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The Observer: Oil delta burns with hate

Escalating violence means western firms are thinking of quitting Nigeria. China may be quick to fill the vacuum, writes Nick Mathiason
Sunday January 29, 2006
Levels of thuggery that once seemed acceptable to major oil firms operating in the Nigerian delta are now spilling over into widespread, vicious attacks. Will murder and kidnapping force them to pull out of the country altogether?
Fears are growing from investors, oil workers and agencies working in the Niger delta that the escalating violence may force the four major oil companies – Royal Dutch Shell, Chevron, Exxon and ENI – to close onshore operations.
Paul Horsnell, head of commodities research at Barclays Capital, said: 'There's always been low-level violence about not enough money trickling down or local difficulties, but this is different. There's a sliding scale of events that could happen and at one end it gets to the stage where it becomes impossible to continue operations in certain areas of the delta. There's no getting away from the fact that this is a possible outcome.'
And, in a new report out last week, Stakeholder Democracy Network, an anti-corruption campaign group active in the region, said: 'We, and most experts on the region, are gravely concerned by many strong indications that, despite the outward appearance of a year-long ceasefire, various factions are quietly arming as though for war… The most pessimistic assessments suggest Shell and foreign oil operators may have to go offshore altogether by 2008 as security and public order deteriorates.'
The report suggests that the crisis could worsen once the election primaries begin in a few months: 'This is far sooner than the 2007 horizon line … previously suggested by many analysts.' Attacks last week on Italian oil firm Agip resulted in the death of nine people. This followed the blowing up of a major pipeline and the kidnapping of four foreign oilmen working offshore.
Shell relies on Nigeria for 11 per cent of its global output. But it has suffered four attacks in recent weeks and had to cut production in the delta by 10 per cent. Now some Shell insiders are privately questioning how secure its operations are and to what extent it can rely on production there. Shutdowns would not only hurt the revenues of oil majors but also threaten a surge in oil prices.
The Niger delta is already classified by international agencies as a danger zone on a par with Chechnya and Colombia. The number of guns in circulation has increased dramatically since 2003, the year the last presidential elections were held. Those elections were widely condemned as being rigged, with armed gangs seizing ballot boxes and intimidating voters.
Since then hopes have dwindled that Africa's largest country, with a population of 129 million, would transform itself into a functioning democracy. The state has failed to protect its citizens from criminality and impose anti-pollution measures to curb the worst excesses of the oil industry.
Criminal gangs with international connections make billions of pounds by 'bunkering' – illegally siphoning off – a tenth of all Nigerian oil. Some say the oil firms must know oil bunkering happens but tolerate it so operations can continue. Bunkering gangs then launder their cash abroad and buy machine guns to bolster their criminal empires.
Then there has been the recent rise of the Movement for the Emancipation of the Niger Delta (Mend). The organisation claims responsibility for the kidnapping of Shell workers and is demanding $1.5bn compensation from the firm for the pollution it says Shell has caused.
'Mend has so far perpetrated the most brazen act of terror in the region for years and taken it on to a new level,' says an aid worker. 'There's a feeling of fear in communities near oil installations who are braced for government reprisals.'
Oil shutdowns in Nigeria would have serious implications as the light, sweet crude that lies beneath the delta is excellent for making gasoline. One analyst said: 'The Saudis have offered to make up for any loss of production but its oil is not of the same quality.'
In 50 years, Nigeria has earned more than $350bn from oil, but the consequent wealth has remained in the hands of a ruthless, corrupt elite. Former president Abaja moved several billion dollars out of the country and much of that cash went through banks in the Square Mile.
The country could have earned more: increased refining capacity would allow it to diversify its economy and charge more for oil exports.
Glasgow Labour MP John Robertson, chairman of the All-Party Parliamentary Niger Delta Group, led a Commons delegation to the region last year. He said signs of corruption were everywhere. Examples include roads of short distances costing several billion pounds that taper off into pot-holed dirt tracks. Ostentatious wealth – cars, jets, jewellery – taunt the majority of those living in poverty in the delta. But the dam appears to be breaking.
Meanwhile, the oil firms have lost credibility with communities, who blame them for failing to tackle gas flares and for the contamination of creeks and waterways that is ruining the fishing industry. The oil firms' attempts to engage with communities have been disastrous. Plans to provide facilities such as hospitals and schools have come to nothing. Empty buildings stripped of all valuable materials litter the countryside. And oil firms face accusations of paying militants to act as security for their operations, thereby fuelling the flames of gang rivalry.
Some suggest that the wave of violence will see oil majors sell out to Chinese firms desperate to secure oil supplies, who will come into the country with a clean slate. Two weeks ago, Cnooc, the state-owned Chinese energy company, said it would pay nearly $2.3bn to acquire a large stake in a Nigerian oil and gas field, one of the biggest overseas acquisitions by a Chinese company.
Others say that the Nigerian government has plans to take control of the oil industry in a tactic similar to that used by Russia's President Putin. One thing is clear, though: the oil supply from Nigeria is now far from secure – and it could not have come at a worse time for the global economy.

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