The following two reports seem to paint a grim picture of the outlook for Nigerian oil Production.  MEND rebels have “achieved” a new capacity to disrupt Nigerian oil production, starting with an offshore field operated by Shell and scheduled to produce nearly 200 kb/d.  This cannot be good news.  Here’s the report from Reuters.  It is followed by a second report from Bloomberg:

Why is Nigerian oil militant attack significant?

WHY IS THIS ATTACK DIFFERENT?

Militant attacks on oil installations in Nigeria have mostly targeted facilities in the shallow creeks of the Niger Delta, where pipeline bombings and kidnappings of expatriate oil workers have been frequent.

Thursday’s attack targeted Shell’s Bonga oilfield, which lies some 120 km (75 miles) off the Nigerian coast.

Such offshore facilities have been considered safer and easier to protect and attacks of this kind have been relatively rare. International oil companies have been focusing investment offshore partly because of the perceived lower risk.

HOW ARE WORLD OIL PRICES AFFECTED?

Global oil prices are already near record highs above $130 a barrel. With the bullish sentiment already in the market, news of any supply disruption in a major oil-producing country will spark further buying.

Militant attacks and a workers’ strike in late April slashed more than half of Nigeria’s production, helping oil prices surge to a then-record $120 a barrel. 

Nigeria’s sweet crude is popular with U.S. and European oil companies because it can be easily refined into gasoline, diesel and other products. The oil is sold at a premium to benchmark U.S. and European crudes.

HOW WILL THE INDUSTRY BE AFFECTED IN THE LONG TERM?

Attacks on oil facilities in the Niger Delta have depressed Nigeria’s oil output by a fifth since early 2006, but oil companies had hoped that increasing offshore production would help to make up for the shortfall.

A sustained campaign of sabotage against offshore installations could prevent those newer projects from reaching their full potential and leave Nigeria struggling to meet its OPEC quota.

The banks financing the oil industry had thought that offshore projects were a safer bet, being relatively insulated from militant attacks. The cost of financing such projects may increase if that turns out not to be the case.

WHO ARE THE REBELS?

The Movement for the Emancipation of the Niger Delta (MEND) claimed responsibility for the attack. It is a nebulous organization which emerged in late 2005 and says it is fighting for local communities to gain greater control of oil resources.

Its first major attack was in December 2005. It has carried out a series of pipeline bombings and kidnappings of expatriate workers.

The group’s suspected leader, Henry Okah, is currently on trial in the central Nigerian city of Jos, charged with treason and gun-running. He faces the death penalty if convicted. 

WHAT CHANCE IS THERE OF PEACE?

Nigerian President Umaru Yar’Adua took office just over a year ago promising to engage the Niger Delta militants, freeing two jailed rebel leaders and drawing up plans for formal talks.

Little concrete progress towards peace has since been made.

Vice-President Goodluck Jonathan, a native of the delta, is organizing a peace summit due to be held in July to address the root causes of the unrest, which politicians, local chiefs and smaller splinter militia groups are expected to attend.

The government has promised that any initiatives agreed at the summit will be implemented, but analysts question whether any new ideas will be brought to the table.

MEND and another group — the Ijaw Youth Council — have said they will not take part.

WHAT DOES IT MEAN FOR NIGERIA’S ECONOMY?

Unprecedented income from high oil prices has filtered down into parts of the Nigerian economy, such as the banking sector, which has seen explosive growth in recent years.

But mismanagement and corruption, which President Yar’Adua says he is fighting to stamp out, has meant swelling government coffers have enriched an elite group of businessmen and politicians while doing little to help the poor majority.

Nigeria has said it is aiming to produce 4 million barrels of crude per day by 2010, almost double current levels, but analysts and industry experts agree the target is ambitious.

With oil prices set to remain near record levels or continue to rise, the government’s revenues will only take a hit if continued attacks on offshore installations curb Nigeria’s ability to lift oil output in the long term.

Shell Shuts Nigeria’s Bonga Oil Field After Attack (Update6)

By Alexander Kwiatkowski and Julie Ziegler

June 19 (Bloomberg) — Royal Dutch Shell Plc said it shut down the Bonga oil field in Nigeria because of a militant attack, the first time the deepwater facility 120 kilometers (75 miles) offshore has come under assault.

“There has been an armed attack on the Bonga field production unit,” Shell spokesman Rainer Winzenried said in an interview from The Hague. Bonga crude shipments were scheduled to average 190,000 barrels a day in June, based on loading schedules. Attacks by militants previously focused on onshore and shallow fields in the creeks of the Niger river delta.

“It’s certainly of a different tactical order,” Antony Goldman, an independent U.K.-based analyst specializing in Nigeria, said by telephone from London. Goldman said he was surprised the militants had the “hardware” to carry out such an attack.

Nigerian Navy spokesman Henry Babalola said three people were kidnapped from a private security vessel during the Bonga attack. Gunmen in three speedboats also attacked a vessel near Pennington and abducted the ship’s captain, a U.S. national, Babalola said by phone.

The Movement for the Emancipation of the Niger Delta claimed responsibility for the Bonga attack and urged oil companies to evacuate foreign staff from Nigeria.

The group released the ship’s captain, a U.S. national, at 4:45 p.m. local time, MEND spokesman Jomo Gbomo said in an e- mailed statement.

Tankers At Risk

MEND, which has stepped up attacks on Nigeria’s oil infrastructure since April, also said that oil and gas tankers were at risk of attack if they entered Nigerian waters.

Shell Nigeria already has as many as 400,000 barrels of crude a day shut in as a result of militant attacks.

Shell officials are flying over the Bonga platform to assess the scale of the damage, Winzenried said. The field is situated in production license 212, in depths of more than 1,000 meters. Force majeure, a legal clause which allows producers to miss contracted deliveries because of circumstances beyond their control, has not been declared, he said.

Bonga production began in November 2005 and the field has the capacity to pump 225,000 barrels a day. Crude is pumped from 16 subsea wells via the floating production, storage and offloading vessel.

The field is operated by Shell Nigeria Exploration and Production Co., the offshore Nigerian unit of Europe’s biggest oil company.

Militant Raids

Shell Petroleum Development Co., Shell’s onshore Nigeria production joint venture, has between 350,000 and 400,000 barrels a day of crude production shut by militant raids, Mutiu Sunmonu, the managing director of the unit, said earlier this week.

Frontline Management AS, which manages ships for Frontline Ltd., the world’s largest owner of supertankers, is “aware of the dangers” in Nigeria, temporary Chief Executive Officer Jens Martin Jensen, said by phone from Oslo today. The company will continue to watch for any escalation in the situation, he said.

U.S. State Department spokesman Tom Casey, speaking before MEND announced the release of the American national, said diplomats were in contact with the person’s employer to help notify the family. Casey declined to identify the person pending the family’s notification.

“We’re also in contact with the Nigerian government and law enforcement officials to try and see what we can do to help ascertain the individual’s whereabouts” and secure his release, Casey told reporters in Washington today. “We certainly would call on the individual’s captors to release him immediately and unharmed.”

Tags: peak oil energy investments

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