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Shadow Governance Intel

Shadow Governance Intel

Shadow Governance Intel (www.shadowgovintel.com), the analytical arm of West Sands Advisory Limited, conducts in-depth research on power players and power plays that challenge the transparency…

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Once Again, Tensions Are Rising In Nigeria’s Oil Sector

Oil

On 2nd May 2017, Nigeria’s House of Representatives rejected a motion requesting that the House compel international oil companies (IOCs) to relocate their headquarters to the Niger Delta.

The initiative initially emerged in March 2017, when then-acting President Yemi Osinbajo disclosed that the government was considering the move as part of a wider effort to restore peace to the oil-rich region, which has suffered from decades of ethnic and political unrest.

Despite over half a century of oil production in the Niger Delta – which holds 95 percent of the country’s oil reserves – Nigeria’s key oil-producing region has remained subject to extensive corruption and severe underinvestment. The Niger Delta region consists of nine states: Edo, Delta, Bayelsa, Rivers, Akwa Ibom, Cross River, Ondo, Abia and Imo, but the majority of oil production is focused in Bayelsa, Rivers and Delta states.

Due to endemic government corruption, and economic mismanagement, oil revenues have not fully contributed to the country’s public funds for infrastructure or social provisions, and the Niger Delta remains one of the poorest and most underdeveloped regions in the country. Many communities lack basic infrastructure, including running water, electricity and reliable healthcare. Accordingly, indigenes of Nigeria’s key Niger Delta oil-producing region have long felt that they have been exploited and ostracised by the Abuja government and have not benefited from the presence of oil in the region.

Furthermore, resentment towards foreign oil companies – which have accrued billions in profits from oil production in the Niger Delta – and extensive environmental damage caused by oil spills, has ultimately led to the establishment of the notorious Niger Delta militant groups.

Unfair distribution of oil wealth and devastating environmental damage are the two main reasons given by militant groups for taking up arms against the government and oil companies. By crippling the oil industry in Nigeria, militant groups aim to hold the government hostage to their demands of greater control over oil wealth and the development of basic infrastructure in the Niger Delta.

Despite some critics arguing that Lagos, where the majority of IOCs have retained their headquarters, is the only city that has sufficient infrastructure needed to support the operations of large IOCs, the proposal to relocate IOC headquarters was met with widespread support – particularly in the Niger Delta.

Local leaders largely support the move, and claim that it would accelerate the development of the region through increased host states’ tax revenue, job opportunities and corporate social responsibility programmes. Related: Trump Aims To Scrap Gulf Coast Oil Royalties

Furthermore, the relocation of IOC headquarters has been a major demand by local communities in the Niger Delta region for some time, and was included in a list of 16 demands presented to the government by a group of leaders of the Niger Delta, under the aegis of the Pan Niger Delta Forum (PANDEF). The demands were submitted in November 2016, and were intended not only to help restore peace to the region, but also to provide a basis for future negotiations between the two parties.

Rejection of the Motion

The motion entitled ‘Calling Oil Companies to Establish Operational and Administrative Offices in the Niger Delta Area where they Engage in Exploration and Exploitation’ was sponsored by Goodluck Opiah. Opiah warned that without further investment in the region, by both the government and IOCs, there would be no assurance of peace.

Opiah also argued that the location of IOC offices outside their areas of operations is the main reason for their adaptation of policies that are considered “inconsiderate of the real effects of their exploratory and exploitative activities in those communities, such as pollution, environmental hazards and degradation”.

However, despite significant support, the motion was ultimately rejected via a voice vote.

Leader of the House, Femi Gbajabiamila, insisted that it would not be right to force companies to relocate – arguing that the move would be unconstitutional. While Speaker of the House, Yakubu Dogara, insisted that “as a businessman, I cannot be forced to‎ site my business where I know it’s not safe”.

Notably, a number of key figures in the ruling APC party are believed to have voted against the motion, while members of the opposition PDP voiced their support.

Furthermore, it is important to note that in 2005, following a similar call for IOC relocations, ExxonMobil responded by claiming that not only were its primary political contacts based in Lagos, but that the relocation costs would largely fall to the Nigerian National Petroleum Company (NNPC) due to a joint venture agreement. “MPN [Mobil Producing Nigeria] participates in a joint venture in which the Nigerian National Petroleum Company (NNPC) has a 60 percent interest. Hence, the majority of any relocation cost would be primarily borne by NNPC”.

Under the Nigerian constitution, the government owns all oil and gas reserves and production licences may only be granted to Nigerian citizens. However, in practice, most production occurs through joint ventures between the NNPC and IOCs.

Therefore, as the NNPC currently has joint ventures with several other major IOCs including Shell Petroleum Development Company of Nigeria (SPDC), Chevron Nigeria (CNL), Nigeria Agip Oil Company (NAOC), Elf Petroleum Nigeria (EPNL) and Texaco Overseas Petroleum Company of Nigeria (TOPCON), the proposed relocations could prove incredibly costly to not only the NNPC, but also the government itself. Furthermore, in order to prepare for the move, the government would have to spend significant sums on improving the region’s infrastructure.

Condemning the Decision

Since the motion was rejected, several local groups have publicly condemned the decision.

Both the PAN Niger Delta Civil Society Groups (PNDCSG) and Ijaw Youth Council (IYC) have warned that the rejection of the bill may spark another round of unrest in the region.

While, in a joint statement, the Niger Delta Security Watch Organisation of Nigeria (NDSWO), Ijaw Peoples Development Initiative (IPDI) and Foundation for Human Rights and Anti-Corruption Crusade (FHRACC) described the action as unpatriotic and provocative.

Notably, the Niger Delta has remained relatively peaceful since August 2016, when the Niger Delta Avengers (NDA), who are responsible for the majority of attacks in the Niger Delta, committed to negotiations with the government and announced a ceasefire. Since then, the government has been actively engaging with local leaders and militant groups and continuously emphasising its commitment to restoring peace and stability to the Niger Delta.

In May 2017, President Buhari approved an additional $111 million for the ongoing amnesty programme, bringing the annual budget to almost three times its total before 2016. The funds will go towards the “monthly amnesty stipends, as well as reintegration activities, and training and employment schemes”. President Buhari has also ordered that the Nigerian Maritime University in Delta State be opened for activities before the end of 2017 – another one of PANDEF’s 16 demands – while several further infrastructure projects are also in the pipeline.

Furthermore, a government strategic roadmap plan entitled “New Vision for The Niger Delta” is currently in development, which will be based on the 16-point demands of PANDEF.

Therefore, the Niger Delta Youth Coalition (NDYC) has warned militant groups against resuming attacks, saying that the attacks would merely be counter-productive now that the government appeared to be addressing their grievances. “The federal government should be given reasonable time and allowed to implement its development programmes in the region which will benefit all”.

However, despite this apparent progress, in March 2017 (even before the rejection of the discussed motion) a coalition of militant groups threatened to resume attacks in the Niger Delta, claiming that the government was not doing enough to resolve the ongoing crisis in the region. While in June 2017, five additional militant groups threatened to start attacking expatriates, directors of oil companies, key staff, oil installations and offices due to the ongoing polluting of the environment by IOCs. Related: Is This The "Mystery" Massive Long Supporting The Oil Market?

Following the relative success in engaging with community leaders and militants in the Niger Delta, the government will be keen to prevent another escalation in militant attacks.

Particularly as Nigeria is currently experiencing its first recession since 1991. The current economic crisis is largely due to Nigeria’s overreliance on the oil sector, as oil production dropped significantly through 2016, due to a toxic combination of global commodity price falls and increased militant attacks – which forced several IOCs to declare a force majeure on their exports.

In March 2017, the government launched its Economic Recovery and Growth Plan (ERGP) – a medium-term plan (2017-2020), which aims to make use of local resources in order to lay the foundation for long-term sustainable growth in Nigeria. As part of this, the government is targeting an oil output of 2.5 million barrels per day (bpd) by 2020, up from a 27-year low of 1.4 million barrels a day in August 2016 and the current levels of just over 1.5 million bpd.

Therefore, reviving the oil industry remains a government priority, and the government will be keen to prolong the fragile peace agreement that appears to be largely holding in the Niger Delta.

Notably, on 6 June 2017, Royal Dutch Shell finally lifted its force majeure on exports of Nigeria's Forcados crude oil. Shell’s emergency measure was the last remaining one in place in Nigeria, after having been imposed in 21 February 2016 following a militant attack on the main export route, the Trans Forcados Pipeline. The grade, which typically exports 200,000-240,000 bpd, is expected to add more than 10 percent to the country’s output – raising it to about 2 million bpd.

Conversely, the United States Energy Information Administration (EIA) has warned that Nigeria’s oil production could remain low throughout 2017 unless the government successfully addresses the militancy issue in the Niger Delta.

Despite widespread support for the relocation of IOC headquarters to the Niger Delta, without government pressure IOCs are unlikely to take it upon themselves to move. Therefore, in order to maintain the Niger Delta’s current relative peaceful environment, it is vital that the government turns its attention to other issues raised by the militants and local community leaders.

By Shadow Governance Intel

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