$39m lost daily to production shut down

"Hurricane Piper Alpha remains on course." These are the words of Jomo Gbomo, the mysterious voice of the Movement for the Emancipation of the Niger Delta (MEND), the main militant group wrecking oil facilities in the turbulent oil-rich Niger Delta of Nigeria, home to Africa's largest oil industry.

The hurricane, as all other natural ones around the world, takes heavy tolls with Nigeria experiencing crude production shut-in of about 564,500 barrels per day.

This represents $39 million daily losses in oil revenue, at $66.93 per barrel based on crude oil trading at the New York Merchantile Exchange (NYMEX) on Thursday. The losses are coming at a time when government's finances has been over stretched due to falling oil prices arising from global economic depression.

Attacks on oil facilities

Since MEND warned of Hurricane Piper Alpha [the code name for its current assault] on the June 6, 2009, there have been nine attacks in two weeks on oil facilities operated across the region by super majors, Chevron and Shell, and Italian company, Agip. This brings the sum of attacks on the oil industry to 10.

The latest attack on the Cawthorn Channel 1, 2 and 3 flow stations of Shell's Bille/Krakama pipeline in Rivers State that feeds the Bonny export terminal, came hours after Dmitri Medvedev, the Russian President left Abuja where new deals on gas developments were signed between Nigeria and Russia.

Mr. Gbomo warned, "Mr. President, the agreements that you have signed in Abuja are worthless. MEND will ensure to that." In the wake of the attacks, Chevron have suffered the most, getting five consecutive hits between May 24 and June 15. Then Agip got hit. Now Shell is at the receiving end with its facilities on and off shore struck successively.

Some argue that the MEND raids have not been as spectacular as those launched when the militant group burst onto the scene in December 2005, where it took out more than a quarter of Nigeria's installed capacity of 3 million barrels per day.

But at a time of fallen demand and a troubled global economy, the effect of the current assaults couldn't have been worse. And with hundreds of kilometres of oil and gas pipelines traversing the remote mangrove swamps of the Niger Delta, guarding them against guerrilla-styled attacks from militants is practically impossible.

Production losses

About 133, 000 barrels of oil production, and 2 million cubic metres of gas per day have been shut-in because of the current militants' onslaught.

Chevron closed its operations around Delta State, shutting in 100, 000 barrels per day of oil output. Last Wednesday, Italian company, Eni, followed, declaring a force majeure on oil exports from its Brass River terminal, stopping 33,000 barrels of oil and 2 million cubic metres of gas per day output. Before the current wave of attacks, Nigeria had about 431,500 barrels per day of oil shut-in this year due to attacks on facilities according oil companies and trading sources.

Shell had 340,000, Eni 80,000, and Chevron 11,500 barrels per day of oil output respectively, resulting in an overall production shut-in this year of 564,500 barrels per day of oil.

Impact of losses

The impact of these production outages are already eating deep into government's revenues. For a country that is over 90 percent dependent on oil revenues for its foreign exchange earnings, with the national budget benchmarked on an oil price of $45 per barrel, the global economic meltdown and lower OPEC export quotas mean even more strain on government's finances.

Bismarck Rewane, an economist and Managing Director of Financial Derivatives, argues that despite these outages "oil prices at $65 and above works in our (Nigeria's) favour because it reduces the amount of adjustments we have to make." But oil revenues depend on two things: OPEC quota, and the effect of the Niger Delta disturbances on output.

Mr. Rewane added: "Production is another issue. I'm concerned about the production because our oil revenue is price multiplied by volume."

With the 2009 budget likely to exceed a deficit of 8.5%, according to the International Monetary Fund, further attacks which cuts oil output considerably especially with global oil prices rallying upwards on the hope of a recovery, would exert even more pressure on government's dwindling oil revenues.