Oil and Gas in the Crosshairs

By Jeff Moore, Muir Analytics

Energy companies are increasingly conducting up and downstream business in areas where they wouldn’t have gone 10 years ago – low intensity conflict zones (LICs), to be specific. The lure of profits is too great. But the physical, financial, and PR risks can be high. As Steve Coll’s recent book, Private Empire, points out, energy companies such as ExxonMobil have an increasingly critical need for threat intelligence and security not only to protect their people and assets in LICs, but also to make sound business decisions on where and where not to drill and refine.

Just what are LICs? There are technical military definitions, but for the plainspoken oil and gas industry, LICs are “light wars” without defined front lines. The antagonists are typically non-state armies that don’t wear uniforms that might be fighting for religious, tribal, or extreme political causes. Their style of fighting customarily involves light weapons and hit and run tactics. LIC battlefields range from jungles and mountains to rural neighborhoods and cities. Besides fighting age men, LICs pull everyday people into the fight, including women, children, and the elderly. These type wars, sometimes called “peoples’ war,” “irregular war,” and “asymmetric war,” include guerrilla warfare and terrorism.

LICs fall short of full on conventional war, like WW II with Generals Rommel and Montgomery squaring off in the North African desert in 1942 at El Alamein. These battles entailed tanks, artillery, well-defined front lines, and tens of thousands of soldiers. In these wars, whoever wins the big battles wins big chunks of real estate, and they get to push their army onto the next objective. Victories and goals are clear-cut. In contrast, LICs are long lasting, murky, and hard to figure out.

Today, there LICs on every continent, and energy companies are conducting E&P and refining in the midst of them. Just to name a few, in the Americas, there’s Colombia, Ecuador, Mexico, and Peru. In Africa, there’s Nigeria, Algeria, Sudan, Somalia, and the Democratic Republic of Congo. In the Middle East, two of the hottest LICs where energy companies abound are Yemen and Iraq. In South Asia, there’s Pakistan and India. Despite being the world’s largest democracy, India is also home to more terror and insurgent groups than any place in the world. Then there’s Central Asia’s “stans” where there’s multiple anti-government groups in countries such as Uzbekistan and Kazakhstan. In Southeast Asia, there’s insurgency and/or terrorism in Myanmar, southern Thailand, the Philippines, and Indonesia. Friction in the South China Sea between Vietnam, the Philippines, and China has added unwelcome tension to this region.

Attacks on the oil and gas industry in LICs are common. Take the 3 October 2011 offshore attack in Tanzania, for example. Exact details on the breadth of the attack vary, but most reports agree seven pirates armed with AK-47 assault rifles assailed an offshore vessel working for Petrobras 82 nautical miles off Dar es Salaam. Less dramatic reports say the pirates attacked a tender assisting the Ocean Rig Poseidon, a 228-meter long, Samsung-built drillship capable of operating in 10,000 ft of water and drilling 35,000 ft. Other reporting says the pirates made a few passes at the Poseidon, and little more. More detailed reporting asserts the pirates scaled the Poseidon, forcing the crew of 170 into a safe room while the ship’s security force and the Tanzanian Navy halted the attack and arrested all seven attackers, wounding one in the process. Petrobras vehemently denied its guards fired on the pirates as was alleged by some articles. The pirates were apparently from Somalia, a hotbed of piracy and Islamist-jihadist insurgency by the notorious al Shabaab¹. As an aside, this was the second widely reported offshore attack in Tanzania. In September 2010, a drillship working for Ophir Energy came under attack by pirates off Mtwara, Tanzania².

So what’s at risk in Tanzania? The lives of hundreds of domestic and foreign oil and gas workers, and tens of millions of dollars. Tanzania is estimated to have reserves of natural gas of 7.5 tcf. Petrobras is spending a combined $25 million on E&P and port development in Tanzania, and it’s bringing Shell in as a partner, which means even more workers and more millions of dollars. And drillships are expensive. The Poseidon cost $632,000 a day. If it goes offline for a week, or a day, or even a few hours, it’s hundreds of thousands and/or millions of dollars lost. Then there’s Petrobras’ stock share price. On news of the attack, Petrobras lost 2.42 percent of its stock value³. While it was temporary, it was, nevertheless, significant.

A mere seven pirates with AK-47s put these lives and monies in jeopardy. Such is the impact of irregular warfare on the energy sector. And while Petrobras never reported a pause in Poseidon’s operations, the company still suffered. If the pirates had done real damage, the suffering would have been much more.

There is evidence energy companies invested in at least some threat intelligence on Tanzania before operating there. In April 2011, the Tanzanian government assigned its military, the Tanzania People’s Defense Force, to protect the nation’s oil and gas assets. This included foreigners conducting up and downstream activities. Tanzania’s main concerns were protecting its offshore E&P from Somali pirates, which it did by the skin of its teeth regarding the Poseidon. Somalia pirates are responsible for thousands of attacks a year off Africa’s waters, turning swaths of the continent’s coastline into an LIC. But that hasn’t stopped E&P there.

Neither has it stopped in Nigeria, one of the world’s most prolific LIC zones. From 2003-2010, there were 24 attacks on major E&P assets such as FPSOs and offshore terminals. This doesn’t include the scores of attacks on smaller pumping stations and the like within the Niger Delta. Most of the offshore attacks involved insurgents from MEND – Movement for the Emancipation of the Niger Delta – and pirates cruising the West African coastline. MEND is fighting for its perceived share of energy profits. Its tidewaters are where copious E&P happens, and MEND claims it sees none of the resulting revenues. It moreover asserts energy companies have left its territory polluted and impoverished.

MEND and pirates off Nigeria have attacked major E&P assets. These include the Mystras (FPSO), the Jamestown (FPSO), the Westaf (FSO), the Trident VIII (jack-up rig), the Bulford Dolphin (semi-submersible rig), and the Forcados (offshore terminal.) Some of the corporations involved include Shell, Chevron, ExxonMobil, Saipem, and Afren PLC. While a lot of the river delta attacks have entailed bombings and boat assaults by gunmen with machineguns and RPGs, most of the offshore attacks have been about kidnap and ransom⁴.

End of Part 1

Extract from part 2

Recent violence in the Niger Delta includes the 4 April 2012 seizing of 14 Shell workers by 1,000 MEND supporters, demanding, “electricity, potable water, and other basic amenities.” Three days before this, a group seemingly associated with MEND’s cause led by a charismatic “Commander Cairo” bombed five cluster oil wells of National Agip Oil Company. This happened in Bayelsa State between River Niger and Tailor Creek. The rebels said they would keep attacking and intensify their violence – including targeting Shell – unless the government met their demands. They specifically threatened in their next attack, “nobody will be spared.”¹

One of the most recent attacks attributed to MEND was on 1 March 2012 when its fighters ambushed a maritime police patrol on the Nembe River, Bayelsa state, killing four. Usually, MEND attacks oil assets, not just government security personnel, so this might signify a change in its targeting. In another development, MEND officials in March said they were considering taking custody of three foreigners kidnapped by pirates (not associated with MEND) off Port Harcourt on 28 February.²

Prior to this, on 6 February, MEND struck one of Eni’s pipelines near the Brass River, causing the disruption of 4,000 bbl a day. It was reportedly the first MEND attack in a year’s time. MEND announced that, while this operation was small, it was, nevertheless, “…a sign of things to come.” It levied a more pointed threat by saying, “Our silence thus far has been strategic and, at the right time, we will reduce Nigerian oil production to zero and drive off our land thieving oil companies.” MEND additionally blamed the government for motivating the attacks, saying, “the floundering government of Nigeria is more concerned with enriching themselves than attending to the problems of the Niger Delta and the continuously depreciating standard of living of the ordinary Nigerian.”³ Interestingly, many of MEND’s statements originate in Ireland.

Part 2 of “Oil and Gas in the Crosshairs” by Jeff Moore is available here.

Part 3 is available here.

More information on LICs in the southeast Asia region is found in the Southeat Asia Threat Survery, available from PennEnergy Research.

Footnotes:

¹“Norwegian Ocean ship Rig Poseidon’ hijacking averted,” Seafarer Times, 6 October 2011, http://seafarertimes.com/2011-12/node/894, and “Guarded Response,” Marsec Review, 6 October 2011, http://www.marsecreview.com/2011/10/guarded-response/, and “Pirate attack reported in Tanzania,” Upstream online, 4 October 2011, http://www.upstreamonline.com/live/article281986.ece, and “No shots from Ocean Rig Poseidon,” Upstream online, 5 October 2011, http://www.upstreamonline.com/hardcopy/article282029.ece, and “Tanzania: Petrobras Vessel Attacked By Pirates,” G Captain Staff, 5 October 2011, http://gcaptain.com/petrobras-drillship-attacked/?32088.

²“Tanzania: Petrobras Vessel Attacked By Pirates,” G Captain Staff, 5 October 2011, http://gcaptain.com/petrobras-drillship-attacked/?32088.

³“Pirate attack reported in Tanzania,” Upstream online, 4 October 2011, http://www.upstreamonline.com/live/article281986.ece.

⁴Mikhail Kashubsky, “A Chronology of Attacks on and Unlawful Interferences with, Offshore Oil and Gas Installations, 1975 – 2010,” Terrorism Analysts.com, Vol 5, No 5-6, 2011, http://www.terrorismanalysts.com/pt/index.php/pot/article/view/offshore-gas-and-oil-attacks.

SOURCE