As world seeks oil, unruly Nigeria still presents problems
Posted: 06 June 2004 1628 hrs
WARRI, Nigeria : As oil producers race to step up world supplies, any workers arriving to reinforce operations in the Nigerian oil city of Warri are greeted with a grisly reminder of the dangers of doing business here: a rotting head, impaled on a stake and set by the main road into town.
Even before the recent price hikes caused by spiralling consumption and attacks on Iraqi and Saudi oil facilities, Nigeria and the Gulf of Guinea region were seen as an increasingly important source of oil by industry planners. Experts warn, however, that production here cannot rise rapidly in the short term.
Last week the leaders of the Organisation of Petroleum Exporting Countries (OPEC) agreed to lift production quotas in a bid to knock crude prices off an all time high and offer relief to struggling consumers. But the cartel also warned that it had little leeway for immediate large output hikes.
Oil prices did fall off their short-term peak, but with demand already high and likely to grow alongside a global economic upturn, planners are hoping that countries such as Nigeria -- Africa's biggest producer -- will boost exports enough to decrease pressure on supplies from the strife-torn Middle East.
Nigeria has large reserves of so-called "light sweet crude", a much sought after low-sulphur grade of oil which is easily refined into petrol for road transport. In recent years it has sought to double its production capacity and say it is now theoretically capable of exporting three million barrels per day.
But the industry here is not without problems; ethnic unrest and armed piracy in the oil-rich Niger Delta often disrupts production. Next week, oil unions are expected to join a nationwide general strike over domestic fuel prices, and labour leaders have vowed to prevent exports.
On April 23 the dangers of working in the region were brought home when two US oil workers subcontracting for Houston-based giant ChevronTexaco were killed by river pirates, along with three navy troopers and two Nigerian boatmen.
A massive security operation has since been launched in the waterways around Warri, and local ethnic militia leaders have pledged to seek peace. But sights like the severed head by the road into Warri from an airport built to ferry oilworkers into the region are a reminder of the area's dangers.
Chevron Nigeria executive Deji Haastrup told AFP on Saturday that wells capable of producing 40,000 barrels of crude per day had been lying idle in the western Delta since March last year, when the violence forced the firm to evacuate its staff and airlift out thousands of at-risk local villagers.
"We continue to assess the security situation in our locations on a day-to-day basis and we will determine when it's appropriate to return," he said. "We are waiting for own internal assessment to improve. That will be more reassuring than things people sign," he said of the militants' peace deal.
On Thursday, OPEC raised Nigeria's oil production quota to 1.935 million barrels per day for April, it will increase to 2.142 million by August. The west African giant is the cartel's fifth largest producer -- or sixth if the production of suspended member Iraq is taken into account.
But industry experts inside Nigeria dismissed the quota as effectively irrelevent in a country which habitually breaks OPEC rules. In April, for example, Nigeria produced 2.63 million barrels per day and exported 2.18 million, according to central bank figures released on Friday.
"We produce as much oil as we can. Nobody stops us," one executive at Nigeria's biggest foreign oil firm, the Anglo-Dutch giant Shell, told AFP.
Haastrup said that Chevron produced as much oil as it was allowed to by the Nigeria National Petroleum Corporation, which operates joint ventures with the multinationals and assigns export allocations. "We're always looking forward to the opportunity to get more allocation and I'm sure we could meet it," he said.
So with production costs of around two dollars per barrel (Nigeria crude currently sells in New York for just less than 39 dollars) and a compliant government willing to breach OPEC limits and to further up production, Nigeria excites economic planners as a potentially even bigger export player.
But in west Africa, political and security factors can act as a bigger brake on production stability than the economics of operating costs and OPEC quotas. US lobbyists and economic planners seeking a greater strategic role for African oil know this, and have begun laying long-term plans.
This week US diplomats revealed that a US carrier battle group is steaming towards the Gulf of Guinea for a "show of force". Lobbyists and some policy makers hope it will be a precursor for greater US diplomatic and military involvment in the region, with perhaps the building of a permanent naval base.
In the short-term, however, unruly Nigeria can not ride to the rescue of overheating oil markets.
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