Nigeria's Oil Morass

By Steven Mufson
Washington Post Staff Writer
Friday, February 1, 2008

After insurgents attacked a link to a key oil export terminal on the Forcados River in Nigeria's Delta region in February 2006, it took a year and a half for Royal Dutch Shell to make repairs and get part of it running again. It took just two months for insurgents to shut it down again.

The result: Just when oil-consuming countries want more high-quality petroleum to cool off high oil prices, a group of insurgents in the West African nation forced oil companies to stop pumping an average of 475,000 barrels a day last year, and at times as much as 600,000 barrels a day.

Yesterday Royal Dutch Shell, the biggest foreign company in the strife-torn Niger River Delta, said it would take a $716 million charge against earnings largely because of the security situation there. Industry sources say that in addition to the production shutdown, about 435 miles of pipeline and thousands of barrels a day of crude oil and condensates have been stolen. Much of the pipeline has been used for pillars in house construction.

(High oil prices nonetheless bolstered Shell's worldwide earnings. Profit was $8.7 billion in the fourth quarter, up 60 percent from the comparable period a year ago, even though production dropped and refining margins fell.)

With the exception of Saudi Arabia's spare production, Nigeria's unpumped oil accounts for the biggest untapped capacity in the Organization of the Petroleum Exporting Countries, which meets today to review prices and supply. All indications from OPEC ministers and diplomats point to no change in oil production, despite President Bush's plea for more output during his visit to Saudi Arabia two weeks ago.

In Nigeria's case, restricted production is not a matter of choice. A group called the Movement for the Emancipation of the Niger Delta (MEND) has been blowing up pipelines and attacking or kidnapping foreign oil workers for several years, demanding that the companies and Nigerian government share more revenues with the deeply impoverished region. There is also a bitter history of environmental disputes in the region with Shell and other oil companies.

The topography of the Niger Delta makes it hard to protect. It is an area the size of England, mostly swamp, with about 1,000 wells and 3,750 miles of pipeline. Little progress has been made in negotiations with the insurgents, and Nigeria's military has been incapable of, or uninterested in, defeating them. Oil industry sources say some Nigerian navy boats in the Delta sell insurgents spare parts for their speedboats while ignoring illicit sales of bargeloads of stolen oil to foreign tankers.

Fixing the situation does not seem like a high priority for the Nigerian government, which keeps changing the person in charge of negotiations and postponing summit talks.

"It's one of the puzzling aspects," said Stephen Morrison, director of the Africa program at the Center for Strategic and International Studies. "If the Gulf of Mexico were in the condition of the Niger Delta, or some portion of the gulf were in semi-permanent Katrina-like condition with lots of guys with weapons running around stealing things, it would be a political issue."

One reason for official inertia may be that with oil prices hovering around $90 a barrel, the Nigerian government is flush with cash. Long saddled with foreign debt, it has paid off its foreign creditors and accumulated reserves of about $50 billion, according to the World Bank.

Nonetheless, Nigeria's government is not paying its share of joint-venture investments, another reason for Shell's charge against earnings. In November at the OPEC summit in Riyadh, Odein Ajumogobia, Nigeria's energy minister, said that "the government clearly cannot fund its portion." He said it had budgeted only $5 billion of the $9 billion it was supposed to invest in 2008.

Because Nigeria's government does not want outside mediators to help negotiate with insurgents, oil companies are among the only ones searching for solutions. Shell, for example, has hired several hundred "community liaison officers" to help solve grievances. The company has sent storage tanks and generators to 21 towns and villages.

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