The little-known reason for fuel price hikes

Nigerian oil is being held: :hostage by a conflict that is little understood

Today Online 30 Jun 08;
The New York Times news service

LAGOS — When armed rebels from the Movement for the Emancipation of the Niger Delta attacked an enormous oil facility 116km off the swampy West African coast on June 19, travelling hours by speedboat under cover of darkness and kidnapping an oil worker, their brazen assault underlined the perhaps underappreciated dependence of the United States — and the world — on oil from Nigeria.

Three days later, Nigerian officials said that recent attacks had cut Nigeria’s oil production to its lowest level in nearly two decades, giving oil markets the jitters and helping to send prices higher.

The attack also showed that Nigeria’s vast reserves of oil are being held hostage by a conflict that at best is little understood in the West.

It is a three-way struggle, involving a government charged with negligence and corruption, oil companies blamed for terrible environmental damage that afflicts the region and an impoverished people.

Some of these people are acting on genuine grievances that they are not getting their fair share of the billions in oil wealth pouring into the country --- :the government controls oil revenues and it gives only a fraction back to the desperately poor regions that produce the oil.

But others are little more than violent thugs who see a lucrative opportunity among the rusting pipes and plants of southern Nigeria not only to steal oil and smuggle it out of the country, but to kidnap foreign oil workers for ransom.

Meanwhile, cash-rich politicians have played a part in creating the local militia groups because the militants have proved useful in taking over voting offices to control the periodic elections.

The net effect has been that overall production has dropped sharply, largely because oil companies have found it too dangerous to operate in parts of the region.

“We always focus on the Persian Gulf but this is one of the key oil securityissues in the world today,” said Mr Daniel Yergin, an energy expert and chairman of Cambridge Energy Research Associates, a consulting firm.

When Mr Yergin spoke to lawmakers in Congress last week, he was asked what would most help stabilise world markets.

“Helping bring peace to the Niger Delta would be a major contribution,” he responded.

:Nigeria is Africa’s most-populous nation, and the world’s eighth-largest oil exporter. Shell led the way in exploiting Nigeria’s oil wealth in the ’50s.

From those early years on, there were local protests and armed struggles associated with the oil industry.

The latest bout of violence led by local militias took off in 2003, with increasing sophistication and effectiveness.

As the damage has mounted and some companies have closed down operations, Nigeria’s oil production has slipped to1.8 million barrels a day, far below its production capacity of about 2.8 million barrels. One million barrels of missing oil each day is costly for Nigeria and for the rest of the world facing a US$140 barrel of oil when the market is so tight.

The events in Nigeria have an added impact because its oil is especially prized: it is low in sulphur — what is known in the industry as “sweet oil” — “which is really helpful in meeting the sulphur standards we have put in place” in the US, saidMr Adam Robinson, an oil analyst at Lehman Brothers in New York.

“Nigeria outages barrel for barrel have more of an impact than additional Saudi output,” he said.

“Nigeria has been on the minds of traders ever since 2003 and this attack last week was a particular worry because it opened up a new front in the conflict,” Mr Robindon added.

The problem, said Mr John van Schaik, an oil analyst for Energy Intelligence, a publisher of industry newsletters, is that as long as oil prices remain high, the rebels recognise the power they have and are not likely to give it up. And the rebels are one reason prices are likely to remain high.