Nigeria Suffers After Closure Of Shell‘s Pipeline
Nigeria was already under pressure from lower US oil imports due to the US shale boom but the closure of Shell‘s pipeline due to leakage and theft has worsened conditions for the economy
Published: November 25, 2014 at 3:23 pm EST
By: Micheal Kaufman
By: Micheal Kaufman
Nigeria is amongst those members of the Organization of Petroleum Exporting Countries (OPEC) which have suffered the most due to the US shale boom. The oil boom has allowed the US to reduce its dependability on the OPEC for oil imports. Higher oil production coupled with lower demand has led to a fall in the oil price. Since June, crude price has plummeted over 32%.
The quality of Nigerian crude oil is quite similar to the shale oil that is now produced in the US region of North Dakota, and consequently has helped to lower US’ demand for oil imports from Nigeria. This has become a major source of concern for Nigeria as the nation is currently not exporting any oil to the US, compared to exports of 1.3 million barrels per day (bpd) since February 2006.
Moreover, Nigeria’s Niger Delta has been affected by major thefts, causing many foreign investors to divest their assets and leave the region. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) as a pre-cautionary measure also intends to sell all assets and leave the region. According to sources, the Nigerian economy suffered from thefts worth $35 million every day and Shell reported to have lost a massive $1 billion in 2013 alone.
On November 20, Shell sold 30% stake in Oil Mining Lease 24(OML24) to Newcross Exploration. This means that the country is now its attractiveness to foreign investors due to security concerns. Although these assets are sold off to local producers, the local companies lack the technical expertise and skills possessed by the foreign investors.
Unfortunately, this is not the only problem faced by Nigeria. Recently, Shell’s Nigerian unit was shut down after a leak was discovered on November 22. The leaked pipeline holds great significance for Nigeria in terms of export revenue. The pipeline is said to carry around six cargoes each month, or approximately 180,000-200,000 oil bpd. To make matters worse, the pipeline also carries one of Nigeria’s main export grade oil, called Bonny Light BFO-BON. Regarding the issue, Shell’s spokeswomen in London confirmed that force majeure had not been declared on the grade.
The leak transpired near the 24- and 28-inch Trans-Niger Pipelines (TNP). The leak was noticed when one of Shell’s workers was preparing to remove some of the theft connections that were on the pipeline. The 24-inch pipeline was already inactive. The facility had been closed for repair and integrity checks since the period.
Prior to the recent leak, the company set out booms and also closed the 28-inch TNP. It now seems that Nigeria is undergoing more problems. The recent closure of the local Shell unit has greatly reduced Nigeria’s export potential. The African nation is already suffering from decreased exports, and now foreign investors like Shell winding up their operations and exiting the country can impose greater damages onto the economy.
Nigeria needs to start taking counter measures and reduce the theft to maintain and attract foreign investment in the region. The oil-producing nation needs the expertise of foreign companies to start drilling new varieties of oil, which will help regain its lost exports to the US.
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