Global Insight Perspective

Significance

Two hundred people died when a pipeline erupted in a village near Lagos. Oil theft, or 'bunkering', is big business in Nigeria, and the large number of deaths from this incident attracted a great deal of publicity.

Implications

President Olusegun Obasanjo has demanded that the pipelines be fortified and better protected to avoid any further tragic incidents. However, oil theft is extremely lucrative and will continue despite the massive loss of life.

Outlook

Nigeria loses an estimated 100,000 b/d from 'bunkering' and has for many years. Even if the pipelines are given better security, the organised theft of the country's oil will not end.

More Security Needed for Pipelines

Nigerian President Olusegun Obasanjo has ordered a full investigation into the pipeline blast that killed about 200 people at Ilado village 30 miles from Lagos on 12 May. He stated that the country's pipeline infrastructure needs to be better protected.

The exact number of people who died is unknown. However, when oil leaking from the pipeline burst into flames before dawn, it engulfed everything within 20 yards. Some estimate the death toll to be around 150 to 200. Red Cross staff at the scene said that it could be as high as 250, since bodies were still being found drifting in the swamps. Health and safety organisations have been working alongside the police, which decided that a rapid mass burial was needed to minimise spreading disease as the water flows back to Lagos.

The blast does not seem to be an act of sabotage. The more likely explanation is that vandals drilled holes in the pipeline to siphon off oil for local people to use for themselves or to sell on the black market. A police report stated that over 70 jerrycans, pliers and hoses had been recovered from the scene.

President Obasanjo returned from a state visit to Indonesia. He met with Governor of Lagos State Bola Ahmed Tinubu and called on law enforcement agents to improve their efforts to monitor the country's pipelines. The Nigeria National Petroleum Corporation (NNPC) has been told to provide casing for the pipelines in order to fortify them. The pipeline network - which pumps refined petroleum across the country for domestic consumption - passes through villages that are easy targets for thieves. Close to 2,000 people have died in the last 10 years from pipeline explosions. The worst recorded incident was in Delta State in 1998, when 1,082 people who were siphoning off fuel died after the pipeline erupted.

A Tragic Week

The pipeline blast on Friday 12 May capped a tumultuous week of oil-related incidents in Nigeria. Earlier in the week, an American oil executive was shot dead while being driven to work in Port Harcourt. It is believed that Ricky Wiginton, 51, an operations manager in the drilling fluids division of Texas oil services company Baker Hughes Inc., was murdered because of a work-related dispute (see Nigeria: 11 May 2006: U.S. Oil Executive Shot Dead in Nigeria - MEND Denies Involvement). The following day, employees from a subsidiary of Italian firm Eni were briefly kidnapped before being released unharmed (see Nigeria: 12 May 2006:Three Foreign Oil Workers Taken Hostage in Nigeria, Then Released). These events have worsened the already-deteriorating security situation in the Niger Delta, which has seen IOCs shut in production and keep staff away from oil facilities for their own safety. None of these events have been caused by the militant groups that roam the Delta, and the most recognisable militant group - the Movement for the Emancipation of the Niger Delta (MEND) - has explicitly stated that it has not been involved in any of the activities last week. However, MEND has just announced that it is planning a future attack on the LNG plant at Bonny Island. In an email to international media, the militant group said that it was only a matter of time until the attack took place.

Crude prices initially jumped on news of the blast. However, as it emerged that the attack involved a product pipeline transporting petrol (gasoline) for domestic consumption, prices fell back once again. With prices on Brent and NYMEX crude both trading above US$73/b on Friday, news that the blast did not affect Nigerian exports added to wider bearish news on demand. The International Energy Agency (IEA) reduced its 2006 demand growth forecast earlier in the day. Prices have continued to drop further in electronic trading over the weekend, with NYMEX crude down to US$70.56/b and ICE Brent crude at US$70.83/b early today.

Outlook and Implications

The pipeline blast appears to have been a tragic accident, but 'bunkering' will not stop because of 200 people being incinerated. There are vast amounts of money to be made on a daily basis from bunkering, and there will be many who will risk their own safety for profit. President Obasanjo will need to work with state oil company NNPC to ensure that the pipelines are better protected and more difficult to break in order to avoid future incidents. Bunkering is a massive problem in Nigeria, and the country is thought to lose at least 100,000 b/d to theft. However, because of the mismanagement of the country's oil resources, which has left the vast majority of Nigerians in dire poverty, people will not stop pilfering petroleum from the pipelines.

Raul Dary

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Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

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