Oil revenue to take a hit as Shell Nigeria declares force majeure on key pipeline

Shell Production Development Company (SPDC), Shell’s subsidiary in Nigeria, has declared force majeure on Bonny Light crude oil loadings.

The company in a recent statement said the force majeure started on Monday after the shutdown of a key pipeline.

“(SPDC) has declared a Force Majeure on the Bonny Oil and Gas Terminal Offtake Programme effective 1700 Nigerian time (1600 GMT) on Monday 25 October 2021, following the shutdown of the Nembe Creek Trunk Line (NCTL) by the operator, Aiteo Exploration and Production Limited,” the statement reads.

Force majeure refers to a clause in contracts that allows both parties to walk out of the contract when an extraordinary event or circumstance beyond the control of the parties happen.

The Bonny Light crude oil programme was set at 95,000 barrels per day (bpd) in November and 123,000 bpd in December. The grade reaches the export terminal via two pipelines – the NCTL and the Trans Niger Pipeline.

Nigeria’s oil production increased marginally in September to an average of 1.25 million barrels per day from 1.24 million the previous month. 

Despite this, the country has been performing below the OPEC quota — from an average of 1.36 million barrels per day in January 2021 to 1.25 million b/d in September, affecting oil revenue accrued to the nation’s treasury.

According to the S&P Global Platts survey, Nigeria’s low oil production was caused by damages along key crude grades.

The Forcados entered its third-month force majeure in September while Nembe Creek Trunk Line severely impaired exports of Bonny Light.

In August, Shell Petroleum Development Company (SPDC) declared force majeure on Forcados crude oil — one of Nigeria’s main crude oil terminals, exporting an average of 240,000 barrels of crude oil daily.

Data from DPR showed that crude oil production at Forcados terminal is recovering, rising from 2 million barrels in August to 4.7 million in September.

On the flip side, Bonny Light slumped from 5.1 million barrels in August to 3.3 million in September. The two terminals are doing below 6 million barrels as of January 2021.