Mounting Piracy Issue Recognised But Capacity Remains An Issue

BMI View : The pledge to effectively curb the piracy problem in Nigerian territorial waters is a positive policy sign from Nigeria, signalling that the country is taking note of the alarming seriousness of the situation. While the announced measures could reduce acts of piracy, we note that low levels of maritime security capacity in the region and high capacity building costs could hinder the successful implementation of these initiatives. A failure to stem the mounting piracy could result in a further deterrent on exploration offshore Nigeria, and lead to an eventual downgrade of our forecasts if the security situation worsens.

Lieutenant Colonel Abu Kefas, the Chairman of Nigeria Maritime Administration and Safety Agency (NIMASA) board, pledged that he plans to effectively curb the increasing criminality in Nigeria's territorial waters over the next year. Illegal bunkering, crude oil theft, smuggling and piracy in Nigerian territorial waters have increased in recent years and could increasingly affect the Nigerian offshore oil industry.

Increasing Piracy Problem Risks Offshore Investments

Gulf An Increasing Hot-Spot For Piracy Acts
Piracy Acts In Selected Gulf of Guinea Countries

BMI View : The pledge to effectively curb the piracy problem in Nigerian territorial waters is a positive policy sign from Nigeria, signalling that the country is taking note of the alarming seriousness of the situation. While the announced measures could reduce acts of piracy, we note that low levels of maritime security capacity in the region and high capacity building costs could hinder the successful implementation of these initiatives. A failure to stem the mounting piracy could result in a further deterrent on exploration offshore Nigeria, and lead to an eventual downgrade of our forecasts if the security situation worsens.

Lieutenant Colonel Abu Kefas, the Chairman of Nigeria Maritime Administration and Safety Agency (NIMASA) board, pledged that he plans to effectively curb the increasing criminality in Nigeria's territorial waters over the next year. Illegal bunkering, crude oil theft, smuggling and piracy in Nigerian territorial waters have increased in recent years and could increasingly affect the Nigerian offshore oil industry.

Increasing Piracy Problem Risks Offshore Investments

Due to the ongoing security issues in the onshore Niger Delta, many international oil companies (IOCs) have been increasingly refocusing their strategy towards the country's promising offshore fields and away from sensitive onshore areas. Therefore, mounting piracy in the Gulf of Guinea is becoming an increasingly worrying trend, which could slow the interest in exploration of Nigeria's offshore.

Piracy in the Gulf of Guinea surpassed piracy incidents in the Horn of Africa in 2012 and has intensified since, making the Gulf of Guinea the hotbed for acts of piracy in Africa. The latest International Maritime Bureau (IMB) Piracy Report highlighted that the region recorded more than 40 piracy attacks in the first three quarters of 2013, with seven vessels highjacked (six tankers and an offshore supply vessel).

Gulf An Increasing Hot-Spot For Piracy Acts
Piracy Acts In Selected Gulf of Guinea Countries

Nigeria is the main centre of piracy in the region, where pirate attacks have increased by a third in the first three quarters of 2013. Nigeria accounted for 29 piracy incidents and 32 crew kidnappings, compared to only two offshore Togo. Many ships attacked are oil tankers, from which refined oil is stolen. In addition to cargo theft, there are also several reports of attacks against other offshore supply vessels in the oil industry, attacks on rigs and the kidnapping of oil workers.

Increasing Regional Recognition Of The Mounting Problem

Abu Kefas' pledge to reduce the piracy issue therefore comes as a positive policy sign from Nigeria, signalling that the country is taking note of the increasing seriousness of the situation. This mirrors the emerging regional recognition of the need to address the issue, as exemplified by the signing of the Code of Conduct Concerning the Repression of Piracy, Armed Robbery Against Ships, and Illicit Maritime Activity in West and Central Africa in June 2013 by the heads of 22 West and Central African countries. The Code, developed by the Economic Community of West African States (ECOWAS), will notably see the creation of a new trust fund to be established by the International Maritime Organisation (IMO) for the implementation of projects for maritime security for western and central Africa. Cooperation and capacity building among the coastal states would clearly be an important step towards curbing the rising phenomenon.

The actions called upon by Nigeria's NIMASA are heading in the right direction. Abu Kefas spoke to the need for collaboration with the Nigerian Airforce and Navy for air surveillance of the nation's maritime domain, and for the patrolling of territorial waters to curb illegal activities and the menace of oil theft. He highlighted that to aid with the piracy problems in the area, two offshore patrol vessels are currently under construction. A third boat will also be procured in 2014 from the US Coast Guards.

In effect, the region can take example of the situation in Somalia, where attacks fell dramatically in 2013, with just 10 incidents in the first three quarters of 2013, down from 70 in the same nine months of 2012. This decline is largely attributed to actions of international and domestic naval forces engaged in anti-piracy operations offshore Somalia. Their presence ensured that pirates no longer operate with the impunity from which they previously benefited. Similarly, co-ordinated patrols between Benin and Nigerian Authorities have already reduced the risks of attacks in parts of the Gulf of Guinea, highlighting the success of these methods. However, should this not increase substantially, pirates will likely move around the region if left unchecked, as exemplified by the hijacking of a tanker off Port Gentil in Gabon in July 2013 by suspected Nigerian pirates.

While the actions called upon are clearly heading in the right direction, the limited financial capacity of concerned states could result in states not being able to adequately handle and stem the mounting phenomenon. Indeed the region has a very low level of maritime security capacity. Nigeria itself is the only state in the region that possesses a frigate or aerial surveillance capacity. However, even then, it is estimated that only about 30% of Nigeria's navy is operational at any given time. This means that maritime security operations mostly amount to intermittent checks rather than a continuous security patrol and presence.

As a result, while the recognition of the problem and closer maritime coordination in the Gulf of Guinea is an important development, capacity building costs could hinder the development of achieving a more security maritime environment in the Gulf.

Mounting Piracy Could Lead To Further Production Downgrade
Nigeria Oil Production, 000b/d (LHS) and % change y-o-y (RHS)

The limited capability of concerned states to adequately handle and stem mounting piracy could result in a stemming of interest in exploring the country's offshore potential, and lead to an eventual downgrade of our forecasts if the security situation worsens.

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Sector: Oil & Gas
Geography: Nigeria
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