The “Slavery & Nigeria’s Oil Economy”, “Desert boys are here”, “WAGP ghana die?” edition : Nigerian Oil, Gas and Power Round-up, September 5 –September 9, 2016.
Can Forcados save Nigeria?
The Forcados River, one of Distributary Rivers of River Niger has a very long, tortuous and fascinating history. Forcados is very likely not even the original name of the river but the specter of slave trade and Portuguese influence have bequeathed on it a name better forgotten. Forcados in Portuguese means, “indentured”, “hanged on a gallow’ as the river was poignantly the favorite channel for the slave raiders. Just like its cousin River ‘Escravos’ which means “slave’. Lagos was lucky — the Portuguese thought it was just a lagoon.
Slave outposts have been replaced by tank farms and the Dutch have replaced the Portuguese. Forcados has shaken off slavery but not the familiar misfortune and relevance. In the last 8 months the Nigerian economy has bled because the oil lifting terminal has been shut-in due to a sophisticated attack by militants. Nigeria has about 20 recognised oil terminals with Forcados ranking No 3 after Qua Iboe (Mobil operated) and Bonny Terminals (Shell operated). Now Forcados may be №3 but it’s practically the most important for the Nigerian economy’s recovery at the moment.
As I opined last week, the Nigerian economy like most resource rich countries are cursed to depend on oil. Except for a few exceptions like the US, even when the economy is well diversified, oil still seems to have an outsized influence on the other sectors. Also, I am of the opinion that the rising inflation of the last few months is ‘import cost push’ and largely due to the depreciation of the Naira. I am open to superior arguments on this anyway. So that settled, I would like to explain why I am convinced Forcados is uber important for Nigeria.
Until 2010, Shell was the biggest oil company that shipped through Forcados Terminal (FOT). With its divestment campaign of the last five years, Shell has shrunk to a fringe exporter in the Niger Delta west and also the FOT (which it still operates by the way). The other exporters through FOT (excluding little Shell production) are now ALL Nigerian owned independents. When the Indies acquired these Shell assets in 2010–2014, Nigerian banks and some DFIs went on a funding splurge, syndicating huge loans for some of them. With the oil price drop the banks felt some pain but the shut-in of FOT in the last 7 months has increased the dol of pain on banks books and these companies. Many have laid off workers, implemented pay cuts and are barely surviving.
More importantly, FOT’s shut-in has disproportionately influenced forex inflows into Nigeria. Since most of the independents who export through FOT are Nigerian companies, they typically repatriate their dollars to Nigeria more than an International Oil Company does — to defray bank loans and meet other obligations. If FOT resumes operations soon as envisaged (return is said to depend on Govt/NDA negotiations) and oil prices stay in the sub $50s we might witness increased forex inflow into Nigeria, supporting a return of the Naira to the early 300s as predicted by Proshare this week. If Naira appreciates, the impact of the imported inflation might be blunted helping to further stall the decreasing trend of the last months.
Another reason why FOT is important. Since the attack by militants, much of the gas production capacity in the Niger Delta west has been shut off. And that’s the simple reason why power supply was very terrible earlier in the year. If the terminal returns and gas plants roar back to life, power might radically improve especially as new processing capacities are been readied for commissioning. Improved power generation helps the cashflow of power companies, banks get their power loans serviced and inflation due to high energy costs dissipates.
We need to take our energy security more seriously.
West African Gas Pipeline ghana die?
The West African Gas Pipeline was built at the behest of Ghana, Benin and Togo since Nigeria in the Naughty Nighties was just flaring the gas. It made sense to build a gas pipeline across the countries in the region. Until Obasanjo starting a revolution with the NIPP/PHCN power plants in early 2000s and sending gas to Ghana became a second thought. Now the pipeline has been built for about $1 Billion and the expected amount of gas is not coming from Nigeria — at worst paltry. Investment made by Nigeria and her partners are been under utilised.
Now the pipeline faces a more existential threat. Ghana has announced plans to build a pipeline from its offshore TEN field to supply about 550 mscf/d to its power plants. The Chinese would build it for them and deliver by 2018. Would WAGP still be relevant?
CBN barks at banks on power funds.
The Central Bank of Nigeria issued another stern warning to banks this week, this time on the Electricity Stabilisation Fund meant to provide liquidity to the power industry. Let me tell you this for free, the Nigerian power market is at the brink of collapse. Liquidity is a serious serious serious constraint. The CBN-NESMF was created to intervene and help provide the needed liquidity. Whatever the banks are doing that made CBN to issue another threat this week, I don’t really know (Tell me if you do) but whatever efforts is been made to stimulate liquidity in the power sector must not be toyed with.
Petrobras wants to sell.
Petrobras, the former poster boy for National Oil Companies is retreating from its rapid growth of the early 2000s. Now I understand they want to sell stakes in some of their offshore assets in Nigeria including the yet to be completed Egina field.
Do you have some change to spare? Hit them up but send me some compensation for telling you first.
Nigerian Downstream is changing
If you go to jail this year and get released 3 years from now, you may not recognise the new players in the Nigerian downstream industry. Ownership is changing rapidly. Already, Oando Downstream is only in name only now. Helios and Vitol owns most of it. There are rumours that the Desert boys are also trying to make a major acquisition. I have wondered why they have more stations in Ghana than in their own country. It pays to serve the Lord Brethren.
Finally, I know I made a promise recently to write about the ‘Agbero model’ for Nigerian power sector. Apologies for not keeping to that promise yet. Like my mum would say (paraphrased in English) ‘This mountain is the one not allowing us to see the one ahead’. I will keep the promise. Make una no vex.
See ya next week.
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Ciao.
