Tough Choice for Oil Companies Due to Nigeria Threats

Energy companies working in Nigeria are facing a frustrating race between production and disruption.  At present some 800,000 barrels a day or 30 percent of Nigeria's crude oil exports is shut down, most of it by attacks since January by militants battling the government for control of the oil fields. The militants have blown up facilities and taken workers hostage.

Within the same period, Nigeria has added new production from deep water fields in the Atlantic Ocean, with more set to follow in the coming months.  Oil minister Edmund Daukoru expects export capacity to jump from current 2.5 million a day to 3 million by the end of the year.  Whether it all goes according to plan depends on if the currently raging armed militancy in the Niger Delta region can be checked. "As it stands Nigeria doesn't have the capability to actually protect (its) oil supplies," said Jonathan Bearman, head of U.K.-based Clearwater Research providing risk control and intelligence services for oil companies in the Gulf Guinea.

The security forces have not shown a good track record of dealing with the armed militants nor equally active oil smugglers, said Bearman.  "Somewhere down the line you'll have to have international involvement" to guarantee security in the delta.  Whether it comes in the form of intervention by Western powers or strengthening of the Nigerian military by outside forces, will depend on how things unfold in the region in the coming months, said Bearman.

The British warship HMS Chatham and its U.S. counterpart USS Barry were visiting Nigeria's Lagos port at a time eight Westerners were being held hostage in the delta. It was part of increased patrols of the Gulf of Guinea, a region of growing importance as an oil supply source for the West.  Britain has not received any request to intervene militarily in the delta, according to HMS Chatham's commanding officer Capt. James Morse.  "The Foreign and Commonwealth Office is monitoring the situation closely," he added. "If we are asked to help, we have the capability."

Attacks claimed by the militant Movement for the Emancipation of the Niger Delta
(MEND) have already shut down half of all onshore oil operations in the region, forcing the closure of Forcados export terminal, one of the three biggest oil-loading points in Nigeria.  Now the group has turned its attention to the eastern delta, where a gas plant run by Royal Dutch Shell's Nigerian subsidiary was attacked last week and five South Koreans working for contractors Daewoo Engineering and Korea Gas Corp. were taken hostage.  "We will carry our more attacks in the east of the delta," MEND, which freed the Koreans two days later, said in an e-mail to the Associated Press afterward. "There is no safe place (in the Niger Delta) for these oil companies."

Shell, which was forced to shut the 150 million cubic feet plant, is the biggest oil and gas operator in Nigeria and runs the vast majority of onshore oil operations in Africa's leading producer. It is so far the biggest loser but not the only target.  For Shell "the security situation remains a concern," Caroline Wittgen, company spokeswoman in London told The Associated Press. She declined to discuss the worries in any detail but expressed optimism about the company's future in Nigeria.  "Shell has a long-standing presence in Nigeria and we expect that we will continue to be a major player there for many decades to come," Wittgen said.

It was a view repeated by officials of other oil majors in Nigeria, all keen to remain in a region that gives one of the lowest production costs for crude worldwide.  Chevron has yet to fully resume pumping oil from several oil fields producing about 130,000 barrels daily in the swamps of the western delta, closed during an uprising in 2003 by ethnic Ijaw militants that for a period shut down 40 percent of exports. An attempt by the company to restore production at some of the facilities a year later was halted after gunmen ambushed a boat carrying Chevron contractors, killing two American oil workers, three Nigerian colleagues and their military guards.

As feelings of being cheated out of the oil wealth produced on their land first began transforming into violent protests, kidnapping and disruptions in the Niger Delta in the early 1990s, the oil majors had turned their attention to offshore oil.  ExxonMobil, the second-biggest operator in Nigeria, and Chevron had suffered less disruption because they had more of their operations offshore.  And as one major offshore discovery followed another, there was optimism in the industry that the offshore facilities located far from the impoverished and restive communities of the delta would be safe from disruptions.