RenCap: Trans Forcados Pipeline Repair May Push Nigeria’s Oil Production to 2mbd

• Trans Forcados Pipeline Repair May Push Nigeria’s Oil Production to 2mbd

Analysts at Renaissance Capital (RenCap) have projected that the repair of the Trans Forcados Pipeline (TFP) will likely increase Nigeria’s production to about two million barrels per day (mbd).

They stated this in a report at the end of their recently held Annual Pan-Africa 1:1 Investor Conference in Lagos.

Shell Petroleum Development Company (SPDC) recently disclosed that it had started testing the Trans-Forcados crude export pipeline for a potential restart after months of repair. Trans Forcados is owned by the Nigerian Petroleum Development Company (NPDC) and operated by SPDC.

It is a major evacuation route for onshore oil production but a sitting duck for militants due to its design (onshore that is not buried under the ground). The pipeline has remained under force majeure since mid-February 2016 following an attack. An attempt to resume production after repairs in November last year was frustrated by another attack. The Trans Forcados pipeline system usually transports around 250,000 barrels per day (bpd) oil on average.

Several upstream oil & gas companies use the pipeline including Seplat, Shell Nigeria; Shoreline Resources; First Hydrocarbon Nigeria; the government-owned Nigerian Petroleum Development Company (NPDC), Pan Ocean, Midwestern oil and gas, Eland oil & gas, Neconde, Aiteo, Newcross, Walter Smith and Oando Energy Resources.

But RenCap stated: “We remain cautiously optimistic on the upstream oil & gas space, especially given that the TFP should be operational soon – positive not only for Seplat but also for Nigerian oil production; the TFP will likely increase Nigeria’s production by about 200,000 bl/d to about two million barrels per day.

“Management teams believe a re-opening is imminent but cannot confirm the TFP’s status until Shell makes an official announcement.”

According to them, the oil and gas firms stated that militant activity has eased as Vice-President Yemi Osinbanjo had been in talks with groups in the Niger Delta.

“In addition, we are impressed that Lekoil has sold first oil from the Otakikpo field, recording its first cash flow. Overall, we find sector more stable than it was last year, and the players seem to us to prefer working with a more transparent government.

“We think the low-margin downstream sector still has a lot of restructuring and reform to undergo before we might find it attractive. Feedback from management is that no petrol marketers are currently importing fuel or diesel. Fuel has not been ‘deregulated’ or ‘partially deregulated’, as we assumed last year, but the subsidy has moved up the chain from the marketers to the Nigerian National Petroleum Corporation (NNPC).

“According to management teams, the landing cost of fuel at FX of N305/$ is about N150/litre. However, the NNPC sells to petrol marketers at N133/litre, thereby providing a subsidy of about N17/litre. We view this subsidy as unsustainable. We do not see any respite in the short term unless there is proper deregulation, which would hurt consumers. However, in the long term we think Dangote’s 650k bl/d refinery will release the government from this import burden,” they added.