Unplanned production outages totaling as much as 3 million barrels per day have provided a modicum of relief to an oversupplied market and helped to offset faster-than-expected growth in Iran’s oil output.
A massive wildfire that swept through northern Alberta in May destroyed parts of Fort McMurray, forced the evacuation of thousands of workers and prompted upstream operators in Canada’s oil sands to shut in as much as 1.2 million barrels per day of productive capacity.
Cooler weather and rain have helped to control the blaze over the past week; Suncor Energy (TSX: SU, NYSE: SU) and other major producers have returned evacuated workers to the region to restart operations. Most of Canada’s shut-in production from the oil sands should come back online over the next few weeks.
The situation in Nigeria is more difficult to assess. A militant group calling itself the Niger Delta Avengers has attacked several pipelines and oil facilities in southern Nigeria, causing the nation’s oil production to tumble to as low as 1.1 million barrels per day from 2.2 million barrels per day at the beginning of the year.
The group has threatened to carry out additional attacks and demanded that foreign oil producers leave the Niger Delta and that the region be allowed to establish its own sovereign state.
Although attacks on oil facilities have occurred regularly over the years, a cease-fire between the government and a group known as the Movement for the Emancipation of the Niger Delta (MEND) had resulted in a few years of relative calm.
The Nigerian government had appeased potential saboteurs through an amnesty program that provided stipends, training and cash to former militants seeking to start businesses.
In last year’s presidential election, Muhammadu Buhari ran on an anti-corruption platform and defeated incumbent Goodluck Jonathan. Although Buhari extended the amnesty program for an additional year, cost-cutting has reduced the number of aid recipients.
The Muslim president comes from an area of Nigeria that’s far removed from the Niger Delta, while the Christian Goodluck Jonathan hailed from southern Nigeria and had a reputation of being more sympathetic to the militants’ plight.
Winding down the amnesty program has coincided with an uptick in security disruptions in the oil patch. The government initially took a hard-line on these attacks, but oil minister Emmanuel Kachikwu last week called for reforms to the amnesty program and highlighted “[the] urgent need to create business opportunities for the locals in the region.”
Nigeria’s economy depends heavily on revenue from oil exports, incentivizing the government to find a way to reduce disruptions in the Niger Delta. The country should be able to restore some of its oil production over the coming months, though the timing and magnitude remain open to question. At worst, disruptions to Nigeria’s oil production have probably reached their peak.
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