1. Why is the Nigerian oil industry under attack? What are the implications for
ID: 459977 • Letter: 1
Question
1. Why is the Nigerian oil industry under attack? What are the implications for foreign oil firms operating in Nigeria? 2. What is the impact of Nigerian oil industry sabotage on Nigeria's economy and the investment environment in Nigeria generally? Is the Nigerian government's response adequate? Should US firms pull out? 3. What are the implications of Nigerian oil industry difficulties on the oil industry globally? Do you see this as a temporary disruption, or will this have a long-term impact? Full text: A band of saboteurs that calls itself the Niger Delta Avengers has been prowling the swamps of Nigeria's petroleum-rich south for four months, bombing pipelines and diving underwater to destroy equipment. The damage has helped tip Africa's biggest economy toward recession, and has cost Nigeria its position as the continent's top oil producer -- a distinction inherited by Angola. The Avengers struck again before dawn on Friday. A group of militants sneaked through marshland to bomb two pipelines, one owned by Royal Dutch Shell PLC and the other owned by Italy's Eni SpA, according to Nigeria's navy. Shell confirmed signs of a spill from one of its pipelines and said it is still evaluating potential damage. Eni confirmed the attack but said it didn't contribute to any new supply disruption. On the group's purported Twitter account, it called the Eni attack part of its promise "that Nigeria Oil production will be Zero." The brazen strikes were the latest demonstration of destructive proficiency by the Avengers, which has considerably cut the amount of oil in global markets. The strikes have led Nigeria to shift some of the forces who have been fighting an Islamist insurgency. On and off for years, criminal groups in the Niger Delta have extorted and bombed oil companies for profit. Pipelines have also been sawed open by oil thieves, seeking to siphon off their valuable content. The Avengers seem to be more interested in undermining the administration of President Muhammadu Buhari, security consultants and government officials say. They say they are frustrated by the lack of information about who the Avengers are. Mr. Buhari, a former military dictator from Nigeria's north who was elected last year, is unpopular in much of the country's south: He received just 13% of the vote in the Niger Delta. "It is different this time," said Dolapo Oni, oil and gas analyst for Togo-based Ecobank Transnational Inc. "These guys are not stealing crude. They just bomb the pipelines and they run away. They just want to destroy." With near-weekly attacks that began in February, the militants have taken about one million barrels of oil a day out of production, according to Nigerian oil officials. The attacks have intensified in recent weeks. The lost production helped push crude prices above $50 a barrel recently for the first time since November. Roughly 96 million barrels of crude are produced globally every day, but supply exceeded demand by around 1.4 million barrels a day in the first quarter, according to the International Energy Agency, which monitors energy trends for industrialized countries, so the lost Nigerian production is almost as large as the excess daily output that has weighed down prices. "It is clearly having a material impact," said James Davis, head of oil supply at consultancy Facts Global Energy. A few months ago, oil prices lingered at a 13-year-low. Goldman Sachs Group Inc. analysts predicted late last year that oil could fall as low as $20 a barrel. Instead, a series of disruptions -- including a worker's strike in Kuwait, a blockade in Libya, and wildfires in Canada -- have pushed prices up. Nigeria's government has publicly asked the Avengers to negotiate: "This government is a listening government," said Lai Mohammed, Nigeria's information minister. The Avengers have responded with a mix of threats, steep demands -- such as redistribution of oil rights to local residents -- and more attacks. The group has sabotaged at least 10 oil installations in the past month. It didn't respond to several emailed requests for an interview. "To the International Oil Companies and Indigenous Oil Companies, it's going to be bloody," the Avengers said in an online statement. "Your facilities and personnel will bear the brunt of our fury." Since the 1990s, Nigeria's government has been at odds with the residents of the Niger Delta, the Portugalsized swamp where almost all of the country's oil lies. Decades of oil spills and a prevailing sentiment that the country's vast petroleum wealth has enriched only a few have pushed locals to bomb pipelines, kidnap oil workers, and steal oil. But until recently, Nigeria has been able to exercise some basic level of control. Since 2009, the government has paid militants to stay out of trouble. It has also hired thousands of militants to protect the pipelines they used to bomb and hacksaw open. The attacks come at a perilous moment for the nation of 187 million. Even before the Avengers arrived on the scene, Nigeria's government was running low on money. The country's reserves have plummeted so precipitously that the central bank has rationed access to foreign currency since last year, forcing businesses to shut down because they can't get the dollars they need to import spare parts or repay foreign lenders. The economy contracted by 0.36% in the first three months of this year. It is now headed into an "imminent" recession, Godwin Emefiele, governor of the central bank, said in May. Nigeria's government says it is working as quickly as it can to repair the damage the Avengers have done. To win support, Mr. Buhari has ordered a clean up operation there. Decades of oil spills have left the water so polluted that a United Nations report estimated a full cleanup would take 30 years. The military is also sending more troops into the swamps, even as it battles the insurgency Boko Haram in the north. To secure oil infrastructure, the army recently moved a group of U.S.-trained troops from the front against Boko Haram. It has also used surveillance planes to try to peer into the thick mangrove forests and find the Avengers' camps. "The military will continue to do its best," said Rabe Abubakar, spokesman for Nigeria's Defense Ministry. In May, the military posted troops around one of Chevron Corp.'s oil storage depots. For three days, the Avengers had been vowing to attack it. But instead of storming the depot, the militants bombed a nearby gas pipeline. Hours later, the militants bombed a pair of crude pipelines supplying nearby refineries. "They knew exactly where to attack and the time to attack," said Mr. Oni, the oil analyst. "There was literally nothing you could do."
Explanation / Answer
1. The Nigerian oil industry is under attack due to socio political developments in Nigeria. The saboteurs - Niger Delta Avengers - wants to undermine the administration of President Muhammadu Buhari. They are planning to do so by destroying the oil pipelines and reducing Nigeria's oil production to naught under Buhari's administration. Buhari is not popular in Nigeria's Niger Delta region and the saboteurs are attacking the oil assets just to undermine Buhari.
2. The sabotage will bear a negative impact on Nigeria's economy. Before the attacks, Nigeria was Africa's top oil producer. It is no longer so. This has lead to economic recession in Nigeria. The investment environment in Nigeria is also getting affected negatively due to the attacks. Big oil companies like Shell and Eni will think before making fresh investments as their facilities and personnel are under attack.
The government in Nigeria has been slow to respond. The locals situated at the southern part of the country have been disoriented by decades of oil spill and from the fact that oil has made only a few people rich. It is only now that Buhari has ordered a clean up operation that will clean the water polluted due to the oil spill. This action has come a little too late.
Considering the current level of threat by Niger Delta Avengers, American firms should pursue a cautious approach but should not all together pullout immediately. If the situation improves and the government is able to wrest control, they should not pullout. However, if the current situation persists and the spate of attacks are not controlled, then the US firms should consider a pullout to minimize their risks.
3. The global oil industry will be negatively affected by the current events occurring in Nigeria. The lost Nigerian production has led to an increase in global crude prices. This is because, before the attacks, the global oil industry had a situation of oversupply. The attacks in Nigeria has changed the balance and there is no more oversupply of crude on a global level.
Given the inability of the government in Nigeria and the prevailing sentiments in the southern part of the nation, i believe that the events will have a long term impact. Nigeria is running low on money and they will no longer be able to pay the militants to stay away from trouble.
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