Nigeria’s Crude Oil Taps Set To Open Again But For How Long?

oil rig in Nigeria
An Oil Rig
Behind the high walls of the Nigeria’s presidential villa referred to as Aso Rock, there must be some sighs of relief. The most deadly militant group to have emerged in the Niger Delta in recent years has agreed to hold its attacks on Nigeria’s oil wells. Since February, when the Niger Delta Avengers (NDA) announced their presence, their attacks have resulted in the shut-in of several oil wells in the region.
Currently, Forcados, Qua Iboe, Bonny Light and Brass River crude grades remain under force majeure due to attacks by the NDA. Officially, Nigeria says it has been losing about 700,000 barrels per day. But sources in the Nigeria oil and gas industry tell Money Issues that crude oil production actually dropped below a million barrels per day at some point, which meant, the country was actually losing more than a million barrels per day.
The impact has been devastating on Nigeria’s 2016 budget which assumed that Nigeria will be able to produce 2.2 million barrels of crude oil per day. This sadly has not happened. Data from the Central Bank of Nigeria (CBN) shows that oil revenues was just N537.19 billion in second quarter of 2016 which is 53% below the budget estimates. This was also 36% below the N839.02 billion realized from crude oil sales in the same period of 2015 and less than one third of the N1.795 trillion realized in the same period of 2014. For Nigeria, militant attacks have been a double whammy of bad news because it has happened also at a time of low crude oil prices.
So, the recent announcement by the NDA that it is ceasing hostilities in the Niger Delta is good news not only to the government but also to many of the oil companies operating in the region which have been forced to increase security spending at time of low crude oil prices. Though one or two militant groups have insisted on continuing with their bombing campaign, the NDA has proven to be most effective force in the region due to the sophistication of their attacks. So their decision to stop the attacks is expected to result in many of the shut in oil wells pumping crude oil again.
Reduction in militant activities in the Niger Delta is also expected to be positive for power supply. The shut-in of forcados alone resulted in Nigeria losing about 1,500MW of power supply. Resumption of production in forcados would restore this back to the grid and boost power supply across the country.
However, the challenge remains if the current cease fire by the militants will be sustained for long. The Niger Delta region has been heavily militarized. There are those in the military and government who still believe in a military solution instead of dialogue.
There are also militants in the region who are also eager to flex their muscles. Also the demands of the NDA for a restructuring of Nigeria looks like a demand that the Nigerian government will not be ready to meet. All these different factors mean that the Nigeria oil taps may open soon, but it is not certain it will remain open for long.