrels a day late last month, 30 percent below what it was hoping to achieve and only a modest recovery from an almost 30-year low of 1.4 million in August.

While peace efforts have curbed the frequency of attacks in the oil-rich Niger River delta, the Forcados export terminal, the country’s third largest, remains closed and shipments are down at many others.

If these disruptions persist they could have an unintended consequence: helping Opec boost oil prices.

"Bringing the Forcados loading terminal back into action is key for Nigeria’s exports," said Charles Swabey, an oil and gas analyst at BMI Research, in an e-mail.

If the government follows through on the peace process, then Nigeria could become "a drag" on Opec’s push to rebalance the market, he said, "and will likely slow the process down."

When Opec and 11 other producers forged an accord in December to reduce their production to eliminate a global oversupply, conflict-prone Nigeria and Libya were exempt.

So a significant production increase from either nation would make it harder for the group to fulfill its pledge to reduce output by almost 4%.

Amid signs that US output is recovering and prices stalled in the mid $50s, the group can ill afford to have its own members diluting its historic deal.

Global benchmark Brent was trading $54.74 a barrel, down 0.6%, as of 11 London time on Wednesday.

Peace dividend

Since the start of negotiations in November with militants - most of whom call themselves the Niger Delta Avengers - Nigeria’s Minister of State for Petroleum Emmanuel Kachikwu has repeatedly said there would be a peace dividend in terms of improved oil-production.

In November, the minister was targeting output of 2.2 million barrels by the end of 2016.

In reality, many of the country’s largest export terminals are experiencing disruptions. Kachikwu predicted that Forcados, which shut down in February, would restart in June, then September, then October.

There’s currently "no update" on when the facility can resume operations, said Precious Okolobo, a Lagos-based spokesperson for operator Royal Dutch Shell.

Qua Iboe, the nation’s largest crude stream, is still operating at reduced capacity as permanent repairs are completed to damage on its pipeline inflicted in July, Exxon Mobil Corporation said January 31.

About 500 000 barrels a day of production is currently offline because of militancy, Manji Cheto, senior vice president for West Africa at New York-based Teneo Intelligence, said in an e-mail.

While the nation’s output recovered to an average of 1.64 million barrels last month from 1.5 million in December, that’s still well below the 2015 average of 1.99 million barrels a day, according to data compiled by Bloomberg.

Amnesty program

Even before the resurgence of militant activity, Nigeria was struggling as a result of low oil prices. For President Muhammadu Buhari, "a peace deal is critical to his government’s ability to steer the economy out of recession and improve his political capital ahead of the 2019 elections," said Amaka Anku, an analyst at Eurasia Group.

His administration’s 2017 budget proposed restoring financing for the Presidential Amnesty Program, which pays former militants an allowance, to its pre-2016 level of about $215m from $66m budgeted last year, she said.

This allowance, started by President Umaru Yar’Adua in 2009 and expanded by President Goodluck Jonathan in 2011, was credited with maintaining a relative peace in the delta before it was cut.

Oando, a Nigerian energy company that lost 20% of its production due to attacks last year, is optimistic about Buhari’s measures.

"The government is already engaging the Niger delta inhabitants towards creating an enabling environment for us to drive our production back up," Group chief executive officer Wale Tinubu said in an interview.

"I know for a fact we’re going to get an improvement."

The Niger Delta Avengers, which claimed most of the attacks last year, threatened last month to widen its campaign after becoming frustrated with government talks.

No contact

"I am not sure we’re on that path where one can confidently say there’s clear indication of dialogue," said Ledum Mitee, a lawyer and minority-rights activist directly involved in the peace talks.

After community leaders met the president in November, there’s been no further contact, he said by phone from Port Harcourt.

"In spite of this, we have been meeting and trying to appeal to the grassroots that the peace should be maintained," but the situation could worsen if the militants think they’re not being taken seriously, he said.

Laolu Akande, a spokesman for Vice President Osinbajo, who is leading the peace initiative, didn’t respond to calls and an e-mail seeking comment.

Oil output for the year will likely average 1.7 million barrels a day, aided by new offshore fields coming online in the second half of 2017, according to Eurasia Group’s Anku. She expects a short-lived deal with militants and a return of sustained attacks in 2018.

"I see the federal government engaging the region more constructively," Dolapo Oni, Lagos-based head of Ecobank Energy Research, said by e-mail.

A recent visit by the Nigerian Vice President Yemi Osinbajo to delta is a start "however, attacks will likely continue until we strike the right tone."

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