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. Analysis: Nigeria attack cripples Chevron

disclaimer: image is for illustration purposes only
by Carmen Gentile
Washington DC (UPI) Jun 26, 2008
Chevron Corp. has declared a force majeure on its oil exports following a particularly destructive attack on one of its installations in the Niger Delta.

Officials at the U.S. oil company said that though production was unaffected at offshore installations, Chevron could not meet its production quotas for customers because of shortfalls caused by the pipeline attack last week at the Escravos oil field in the delta.

Though Chevron would not say just how much production was lost due to the attack, Nigerian energy officials estimated the losses at over 100,000 barrels per day, a blow that prompted the company to declare force majeure, relieving them of their contractual obligations until the assaulted pipeline can be repaired and secured.

Chevron, meanwhile, is not the only company reeling from the recent increase in violence against foreign oil interests by armed militant groups in the delta. Royal Dutch Shell, the leading foreign petroleum company operating in Nigeria, suffered yet another in a long list of attacks at its Bonga facility last week, prompting the Anglo-Dutch company to halt production for several days.

It wasn't the first time Shell was forced to scale back production due to militant violence. In January, Shell shut down operations at its Forcados terminal following pipeline attacks that threw its 100,000 barrel-per-day production offline. The terminal already had been shut once before because of violence and reopened in October 2007 after more than a year of halted production. Since its reopening, the facility, which can produce some 450,000 barrels per day, had been operating at a fraction of its capacity.

Meanwhile, last week's attacks on Chevron and Shell prompted Nigerian forces to clamp down on militant groups like the Movement for the Emancipation of the Niger Delta on the direct orders of President Umaru Yar'Adua.

MEND and other militant groups in the delta appear to be making good on promises to increase attacks on petroleum installations, raising fears that already hampered production would be stymied further.

Despite extracting more than $300 billion worth of crude over the last three decades from the southern delta states, the region remains mired in high unemployment.

Coupled with environmental degradation due to oil and gas extraction, and a lack of basic resources such as fresh water and electricity, the perceived negligence by leaders in Abuja has angered the region's youth, who have taken up arms and formed militant groups and local gangs.

Amid the violence, Nigeria's production levels have dropped by 20 percent or more since 2006, with daily output now estimated at less than 2 million barrels per day and putting the country in second place on the African continent for oil production behind Angola.

According to a report earlier this month by the Organization of Petroleum Exporting Countries, Angola's production levels for the month of April reached 1.87 million barrels per day, while Nigeria's shrunk to 1.81 million bpd. That's down from its 2.5 million bpd high just three years ago.

The recent increase in violence directed at foreign oil interests stands in stark opposition to predictions earlier this year that security efforts by Yar'Adua to negotiate a peace treaty with the militants would pay off in the months to come.

"It would take a tremendous effort to do that," said Mark Schroeder, a Sub-Saharan Africa analyst for Stratfor Strategic Forecasting Inc. The Nigerian government "would first have to demonstrate that they could stabilize their own sector, curtail militant violence and expand out."

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