Of Trans Forcados pipeline, shut-ins and the 2018 national budget

Expectations are high that Nigeria’s 2018 budget of N9.12 trillion will consolidate the nation’s gains since exiting the debilitating recession last year. Announcing its passage at the Nigerian Senate Wednesday, May 16, 2018, Bukola Saraki, the Senate President, reiterated the often-expressed imperative that “Nigeria must grow and diversify its economy away from oil”, while hopeful that the current budget would help in that regard.

Despite the expressed desire for economic diversification, oil revenues are still projected to feature significantly in the government’s ability to implement the 2018 budget, with assumptions of 2.3 million barrels per day crude oil production output, $51per barrel oil price benchmark and an exchange rate of N305 to the dollar.

Inevitably, the recent shutdown of the Trans Forcados Pipeline (TFP) following a suspected explosion that occurred on May 7, 2018, at the Diebiri-Batan community in Warri, South West Local Government Area of Delta State, is causing major concerns amongst stakeholders, not the least the Federal Government.

The pipeline’s strategic importance to the Nigerian economy cannot be overemphasised. The 87km trunk line stretches from the Ughelli Pump Station (UPS), transporting crude oil from about fifteen fields in the Western Delta, including those of NPDC, Seplat, Neconde, Shell, Pan Ocean and others, to the Forcados export Terminal (FOT).

With the TFP down, about 250,000 barrels of crude oil production output per day from the impacted fields are shut in, equating to a combined loss of export revenues approximating $19 million per day, as crude price averaged $76 per barrel in the last week.

Besides the short-term loss of export revenues, the fear is a repeat of the 2016 debacle, when Force Majeure was declared on the TFP lasting 15 months from February 2016, and all assets that were dependent on the pipeline for crude evacuation recorded near zero production throughout the period. It was in May 2017 that Salvic Petroleum Resources Ltd (“Salvic”), under a Technical Services Agreement with the operator of OML30, Heritage Energy Operational Services Limited (“Heritage”), rehabilitated the Forcados Pipeline in what was reported to be ‘record time’ and sustained an uptime of over 85 percent in the twelve months of operations until recent events.

However last month there was the abrupt termination of the Technical Services Agreement between both firms with a notice period ending May 17, 2018.

Our investigations reveal that both companies have been locked in negotiations on the exit terms in the last four weeks until the Forcados pipeline shutdown. But despite the dispute and termination, Heritage yet again requested Salvic and its affiliate companies to bring in their technical expertise and execution capacity to help with the emergency repair of the TFP, which the latter accepted.

According to sources, the main motivation for Salvic’s return to the site is the consideration of the importance of Forcados to the national economy and Niger Delta communities.

“The imperative is to maintain the right atmosphere that had secured the pipeline and ensured high availability to enable crude and condensate export to the FOT for the past twelve months. Any disruption to sustained production is not good for the economy especially when oil prices are this high”, the source said.

Salvic is currently managing the repairs with its affiliates, using host community contractors. Repair work is going on both day and night with the cooperation of all parties, including Heritage and Security contractors Eraskorp.

It has been two weeks since the shut of the TFP. Enquiring as to when the pipeline will be reopened and the likelihood of another protracted shutdown period, a source in Salvic asserted that they doing everything to ensure a quick turn-around to bring the pipeline back up in a matter of days.

This urgent intervention surely holds some comfort for the Federal Government, because there is no gainsaying that the successful implementation of the 2018 budget and the consolidation of the nation’s recovery from economic recession, depend largely on uninterrupted oil production output, and the Forcados Pipeline will continue to play a significant role in the equation.