Given the region’s location on the Atlantic, allowing direct supplies to the United States without the dangers plaguing Middle Eastern exports, the region is expected to provide the United States with about one-quarter of its crude imports by 2015.
Most of the attacks involve theft, particularly large amounts of oil, rather than hijackings for ransom, the primary tactic used by the Somali pirates.
“Gulf of Guinea attacks have been targeted almost solely against oil- and diesel-carrying vessels,” Oxford Analytica noted in a recent report.
So any serious threat to supplies could have an impact in the United States.
Lately I have been focused on oil related stories. The reason for that is there are a lot of factors in play right now that could severely impact the world oil markets. So it pays to take a look at where we get oil, and the stability of this source.
Also, where there is a security issue and private interests at stake, then usually you will see private security involved in some capacity. From managing a guard force, to security assessments, to protecting assets and individuals, private security is very much involved. Security contractors are extremely important to the world wide effort of securing these oil related efforts, and the world is not getting any safer.
The focus here is on oil imports to the US, and there are a few imports out there that deserve some attention. I focus on the US because I am citizen there, but it is also important to follow what impacts the US because often times news there impacts the rest of the world. For the record, here are our top import sources.
Canada (25%)
Saudi Arabia (12%)
Nigeria (11%)
Venezuela (10%)
Mexico (9%)
Looking at this list, you can see exactly what I am talking about. Saudi Arabia is located in a region that is certainly threatened by the aspect of war and revolution (Iran or Arab Spring comes to mind). We depend on Saudi Arabia’s security apparatus to protect this oil production. Just imagine if Iran bombed refineries there for some kind of retaliatory attack against the west, if Israel bombs Iran? Other import sources would all of sudden become very important.
Or look at Venezuela where the leader there actively promotes his hatred of all things US, and goes out of his way to make partnerships with countries like Iran, just to thumb their nose at the US. Amazing that we are still doing business with this country. But they have oil.
Then look at Mexico with the drug war and constant attacks on their nationalized oil company called Pemex? What would happen if cartels started attacking oil rigs or Pemex as a retaliation against the US drug war effort? Or terrorists targeted these assets as a way of hurting the US?
Luckily imports from Canada are stable and secure, but that is about it. Now let’s put this into perspective. Imagine if any one of these top importers had their oil infrastructure attacked and disrupted by a nation or a group? The shock wave to the world oil markets would be severe, and the pain would definitely be felt economically in the US. That is why I follow this stuff. In my view, the more we can shore up energy independence, the better. But let’s keep this focused on the reality that we have, and not the one we wished we had.
So the importer that I want to focus on today is Nigeria. There are a few things to look at here for system disruptions. The first is piracy. Off the western coast of Africa, things are now getting bad enough to raise some alarms. Lloyds Market Association puts the waterways near Nigeria in the same risk category as Somalia’s.
Lloyd’s Market Association, a London umbrella for a group of insurers, listed Nigeria, Benin and nearby waters in the same risk category as lawless Somalia. That could signal higher insurance rates for shipping, including oil traffic, off West Africa.
Both the coastal region and the deltas/waterways are all hunting grounds of pirates seeking to capture oil tankers or hostages, and there is an upward trend for this activity.
Below, I posted a story that talked about a private public partnership that Nigeria is taking on in order to deal with this issue. The Nigerian Maritime Administration and Safety Agency has recently contracted with a company called Global West Vessels Specialist Nigeria Limited. Here is the basics of this deal, which is valued at $103 million.
“What the government has done is simply address issues of maintenance bureaucracy that had crippled the patrol arm of NIMASA. By the partnership agreement NIMASA has asked a private firm to supply patrol boats, surveillance equipment and also maintain them. NIMASA and the NAVY will use these facilities to protect the nation’s maritime domain”, he explained.
I don’t know anything about this company or public private partnership. So I couldn’t even say if this group is an honest partner in the deal, or if it will be effective. We will see….
The second thing to look at are these militant groups who target the oil as part of their strategy. Groups like MEND did a number on oil infrastructure there. Shell has also invested much into security in order to protect their investments and operations there, and from the sounds of it, MEND is wanting to get back into the game of system disruptions.
You also have the Islamist extremist angle. Boko Haram comes to mind as just such a group that could increase their systems disruption attacks as a strategy to coincide with the increased demand for oil throughout the world. Meaning if the west depends upon the oil coming from Nigeria, then what better way to hurt the west and Nigerian government by attacking the oil. This is not a new idea and I discussed how Al Shabab is targeting western oil interests in Somalia as another example of this kind of thing. (notice that private security is a necessity to counter the threat in both countries)
Finally, I picked up on this little part of an article below and this is interesting to me. Liberia and Sierra Leone could turn into another source of oil. Check it out.
U.S. company Anadarko Petroleum Corp. and oil companies have reported new discoveries off Liberia and Sierra Leone in recent weeks, heightening expectations that the war-scarred region is heading for a major bonanza.
So with that said, will we see Royal Dutch Shell and similar companies respond with setting up security that looks more like a private military force? Will we see a drive to promote armed guards on all boats operating off the west coast of Africa? Who knows and it is something to watch as events unfold in this region of the world. –Matt
Nigerian Delta Unrest Cuts Oil Output by 1 Million Barrels
By Elisha Bala-Gbogbo
Mar 5, 2012
Oil production in Nigeria, Africa’s biggest producer, is down by about 1 million barrels a day because of violence and theft in the Niger River delta, according to the state oil company.
Output is yet to be restored at 40 onshore oil fields mostly operated by Hague-based Royal Dutch Shell Plc (RDSA), San Ramon, California-based Chevron Corp. (CVX) and smaller producers more than two years after a government amnesty led to the disarming of thousands of militants and a decline in attacks on oil companies, according to data obtained from the Nigerian National Petroleum Corp.
The “underlying tensions that mark the region were decades in the making and have yet to be resolved,” Antony Goldman, head of PM Consulting, a London-based risk advisory specializing in West Africa, said today in an e-mailed response to questions. “The concern among oil companies is that there is a risk of a slide back to violence if stakeholders do not seize the opportunity presented by the current relative calm to begin to build a better and fairer future for the Niger delta.”
NNPC, as the state oil company is known, operates joint ventures with Shell, Chevron, Total SA (FP) of France, Irving, Texas- based Exxon Mobil Corp. (XOM) and Italy’s Eni SpA (ENI) that pump more than 90 percent of Nigeria’s oil. Central government control of oil revenue is resented by communities in the region and this has spawned unrest including armed attacks on oil facilities and theft from pipelines.
Organized Oil Theft
“We have been able to bring production back but it is still below pre-militancy levels,” Ian Craig, Shell’s vice president for exploration and production in sub-Saharan Africa, said Feb. 21 at an oil conference in Abuja, the capital. “The greatest challenge, however, is the massive organized oil theft business and the criminality and corruption which it fosters.”
At least 150,000 barrels a day of oil is lost to theft, resulting in increased production costs, reduced revenue and “major environmental impacts,” Craig said. Shell on Feb.6 said rising crude theft along its Nembe Creek trunkline threatens daily exports of 140,000 barrels. The company has recorded over 250 incidents of theft and sabotage in its onshore operations since January 2010.
Nigeria is currently producing 2.68 million barrels a day, short of a capacity of 3.7 million barrels, according to the NNPC. Sub-Saharan Africa’s second-biggest economy depends on oil exports for more than 95 percent of export income and 80 percent of all government revenue.
President Goodluck Jonathan’s administration plans to borrow 794 billion naira to finance deficit spending in 2012. The country is losing at least $3.6 billion a year from still unrestored output that could’ve helped government finances, Bismarck Rewane, chief executive officer of Financial Derivatives Co., said in a phone interview on March 2. He said “there’s no way Nigeria can actually do 3.7 million barrels a day” any time soon.
Attacks, Disruptions
Nigeria’s naira has weakened 2.3 percent against the dollar over the last year and traded at 157.80 to the dollar as of 16:04 p.m. in Lagos, the commercial capital. The oil industry is the second-biggest supplier of foreign currency to the local interbank market after the central bank, which sells dollars earned from oil exports at twice weekly auctions.
Output from Shell’s onshore fields in the West African nation currently stands at about 600,000 barrels a day, half the volume in 2005 before armed attacks and disruptions worsened, Mutiu Sunmonu, chairman of Shell’s Nigerian unit, said on Feb. 22 at a conference in Abuja, the capital.
Chevron pumped an average of 236,000 barrels a day last year, Kurt Glaubitz, a company spokesman in Houston, said in an e-mailed response to questions on Feb. 27, without giving further details. That compares with 376,000 barrels a day the company pumped in Nigeria in 2008, with at least 140,000 barrels a day yet to be restored in swamp operations including the Olero Creek, Abiteye and Dibi fields.
Offshore Fields
Production from Nigeria’s onshore fields and shallow waters currently stands at about 1.34 million barrels of oil a day, down from total production of about 2.5 million barrels before armed hostilities against producers began early in 2006, according to NNPC data. The rest of current production comes from offshore fields.
Total output fell to as low as 1 million barrels a day when armed attacks peaked in July 2009. At the end of 2005 deep offshore contributed less than 10 percent of Nigeria’s oil, compared with about a third currently. OPEC estimates Nigeria’s capacity at about 2.5 million barrels a day.
Nigeria’s main militant group in the delta, the Movement for the Emancipation of the Niger Delta, or MEND, on Feb. 6 said it was resuming attacks against producers after it damaged a pipeline operated by a unit of Eni on Feb. 4.
Shell, which has the biggest onshore operations in Nigeria, has sought to reduce its exposure by selling some assets. The company sold three oil leases in the western part of the delta with a capacity of 50,000 barrels a day in 2010 to Seplat Petroleum Ltd., a local producer.
Rising Costs
It disposed of another license in November to the Neconde Energy Ltd. group and is in talks to sell interests in three other oil leases.
Insecurity in the region has also helped to drive up costs. Due to the activities of pirates and armed groups in the coastal oil region, marine insurers last year included Nigerian waters in a war-risk zone for which underwriters can charge additional premiums, Lloyd’s Market Association Senior Executive John Gurtenne said on Aug. 4.
The prevailing situation has resulted in a “reduced appetite for exploration” and in “Nigeria’s reserves probably being materially understated,” said Shell’s Craig.
Story here.
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Piracy peril for West Africa’s oil boom
March 7 2012
A sharp increase in pirate attacks in the Atlantic Ocean off West Africa is threatening plans to double oil production from 4 million barrels a day amid a swelling energy boom in the largely impoverished region.
U.S. company Anadarko Petroleum Corp. and oil companies have reported new discoveries off Liberia and Sierra Leone in recent weeks, heightening expectations that the war-scarred region is heading for a major bonanza.
Given the region’s location on the Atlantic, allowing direct supplies to the United States without the dangers plaguing Middle Eastern exports, the region is expected to provide the United States with about one-quarter of its crude imports by 2015.
Most of the attacks involve theft, particularly large amounts of oil, rather than hijackings for ransom, the primary tactic used by the Somali pirates.
“Gulf of Guinea attacks have been targeted almost solely against oil- and diesel-carrying vessels,” Oxford Analytica noted in a recent report.
So any serious threat to supplies could have an impact in the United States.
On top of all this, there’s the problem of increased cocaine smuggling from Latin America to Europe through Guinea-Bissau and other struggling West African states, plus widespread political upheaval in Nigeria, a key African producer and supplier to the United States, involving Muslim militants.
The piracy problem centers on the Gulf of Guinea, one of the main offshore oil zones and which stretches along the coasts of a dozen countries from Guinea southward to Angola, another major African oil producer.
The scale of the problem hasn’t reached the proportions of the crisis in East Africa, where highly organized and increasingly sophisticated Somalia pirate gangs prey on oil tankers and other shipping in the Gulf of Aden and deep into the Indian Ocean.
But attacks of West Africa are steadily mounting and becoming more violent, U.N. Undersecretary-General B. Lynn Pascoe warned the U.N. Security Council Feb. 28.
Pascoe cited 64 attacks in 2011 off nine countries, including Benin, the Ivory Coast, Congo-Brazzaville, Ghana and Nigeria. That compares to 45 attacks off seven countries in 2010.
In Nigeria, a long-simmering insurgency in the oil-rich Niger Delta appears to be igniting again, with oil theft a major industry.
The Nigerian violence slashed oil production by 40 percent to around 2 million barrels per day before a government amnesty halted fighting in the delta in 2009.
The United Nations’ International Maritime Organization said it has recorded 10 attacks off West Africa in January-February. Pasco stressed, “We know that not all piracy incidents are systematically reported.”
Some shipowners are reluctant to report incidents to avoid having insurance premiums hiked, particularly if illegal cargoes are involved.
“In Nigeria, it’s estimated that approximately 60 percent of pirate attacks go unreported,” London security firm AKE Ltd says.
The Security Council urged the regional states to develop “a united front to respond effectively to the growing threat of piracy along their coasts.”
The prospects of that are slim. With the exception of Nigeria, none of these states, where corruption is rife and security forces weak, under-manned and under-equipped, have the infrastructure or the funds to be able to effectively take on the pirates.
“Nigerian counter-piracy efforts have been beginning to register success but one result has been to push gangs’ activities further along the West African coast — and further out to sea,” Oxford Analytica observed.
This is what happened off Somalia. International naval forces deployed to counter the pirates there only resulted in the marauders employing larger deep-water vessels that allow them to operate up to 1,500 nautical miles eastward into the Indian Ocean and in the tanker lanes off the Persian Gulf.
No statistics regarding the cost of West African piracy have been released. But the Somali pirates’ depredations cost the international community up to $9 billion a year, said Geopolicity Inc., a consultancy that specializes in Middle Eastern and Asian economic intelligence.
That could escalate to $13 billion-$15 billion by 2015.
Lloyd’s Market Association, a London umbrella for a group of insurers, listed Nigeria, Benin and nearby waters in the same risk category as lawless Somalia. That could signal higher insurance rates for shipping, including oil traffic, off West Africa.
Story here.
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NIMASA explained ‘PPP’ to stakeholders
By Uyoatta Eshiet
06/03/2012
• Apologised for not carrying them along earlier
The Nigerian Maritime Administration and Safety Agency (NIMASA), on Friday last week held a one day stakeholders’ forum with the sole purpose of explaining to them what informed the partnership it entered into with Global West Vessels Specialist Nigeria Limited; the tedious steps taken before finally picking the company and to ask for their understanding and support without which the Agency said they may not go too far in their task of securing the maritime resources and businesses of the country.
This, the agency said became necessary in order to allay the fears expressed by the critical stakeholders concerning the overall maritime security of the Nigerian nation. The maritime safety agency also used the occasion to apologize to the stakeholders for not carrying them along earlier enough which led to some of them expressing their fears in negative ways.
The Director General of the Agency, Mr. Ziakede Patrick Akpobo okemi, on behalf of the Agency apologized to all stakeholders who include the independent ship owners- represented by Captain Dada Labinjo, Port Administrators – represented Otunba Kunle Folarin, the Nigerian Navy with Commodore A. A Oshinowo representing the Chief of Naval Staff and a whole lot of others.
Explaining the rationale behind the partnership with the private service provider, Akpobolokemi said ‘the increasing incidences of piracy across the nations of the world especially in Africa has caused different maritime nations to take steps to curb the menace. The steps taken by different Nations ranges from having armed guards on board ships to entering into strategic partnerships, all aimed at reducing the incidences in their territories.
The Agency said it recorded very high level of success in the Lagos Pilotage Area as a result of the Public Private Partnership (PPP) initiative it entered into with a private service provider in the sector.
The Director General of the Agency, Mr. Ziakede Patrick Akpobolokemi said ‘in a bid to extend the same level of success recorded in the Lagos Area, the Agency extended the partnership with the same service provider so as to be able to cover the entire nation’.
Akpobolokemi said, contrary to uniformed positions making the rounds, government has not concessioned the nation’s maritime security to a private firm. “What the government has done is simply address issues of maintenance bureaucracy that had crippled the patrol arm of NIMASA. By the partnership agreement NIMASA has asked a private firm to supply patrol boats, surveillance equipment and also maintain them. NIMASA and the NAVY will use these facilities to protect the nation’s maritime domain”, he explained.
The idea basically is to cut down freight costs to Nigeria which currently is said to the highest in the world and also capture offshore operations and the accruable revenue as well as arrest the issue of importation of contrabands amongst other objectives.
The assignment, the DG stated, is on “NO CURE NO PAY” basis. By this arrangement, the Company is to spend its own money in providing the services and will only be paid from ‘improvements in NIMASA’s revenue’ and not from the agency’s officially expected income. He said that other Companies refused to accept the condition of “NO CURE NO PAY strategy adopted by the agency because they preferred to sign contract with the Agency and collect money. ‘None of them wanted to invest their money for the good of the nation’.
He said Global West had done this and for the six months they have operated, securing the Lagos area and by extension, Benin Republic with their partnership, they have not been paid a kobo yet. ‘Others refused to accept the condition because they are more interested in making money from the nation than give anything patriotic for her security’.
The NIMASA’s DG explained that the Nigerian Navy does not have the equipment and NIMASA, to avoid bureaucratic bottlenecks, opted to extend the PPP it had with the service provider, Global West Vessels Specialists Nigeria Limited, so as to enable them secure the country as a whole.
The Company, which mischief makers are complaining about, Dr. Ishaku Shekarau, the Executive Director, Marine Security in NIMASA explained,’ is duly registered in Nigeria and had been doing genuine business with NIMASA since 2008 during the government of the late President Umaru Musa Yar’Adua long before Akpobolokemi became NIMASA Director General. The competencies of this service provider had not been called to question’ he said.
The process was thorough as it went through all the appropriate departments, ministries and agencies before it got the Precidency where the final approval was obtained.’ Those making noise about the partnership are doing so out of selfish interests and because their illegal activities are going to be stopped, he stated.
The United Nations recently praised Nigeria for her efforts in securing the Benin Republic and wish Nigeria to continue in other areas, this came as a result of the partnership with this company.
The NIMASA DG disclosed that by the time the PPP is fully effective coupled the existing MOU with the Navy; the issue of piracy in all parts of Nigeria is going to be reduced by at least 90 percent. He advised Politicians to stop the ethicising and politicising NIMASA activities as they are trying to do their work according to the law that set up the agency and for the general good of all Nigerians.
In their reactions, all the stakeholders appreciated the efforts of NIMASA in putting together the forum which they said has now enlightened them concerning the partnership and pledge to work with them for the good of the nation.
Story here.