Nigeria’s Oil Export Suffers Setback
•Shell confirms production shut-in of 200,000 bpd
By Chika Amanze-Nwachuku, 02.14.2008
The 2008 budget is already under threat even before it is passed. The Niger Delta crisis has continued to take its toll on the nation’s revenue as Shell Development Company of Nigeria (SPDC), Nigeria’s biggest oil producer, still records a production shut-in of about 200,000 barrels per day in the Western base.
Fears are already being expressed that Nigeria is at risk of losing its reliability as a steady supplier of crude oil owing to the frequent shut-ins.
The World Street Journal reported earlier in the week that anxiety over the latest Nigerian disruptions helped to push oil futures above $90 a barrel last week.
Nigeria, world’s 6th biggest oil exporter and Africa’s largest oil producer, derives more than 90 per cent of its foreign exchange earnings from oil which forms the basis for national budget.
Prior to the escalation of the militancy in the Niger Delta, Nigeria produced about 2.6million barrels per day (bpd) oil.
But in 2006, the nation lost an estimated N570 billion in revenue as crude oil sale fell by 3.2 per cent below the projected target while petroleum profit tax fell by 10.9 percent due to the protracted crisis in the region, which also resulted in drop in the production capacity by about 600,000 bpd.
The continued violence, analysts believe, has helped to push the oil futures, although this has variously been debunked by the Nigerian government.
But analysts who spoke yesterday stated the need for the federal government to urgently arrest the worrisome crisis, fearing that the country stood the risk of losing its credibility as a reliable supplier of crude oil, citing the worsening crisis which forced Shell last week to declare a force majeure on its crude exports from Nigeria for the second time in two months, indemnifying it from litigation if it fails to honour supply contracts.
Shell’s declaration on export came after security concerns had kept its contractors from fixing a pipeline that feeds its Bonny Light export terminal, a development that closes off 130,000 barrels a day.
At his maiden media briefing on Tuesday, the new Managing Director of SPDC, Mr. Mutiu Sunmonu, said in 2006 when the militancy in the region escalated, the company was forced to shut down oil production from its fields in the Western Niger Delta, while crude loading from the Forcados terminal was suspended.
According to him, owing to the heightened insecurity, the company was unable to produce some 477,000 barrels per day in its Western area of operations. He said although there has been a remarkable progress, the company currently records a drop of about 200,000 bpd in output.
Sunmonu, who tied the progress of the company’s various domestic gas projects to availability of funds and peace in the region, said the company remains committed to its gas flares-down programme and planned to accelerate all gas gathering projects as soon as security situation improved.
Speaking with THISDAY last night, an industry analyst argued that the needed investment in the Niger Delta could be funded by the increase in production which would accompany an improved security situation. He said the restoration of the between 2.6mbpd and 2.7mbpd could generate an additional revenue of about $15 billion per year, adding that most estimates put the loss at $15 billion per year from late 2005 when estimates of losses to daily production ranged between 578,000bpd and 650,000bpd.
However, the SPDC boss, who stated that the issues of militancy and funding challenges had caused set backs in its joint venture operations as well as domestic gas projects, said the company was committed to its various gas projects, subject to funding.
Throwing more light on the funding issues between SPDC and the Federal Government, Sunmonu who said that funding problems had made it difficult for the company to meet both joint venture and contractual agreements, explained that the Joint Venture partners agree a work programme every year which they fund in proportion to their holdings (Nigerian National Petroleum Corporation 55 percent, Shell 30 per cent, Total 10 per cent and Agip five per cent).
“We started 2007 with an agreed work programme of $6.6 billion, subject to funding. When the funding was eventually made known to us, it came at $2.7 billion, creating a gap of some $3.9 billion. Although we did our best to cut back it was not possible to reduce activities and projects to the new amount without contravening contractual obligations and penalties. We ended the year spending around $4billion but NNPC funded their share of the $2.7billion,” he said.
On the allegation that Shell executed more projects than approved by the National Petroleum Investment Manag-ement Services (NAPIMS), the MD said the budget approval came very late after contracts had been awarded and projects commenced.
He however confirmed that parties were close to reaching an agreement on the funding of the billion dollar short-fall in the financing of joint venture operations.
On the planned review of the Production Sharing Contract, he said renegotiation was ongoing but assured that his company would reach an amicable settlement with its joint venture partners.
