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The New York Times: Nigeria’s Petroleum Industry Reeling

The New York Times: Nigeria’s Petroleum Industry Reeling

“Royal Dutch/Shell, Nigeria’s largest oil operation which produces half of the 2.5 million barrels Nigeria’s exports daily, also is reeling.”


Published: August 9, 2004

OMADINO, Nigeria (AP) — In unrest comparable in scale to Chechnya and Colombia, a year of bloodletting has killed more than 1,000 in the oil-rich Niger Delta — leaving the world’s No. 7 oil exporter, and people here, concerned for the future.

Tensions over oil revenues have aggravated ethnic strife. Kidnappings and sabotage have escalated, forcing costly shutdowns by companies pumping crude in the oil-rich swamps of the volatile Niger Delta.

Here at Omadino, just the sound of speedboats was enough to send villagers fleeing one day recently. “They were afraid. They just ran away,” said Gabriel Walter, 42, the only resident who stayed to meet visiting journalists.

Walter would not say whether it was Nigerian security forces or ethnic militants that the townspeople feared. Both groups are known to go on killing rampages.

The growing insecurity in Nigeria’s most lucrative industry comes as oil prices briefly hit a record intraday trading high Tuesday of $44.24 a barrel on the New York Mercantile Exchange. That followed a heightened U.S. terror alert and supply concerns in Russia and OPEC, of which Nigeria is a key member.

Major oil companies hope to double production in West Africa’s Gulf of Guinea, estimated to hold up to 10 percent of the world’s oil reserves. The United States, Europe and Asia are increasingly looking to the region’s oil as an alternative to crude from the Middle East.

The Nigerian subsidiary of San Ramon, Calif.-based ChevronTexaco Corp. is among the companies hit hardest by Nigeria’s worsening oil-related violence, suffering an estimated $750 million in costs from sabotage to its wells, pipelines and other facilities since March 2003.

Sixteen months later, the company still can’t restart production at pipeline pump stations and wells considered unusable or unsafe, resulting in production losses estimated at more than $1 billion.

Royal Dutch/Shell, Nigeria’s largest oil operation, which produces half the 2.5 million barrels Nigeria exports daily, also is reeling.

A confidential 93-page security report commissioned by Shell in December 2003 and obtained by The Associated Press and other news organizations warns that mounting attacks by criminals and ethnic militants could force the oil giant to abandon its onshore operations in the delta by 2008.

Shell spokesman Simon Buerk rejects the possibility of a company pullout.

“We don’t agree with that conclusion. We are committed to our operations in Nigeria,” Buerk told the AP.

Other company officials concede, however, that the firm is increasingly turning its attention to offshore oil fields because it considers them safer from attack by bandits and activists.

The report’s authors made other serious conclusions: that Shell “exacerbates conflict” in the way it gives cash and contracts to delta residents and offers “stay-at-home pay” to disgruntled youths.

Buerk accepted that Shell “sometimes inadvertently contributes to conflict,” yet stressed the company was working to overcome “critical shortcomings in some areas of our interaction with communities.”

“The demand for and payment of cash to community youths for access fees, standby labor and homage, amongst others has been blamed for some inter-community disputes and for distorting genuine community needs,” Buerk said.

In recent months, Shell has created a new community development strategy to “abolish corrosive practices that currently impede sustainable development in communities, chiefly the pressure for cash payments for non-legitimate reasons, such as payment for ‘ghost labor,”’ Buerk added.

Such “lack of transparency” encourages villagers to fight Shell — and each other — for a share of the oil money, the report’s authors concluded. Shell’s “social license to operate is fast-eroding,” the report said.

Delta residents complain their elected leaders have failed to fight poverty in the region. The residents, most of whom earn less than $1 a day despite the region’s petroleum wealth, accuse oil companies of colluding with Nigeria’s government to foment divisions between rival community groups in a strategy to deprive them of oil earnings.

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