The government is in panic mode because, unexpectedly, Saudi Arabia and Russia decided to use the ultimate weapon against the North American fracking boom. Because of fracking tech, the U.S. is once more a major oil exporter and Canada is not far behind. Decades old hydraulic fracturing (fracking) techniques had been perfected after 2000 and suddenly huge oil and natural gas deposits in North America were recoverable at an affordable cost. That changed the world oil market that was convinced that hundred dollar per barrel oil was the new normal.
In response to the unexpected fracking breakthroughs, Arab oil states offered to make a deal that involved the frackers becoming unofficial members of the OPEC oil cartel in order to get production low enough to keep the prices high. That did not work because there is no “fracker cartel” and the attitude among the new North American producers is to rely on their technical prowess, and not market manipulation to stay in business and prosper.
The one weakness frackers have is that it is more costly for them to produce a barrel of oil than for some traditional oil field operators. In other words the traditional producers, especially the two largest (Russia and Saudi Arabia), can still make money if oil is at $30 a barrel while the frackers cannot. At the start of the year oil seemed likely to remain at $50-60 a barrel for most of the year. Nigeria had built its 2020 government budget around $57 a barrel oil. Now it looks like oil will sell for about half that and adjustments to government spending must be made.
Normally when OPEC seeks to seek to stabilize prices at a certain level, members are asked to cooperate. OPEC production level limits are requests, not demands, because OPEC has no enforcement mechanism. If too many OPEC members cheat, the oil price will not increase and all producers will suffer. Until the 2013 crash in oil prices (triggered by the fracking boom), major OPEC members could be expected to make additional production cuts to cover smaller OPEC producers could not, or would not adhere to their production quotas. By 2015 OPEC realized that the lower prices were permanent for the next few decades and OPEC no longer could expect all members to make large cuts.
The Saudis and Russians are hurting from low prices and need all the oil income they can get. But the Saudis will still cut production if it is likely to get the oil price to increase. An earlier effort to drive prices low and force frackers out of business failed because the frackers were already working hard to reduce their production costs and American banks were willing to provide loans to keep the frackers going. This time around Russia and the Saudis appear ready to force the price as low as necessary for as long as necessary to get the job done. While the Saudis have large cash reserves the Russians do not, Russia does tend to endure and persevere when major disasters overtake them.
The problem with this approach to the fracking threat is that even if most or all of the current fracking firms are driven out of business the infrastructure they have built to produce all that oil is still there. The lenders will own those assets and can afford to have them sit idle longer than Russia and Saudi Arabia can afford to pump low or no-profit oil. Meanwhile, the lesser OPEC states, like Nigeria, will be hurting big time. Once the oil price is allowed to rise the frackers will be back in business. This oil price war is more an act of desperation than deliberation. While a disaster for oil producers it will be an economic bonanza for consumers. The economic disruptions created by the covid19 (coronavirus) will have a short time impact because so much Chinese manufacturing was halted for several months. That halted production is already being resumed. The anti-fracking campaign low oil prices, forever long they last, will be an economic boost for the world economy overall.
For Nigeria daily production in 2019 was 2.32 million BPD, up from 2018 (2.09 million BPD) and 2017 (2.03 million BPD). For 2020 production was to be a little lower (2.18 million BPD) to allow for needed oil field rehabilitation work to proceed. Given the investments in oil production, mainly by foreign companies, Nigeria should be producing 4 million BPD (barrels per day). That has not happened. The reasons are continuing problems with oil theft gangs and repair/maintenance backlogs, especially of the pipelines, in the Niger River Delta. Then there are the decades of government inability to deal with these problems. That led to a growing number of foreign oil companies selling their Nigerian assets and going elsewhere. In effect, it is more profitable to do business in other countries. For example, it currently costs $23 per barrel to produce oil in Nigeria but without all the violence and corruption that could be $15 a barrel or less. The new oil production firms will demand better terms from Nigeria meaning less oil income for the government. The effort to explore for oil in the Moslem north is also crippled by the bad reputation Nigeria has when it comes to foreign oil companies. This is one of the reasons for turning to Russia to help out with oil production. That could be interesting because the Russians tend to be pretty ruthless with problems like oil theft and armed gangs. The Russians hire mercenaries and order them to shoot back and keep shooting.
If the Russians and Saudis drive the price below $30 per barrel, the Nigerian plans for cooperation with Russia to run some of the Nigerian oil fields will have to wait. So will the many corrupt politicians. A recent accounting of all the oil income received since the 1960s showed that most of it was stolen by corrupt politicians and little was spent on infrastructure, education and public health.
The Phantom Menace
Another new development in the Boko Haram war is very visible fighting between ISWAP (Islamic State West Africa Province), the ISIL (Islamic State in Iraq and the Levant) faction of Boko Haram and non-ISIL Boko Haram factions. Most of the violence is taking place near Lake Chad and the town of Kukawa. This violent feud has been going on since January and so far there have been nearly a hundred casualties. This has reduced Islamic terrorist violence against civilians and security forces. This is not expected to last because even Islamic terrorists have living expenses and have to rely on extortion or looting to sustain themselves. A civil war among Islamic terrorist factions will not last much longer because of the logistical constraints. If the fighting does continue to a conclusion the probable winner is the ISIL faction.
ISWAP has been active in northern Borno State and neighboring countries, where it was formed from pro-ISIL Boko Haram members. For the last three years, ISWAP has been considered one of the most active ISIL branches. Most “Boko Haram” violence in Nigeria is usually the work of ISWAP, which accounts for about two-thirds of the Boko Haram gunmen. The less militant mainstream Boko Haram still operates and until 2020 tended to avoid clashes with their ISWAP rivals. If the mainstream Boko Haram faction disappears, it will mean a smaller Boko Haram and one that has a more difficult time recruiting.
Meanwhile, the reality over the last few years is that while Islamic terrorism gets most of the media, political and security forces attention, most of the violent deaths in the north are caused by tribal feuds and a proliferation of large criminal gangs that operate more freely because the tribal violence gets more attention from the security forces. Last month (February) the tribal and bandit gunmen accounted for 53 percent of the deaths, Islamic terrorists accounted for most of the remainder while the security forces accounted for a few percent because of continued bad behavior by some police and military units.
This tribal and bandit mayhem is more widespread than the Boko Haram violence, which is still concentrated in Borno State. Actually Boko Haram is most active in the northern half of Borno and there the local economy has been devastated. The tribal and gangster violence damages but does not destroy local economies.
March 5, 2020: In the northeast (Borno state), near Gwoza, a town near the Cameroon border, two airstrikes in the last two days killed over twenty Boko Haram men caught out in the open. The military has repeatedly clashed with Boko Haram in this area since 2014.
March 4, 2020: In the northeast (Borno state), soldiers and Boko Haram clashed near Damboa leaving three troops and 19 Islamic terrorists dead. Damboa in the northern half of Borno state, an area that borders Cameroon, Chad and Niger. The main road to this area has been contested by Boko Haram since 2013. Whoever controls Damboa has easy access to the northern half of Borno state. Boko Haram activity has always been heaviest around Damboa and points north. Those areas have lost most of their population, who fled to refugee camps or other parts of Nigeria. The local economy is largely gone but the Islamic terrorists remain. The army is constantly fighting with groups of Boko Haram who frequently attack traffic on the road.
In neighboring Yobe State, Boko Haram raiders killed six policemen and two civilians in Bursari, a town near the Niger border.
February 27, 2020: In the northeast (Borno state), outside Gwoza, a town near the Cameroon border, an airstrike killed at least five Boko Haram men as the air force intensified its armed aerial patrols of the area.
February 21, 2020: In the northeast (Adamawa State), Boko Haram raiders using about a dozen vehicles carrying over fifty gunmen raided a largely Christian town, looted it of food, medicine and much else that was portable and set fires before leaving. Local police and a small army detachment were unable to repulse the raid. The local police station and two churches were burned down as was a home belonging to an army general.
Elsewhere in the northeast (Yobe State), Boko Haram killed five local defense volunteers. In Yobe such armed militias are common to protect communities from Islamic terrorists, tribal rivals and bandits.
February 20, 2020: In the northeast (Borno State), an airstrike
near Abadam, on the Lake Chad
coast devastated a gathering of
ISWAP leaders, killing about five of them and wounding several others as well as some of their followers.
February 19, 2020: In the northeast (Borno state), near Lake Chad and the town of Kukawa an airstrike killed or wounded about a dozen Boko Haram gunmen.
February 16, 2020: In the northeast (Borno state), outside Marte, a town on the west coast of Lake Chad, an airstrike killed about a dozen Boko Haram men. These Islamic terrorists have been particularly out and active near Lake Chad this year and the air force has taken advantage of it. Despite the obvious vulnerability to airstrikes Boko Haram factions are moving out in the open during the day as if they had some urgent tasks to take care of before nightfall.