ACTS of sabotage by new militant group the Avengers has reduced the country’s oil output, taking it down from 2.2mbpd to 1.4m, its lowest level in more than two decades.

Attacks:The Avengers claimed an attack in February on an underwater pipeline forcing Royal Dutch Shell to shut the 250,000bpd Forcados terminal - one of the country’s biggest export facilities.

This month it took responsibility for blasting a Chevron platform, shutting the Warri and Kaduna refineries.

Other smaller attacks, and another explosion two weeks ago which bore similarities to the group’s tactics, closed Shell’s Bonny Light export programme.

“There is no sign of production normalising in the near future,” said Carsten Fritsch, oil analyst at Commerzbank.

Demands: The Avengers called on oil majors operating in Nigeria to cease operations within two weeks or face more attacks. Their ultimatum - via a statement on their website, the authenticity of which cannot be verified - expired last Thursday.

“If at the end of the ultimatum you are still operating, we will blow up all the locations,” the little-known group said. “It will be bloody. So just shut down your operations and leave.”

This demand has alarmed security experts, who point out the group has followed through on its other threats.

The Avengers say it wants a greater share of oil revenues and more control over the resources from the southern Niger Delta that are the mainstay of the country’s economy. Although Nigeria’s oil and natural gas industry is primarily located there, it is one of the country’s poorest areas.

History: Pipeline vandalism, kidnappings and armed takeovers of oil infrastructure in the Niger Delta reached a high point during an insurgency in the mid-2000s. Shut-ins at onshore and offshore fields became commonplace and companies were forced to frequently declare force majeure on oil shipments. Some companies reduced their onshore installations, while others pulled out of Nigeria altogether. This period ended with an amnesty deal struck between the government and militants in 2009.

Ex-militants were paid stipends for keeping the peace and their former commanders were awarded lucrative government contracts for ‘securing’ pipelines. This allowed oil production to stabilise under former president Goodluck Jonathan.

But incidents of oil theft and sabotage have increased this year after Mr Jonathan’s successor, Muhammadu Buhari, cut the budget for the amnesty programme and cancelled security contracts as part of his effort to tackle corruption.

“Sabotage and disruption in the Niger Delta have picked up to a level not seen since the period preceding the [2009] amnesty,” FBN Capital wrote in a note to investors two weeks back.

Response President Buhari has said he will defeat the militants. But any escalation of the conflict could put pressure on security forces, which are already fighting a Boko Haram insurgency in the north-east of the country that has displaced more than 2m people since 2009.

Economic crisis The oil collapse has exposed weaknesses in Nigeria’s economy. Since the price began tumbling in 2014, fewer dollars have flowed into the country, state revenue has plummeted, and foreign reserves have fallen nearly $3bn in the past year.

The 2016 budget assumes an oil price of $38/barrel, but forecasts output of 2.2mbpd. Nigeria depends on crude for more than 90pc of its hard currency earnings. Oil receipts usually make up about two-thirds of state revenues.

FBN Capital also noted that foreign exchange inflows to the central bank in January declined nearly 50pc year on year. The government has told importers to use the black market to get dollars to bring in cargoes.

Published in Dawn, Business & Finance weekly, May 30th, 2016