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Force majeure

Our goal remains the destruction of the Nigerian oil industry and all who stand on the pathway to our objective.
     —MEND spokesman Jomo Gbomo (Henry Okah)

Effective Feb. 7, 2008, we declared force majeure on Bonny Light Offtake programs for the rest of February and March following deferments caused by our inability to progress repair of three leaks on [the] Nembe Creek trunk line.

Royal Dutch Shell said on March 3 it has lifted the force majeure on exports of Nigerian Bonny Light and Forcados
crude...  "Pipeline repair has been done. We are able to meet all commercial obligations."

     —Royal Dutch Shell PLC statements

Hardly a day passes without new oil outages in Nigeria. Shell was unable to fix the Nembe Creek pipeline because of "security concerns," which resulted in a disruption of 130 thousand barrels per day (b/d) of Bonny Light oil production. In today's world of diminished expectations, if a new field the same size as the latest staunched oil flow in the Niger Delta comes on-stream, it's big news. It ought to be equally important when that amount of production suddenly disappears, and it is—Nigeria is always cited as one reason behind today's climbing oil price, which stands at $101.28/barrel at this moment. Shell has fixed this latest problem, but for how long?

A "greater force" clause in a contract protects the parties from extraordinary events beyond their control such as war, crimes, and assorted Acts of God. Taking a look at Nigeria's future production prospects thus requires some humility, for the Movement for the Emancipation of the Niger Delta (MEND) or the Nigerian government itself may strike at any moment, making a mockery of such a forecast. Arriving at no firm conclusions, let's examine oil fields scheduled to come on-stream, the newly elected Nigerian government, and the security situation.

Nigeria's Offshore Prospects

Nigeria Production Outlook The graph (left) estimates Nigeria's productive capacity out to 2012 (West Africa second only to Russia in non-OPEC supply contribution, Oil & Gas Journal, January 15, 2007). If you look closely, you will see that the figure contains the note "2006 excludes Niger Delta shutdowns" at the bottom right. The graph indicates a capacity of about 3.0 million b/d for 2007, but the Nigeria_material_projectsIEA's latest Oil Market Report estimates that Nigeria's production was 2.07 million b/d in January, down 90,000 barrels (2.16 million b/d) compared to December.

Productive capacity jumps to about 3.5 million b/d in 2009 due to large new offshore projects coming on-stream this year and next (2nd graph left). The key word is offshore. The O&GJ authors, Mohamed Bardinko and Ivan Sandrea, note that "new production from deep water is also likely to translate into improved supply reliability," as discussed below.

The two largest fields coming on-stream in 2008 are Akpo and Agbami, which are both in the deepwater and together have a peak production of rate of 430 thousand b/d. Chevron recently confirmed that the first oil from Agbami will flow in June, with a fast ramp-up to 230,000 b/d in 2009 and an additional 20,000 b/d by 2010. Total's Akpo will probably start-up in early 2009—the Korean-made FPSO will set sail for Nigeria in May. Total's Ofon Phase 2 is expected to contribute 100,000 b/d by 2010.

Exxon's Bosi, listed at 120,000 b/d, is now being re-evaluated. "The Bosi project should have been on stream in 2007. Asked when it will now go on stream, John Chaplin, [ExxonMobil managing director in Nigeria], said 'soon is the answer'." Uhhh—OK, anything you say, Big Guy.

OPEC member Nigeria is subject to a production quota. Nigeria's allocation was 2.3 million b/d up to October, 2007. After failing to meet that allocation in each month after August, 2006, the quota was lowered to 2.1 million b/d.  Production is now hovering around the new allocation because production share is being shifted to the safer fields deep offshore. If Nigeria's quota is raised or, tempted by high oil prices, they exceed their allocation, fields like Akpo and Agbami will add to world oil production. Obviously, Chevron and Total can not recoup their investments unless they are actually lifting oil in these fields.

There's No Place Like the Deepwater

Nigeria Offshore The easiest way to understand the security situation in Nigeria is to look at some maps, the first of which has been slightly marked up for your convenience (left). The hostile onshore Niger Delta regions where MEND and other groups operate surround the population centers Warri and Port Hartcourt, far from the new deepwater oil developments, e.g. Agbami is 70 miles offshore. The red line in the ideal productive capacity outlook above indicates that only about 20% of Nigeria's total production capacity Nigeria Onshorecomes from the deepwater in 2008.

Rigzone's April, 2006 article, Nigerian Militants Move Oil Attacks Offshore, reports Rolake Akinola, an Africa analyst at consultants Control Risks, as saying that "[The deepwater areas] are being pushed. We have already seen some unreported incidents far offshore. We can't guarantee that pirates won't be able to (regularly) go 50-60 kilometers offshore in the future and attack platforms."

Almost two years later, it does not appear that MEND insurgents have been able to extend their reach to production facilities far offshore, so there is little reason to believe that new deepwater developments will be subject to insurgent attacks, especially with the mighty Nigerian Navy standing in the way. Offshore attacks take place in the shallow waters near Port Harcourt.

The Wall Street Journal reports a new danger in Nigeria Rebels Step Up Attacks With Explosion of Oil Tanker (January 11, 2008). An attack on an oil tanker at Port Harcourt was an inside job—

An oil tanker attack represents a dramatic change for the insurgency in Nigeria's oil-rich Niger Delta... if MEND's assertions are true that it worked with insiders, the attack could indicate the Nigerian oil industry is significantly more vulnerable to attack.

In its email1 MEND said it had been aided by "our friends inside the military and secret services for valuable information and resources."

What a surprise—MEND has infiltrated Nigeria's military and secret services! Nigeria's corrupt government has not moved against MEND and other groups operating in the Niger Delta because the situation is undoubtedly beyond their control. But if you can't beat 'em, join 'em—Nigeria's new president has decided to go after the oil companies instead. From Nigeria Seeks Bigger Slice of Oil Profits in Overhaul, Wall Street Journal, December 13, 2007—

Since coming to power in May, Nigerian President Umaru Yar'Adua has proposed changes such as creating a national oil company that he expects will help the state manage its oil and natural-gas resources better and pare the historical dominance of foreign oil companies in the country.

The planned changes are also about "rebalancing the relationship" between the state and foreign energy companies, according to Nigerian oil minister Odein Ajumogobia. That is code for handing over more oil profits, analysts say.

The government is in the early stages of renegotiating billions of dollars worth of offshore exploration deals signed in the 1990s with companies such as Chevron Corp., Exxon Mobil Corp., Shell and Total SA. The contracts, up for renewal, were signed when oil traded at about $20 a barrel. Crude-oil futures in New York finished yesterday at $94.39 a barrel.

Nigeria's government is flush with cash despite routine production disruptions, but there is still the irresistible temptation to further pad those Swiss bank accounts. Not content to simply re-negotiate their contracts with the oil companies, Yar'Adua, Ajumogobia and the rest of the gang are also skimping on their current financial obligations. These government actions, together with the escalating rebel attacks, have caused The Wall Street Journal to reach the startling conclusion that Nigeria's Oil-Export Reliability [is] at Risk, February 11, 2008.

Nigeria is at risk of losing its credibility as a reliable supplier of crude oil, traders and analysts say, as worsening rebel attacks hold back exports...

And financing issues have been raising tensions inside Royal Dutch Shell PLC's Nigerian joint venture, Shell Petroleum Development Corp. Shell has criticized the government for failing to abide by its funding obligations to the venture, 55% owned by state-run National Nigerian Petroleum Corp. and 30% owned by Shell.

Constraints on Nigerian oil production include their OPEC allocation, new government pressures on foreign operators, corruption, and unceasing insurgent attacks. If there were an entry for "hopeless situation" in the dictionary, Nigeria's oil prospects might serve nicely as a definition. Reviewing the state of affairs in Nigeria should make us downright grateful that the world is still getting 2 million barrels per day of that beautiful Bonny light, sweet crude.

Games Shell Plays

One could view Royal Dutch Shell as a victim in Nigeria, but their past actions in the Niger Delta have shown little regard for the Ijaw people living there. On another front, Shell recently issued their report A National Dialogue on Energy Security, which documents their public relations blitz across America. The word "Nigeria" does not appear in the text. Company president John D. Hofmeister—The Shell Answer Man—traveled the country with his entourage reassuring the public that Shell is not responsible for record-setting oil prices.

The Myth: Oil prices are artificial. We found this idea accepted among both individuals and government officials with whom we met. There is a belief that energy companies such as ours can set or even manipulate the price of oil higher or lower at will. This leads to either expectations that oil companies acting independently can solve the energy problem (one participant suggested we “…raise the price of crude to enable unconventional sources”), or resistance to seeing the oil companies as participants in the solution. This attitude was reflected in one Charlotte resident’s comment that, “The energy mix will not change – oil companies will reduce prices to keep alternatives out.” [emphasis added]

Shell Logo Shell is clearly not responsible for high oil prices. Be that as it may, Shell consistently touts drilling in the unexplored parts of North America's outer continental shelves as a solution to all our problems. Watching and listening to Hofmeister wax eloquent on the subject, one would think there's more than enough oil out there if only those pesky environmentalists would let Shell drill off west Florida or the West Coast, i.e. he creates the impression that oil companies acting independently can solve the energy problem and lower oil prices if only we would let them.

If you want to counter the impression that you're fixing prices, that you're all-powerful, don't pretend to be all-powerful if only additional concessions were made.

It's not a crime for Shell to mislead the public, but wouldn't it have been refreshing to hear Hofmeister tell those gatherings something like the truth?

I'm sorry to inform all of you that Americans have already used up most of their oil, and so have the Europeans. Nobody knows how much oil we might find in the unexplored parts of America's continental shelves, but it surely won't be enough to make much difference in the next decade and beyond. Your gasoline will cost more, much more. What this means for Shell is that we are forced to operate in God Forsaken Places like Nigeria at considerable risk to our people to extract their oil you so you can drive your cars like there's no tomorrow. We would rather work offshore in North America, where it's safe, our workers won't be kidnapped, and governments won't extort money from us.

OK, let's see a show of hands: how many people in the room can find Nigeria on a map?

Nigeria is in West Africa, fronting the Gulf of Guinea, a long way from Las Vegas. Force Majeure, all bets are off. Welcome to the world of peak oil and rising prices.

Contact the author at [the original article at ASPO-USA]

Notes

Henry Okah 1. Henry Okah, aka. Jomo Gbomo, is being held in a Nigerian jail. The continued silence about his fate is a matter of great concern to MEND. Should he wind up dead—assuming he isn't already—look for increased trouble. Below is the full text of the email from Okah accompanying the tanker attack.

January 11, 2008.

The Movement for the Emancipation of the Niger Delta (MEND) confirms that its Freelance Freedom Fighters (FFF) working inside the oil industry detonated a remote explosive device that caused the fire on a tanker in Port Harcourt, Rivers state of Nigeria today, January 11, 2008.

How can the government of Nigeria fight an enemy that is within and can not be seen? MEND salutes the patriotic agents and also use this opportunity to commend our friends inside the military and secret service for valuable information and resources. We call on all oppressed citizens of the Niger Delta to do your own bit in your own way to regain freedom and win the fight against injustice. Even if it means to poison the drinks and food sold to the soldiers that rape our women and brutalize and kill our youths, just do it.

Again, we are appealing to residents inside the Niger Delta to avoid milling close to military vehicles and check points as we want to avoid the loss of civilian lives. The military seems to be deliberately using civilians as human shields.

Long live the Niger Delta!
Jomo Gbomo

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