Nigeria's Oil Morass

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.
But some U.S. human rights groups say that some oil company payments may simply fuel insurgent arms purchases. Last month, MEND advertised ahead of time that it would attack an oil installation. In an e-mail sent to reporters and others, it said: "An attack on the Nigeria oil industry that will cause an economic tsunami in the world oil markets is imminent. This will herald the real emancipation of the Niger Delta." An attack then took place on two pipelines, one for oil and one for waste water, southwest of the town of Warri.

Now MEND is threatening to widen its targets to reach outside the Delta -- perhaps to Lagos, Nigeria's commercial capital, or to oil installations offshore, where Nigeria's pumps another 2.2 million barrels of oil each day.

Oil industry sources say that MEND is really a coalition of smaller armed bands, but there seem to be half a dozen or so groups outside MEND's umbrella too. One example is the Niger Delta Vigilante Movement, whose leader, Ateke Tom, attacked a hotel in Port Harcourt on New Year's Day. In an interview with Newswatch, a Nigerian magazine, Tom said he was retaliating because government troops attacked and burned down his house and allegedly took $46,000 in cash. He did not say why he was keeping that much cash on hand, but he wanted it returned.

"It's a difficult situation," said Ajumogobia, the energy minister. "There are complications from criminal elements that have infiltrated the process and are trying to break the process."

He said that the government was going to triple its budget for the Niger Delta. It currently gives 13 percent of oil revenues to the governments of oil-producing states.

Analysts say that most of the money allotted for the Delta region doesn't get there. The former governor of Delta state, James Ibori, has been charged with 129 counts of money laundering and other financial crimes. Human rights groups say Ibori provided key financing for the campaign of President Umaru Yar'Adua last year and that Ibori's influence was one reason why the president recently took the country's top prosecutor off the job and sent him on a training program.

A Human Rights Watch report last year reported that the $1.3 billion for Rivers state had little impact on ordinary people. The governor had a $65,000-a-day travel budget, the report said, and $92,000 a day for "grants," "contributions" and "donations." One local government spent 2 percent of its share on its crumbling primary school and 30 percent on its own salaries and offices. Another local chairman claimed to have spent huge sums on projects, including a fish pond with neither fish nor water.

"There are a lot of opportunities for diversion and corruption," said Monica Enfield, a West Africa analyst at PFC Energy, a Washington consulting firm. "So you have communities with no hospitals, roads or schools, and that creates a lot of anger against the government and the operating companies there."