The Niger Delta Avengers have threatened to take Nigeria’s oil production down to “zero.”
In another wave of assaults on Nigeria’s oil infrastructure, the militant group in the Niger Delta has claimed that it has successfully pulled off three more attacks in the early morning hours of June 3. They blew up a pipeline operated by the Italian oil giant Eni and also set off explosions on a pipeline operated by Shell Petroleum Development company of Nigeria. The group took to Twitter to boast of their success.
The attacks struck pipelines that were already under force majeure, so the extent to which they disrupted more oil supplies is unclear. Related: Dollar Weakness Fails To Stimulate Oil Prices
The attacks on Eni and Shell came just a few days after the Niger Delta Avengers successfully blew up two of Chevron’s oil wells. A week earlier the group damaged electricity infrastructure that fed power to some of Chevron’s facilities, forcing the oil company to shut down production.
The Niger Delta Avengers have promised to disrupt the country’s entire oil production.
On June 2, Nigeria’s oil minister Emmanuel Ibe Kachikwu said that Nigeria managed to restore some of the country’s disrupted oil production, bringing output from 1.4 million barrels per day in May up to 1.6 mb/d as of early June. That may be an optimistic assessment – local news reports say that the country’s output is down to just 1.1 mb/d, cutting production in half from a 2015 highpoint of 2.2 mb/d. Nigeria’s oil production is now at its lowest level in more than two decades, turning Angola into the number one producer in Africa at 1.8 mb/d.
The Niger Delta Avengers are demanding that all international oil companies leave the region. They see the Nigerian government as illegitimate and want full sovereignty and control of oil resources in the Niger Delta. The Avengers are somewhat of a successor to the Movement for the Emancipation of the Niger Delta (MEND), a group that routinely attacked oil infrastructure in the 2000s. That era of violence came to an end when the Nigerian government offered amnesty and an infusion of cash to former militants.
The new government of President Muhammudu Buhari has vowed to fight the Niger Delta Avengers, so there appears to be no room for peace or compromise at the moment. The bad news for the Nigerian government is that the collapse of oil prices has sparked an economic crisis, leaving it short of the financial resources it needs not only to jump start the economy, but also to fight off the Avengers. The government would also struggle to scrape together the cash that it would need if it wanted to buy off the militants like it did nearly a decade ago. If the violence persists, Nigeria could struggle to bring its oil production back online for quite some time. Related: Against All Odds, Russia Plans to Boost Oil Production by 185,000 Bpd
Moreover, the sharp uptick in violence could scare away a lot of oil companies from the Niger Delta, a stated goal of the Avengers. "I think we have to look at what happened in the past and say, well, could they potentially shut in production? ... No company is going to keep their operations going when people show up with AK-47s," Helima Croft, the head of commodity strategy at RBC Capital Markets, told Business Insider in an interview in May. "You just wait it out. You don't run a risk to your personnel or operations." The oil companies will try to wait it out for a while, but if the attacks persist, the Avengers could force some international companies to pull the plug entirely.
Nigeria, for now, is responsible for the loss of nearly 1 mb/d of oil production, although the government claims a smaller volume of oil has been disrupted. The IEA in May said that the global glut for crude oil was only going to be about 1.3 mb/d for the first half of 2016. The Niger Delta Avengers have single-handedly done quite a bit to erase most of that supply overhang. And the group’s threat to take Nigeria’s oil production down to zero does not bode well, especially since it has demonstrated a ruthless efficiency at carrying out all of its threats to date.
Combined with other outages from around the world, the Niger Delta Avengers could be responsible for pushing oil markets to some sort of supply/demand balance much quicker than many expected.
By Nick Cunningham of Oilprice.com
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