Thursday�s militants� attack on Bonga, Shell�s biggest offshore facility in Nigeria, and the resultant shut in of over 200,000 barrels of crude per day could have a domino effect on the economy beginning with missed projections.
Government had last week projected revenue from crude oil to hit $11 billion by the end of 2008 based on the rocketing price of the commodity in the world market. This forecast is hinged on the price oscillating around $130 per barrel.
Forecast revenue is at risk because planned production levels may not be attained. Before the attack, government had, through the minister of finance, Shamsudeen Usman, said the country was producing 1.8 million barrels per day. With the shut in of an extra 200,000 from Bonga (which brings Shell�s total to 400,000), current production would be as low as 1.6 million barrels per day. Industry insiders say it may be lower. It was 2.7 billion in 2006.
For contributing 30 percent to Nigeria�s Gross Domestic Product (GDP), the drop in production has implications also for projected GDP, which is put at over 10 percent by government and 6.1 percent by the Economist Intelligence Unit. These projects may be revised further down.
The inflation fears of the Central Bank may now be confirmed as the shut in triggers further rise in the international price of crude. And because our refining capacity is short handed, the nation would import fuel at higher prices with the full inflation implications. With further inflation, the thought of meeting the Millennium Development Goal of halving poverty becomes mere conjecture.
External reserves, now put at $60 billion, may start shrinking as the nation progressively earns less income from crude oil the sale of which is the bastion of growing the reserves.
But there are even worse implications for infrastructure development, notably for the power sector as President Umaru Yar�Adua�s emergency measures on the sector are anchored on sourcing funds from the excess crude oil account, another fund that depends on the rising price of crude supply, which is now constrained by the Bonga disruption.
For militants, this represents a major break through as it had been believed offshore attacks were impossible. It may encourage more strikes. And if these strikes are targeted at Shell, it may be the beginning of bag packing by the Anglo-Dutch company. It has already moved out of the Ogoni area in Rivers State.
Analysts believe that the Bonga attack coming at this time may just be a fiery message to signal the rejection of the Ibrahim Gambari-led summit set up to address the Niger Delta question.
President Yar�Adua had appointed Nigeria�s former representative to the UN, Ibrahim Gambari, as chairman of the steering committee of the proposed Niger Delta Summit. The summit is being planned by the president to enable all stakeholders in the region to agree on the solution to the grievances of the people.
The fall in production also makes it difficult for Nigeria to regain its oil production leadership status lost to Angola two months ago and immediately makes Algeria and Libya as threats to Nigeria maintaining the second spot.