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Why the US isn't looking to Nigeria for alternative oil supplies

by Taylor Baines

8:00 a.m. January 15, 2001 PDT

Average supplies, deteriorating infrastructure, and civil unrest are strong strikes against Nigeria. Another blight is the fact that Nigeria is a card-carrying OPEC member and subject to cartel quotas—exactly what the US government is trying to avoid.

CNN photoEVER SINCE the Gulf War, American officials have been bemoaning the fact that the country's economic health is too dependent on foreign oil. They have reason for concern. The Department of Energy reports that the United States currently imports 56% of its crude oil. By 2010, that percentage is expected to climb to 66%. Most of those imports come from the Persian Gulf where true American allies are few, and the slightest disruption of that region's balance of power could send oil prices skyrocketing and the US economy plummeting. In a 2000 policy review, Colorado Senator Ben Nighthorse Campbell reminded fellow legislators that ninety-five percent of all manufactured and agricultural goods are shipped across the United States via trucks. Not only would higher oil prices severely disrupt distribution, but would also threaten 9.6 million jobs in a trucking industry that yields $272 billion a year.

And that's only one industry. Higher oil prices would also affect air and train travel, energy supplies for manufacturers, and heat for homes and offices. The domino effect would be staggering and the latest war in Afghanistan has only solidified Washington's intent to secure "unfettered" access to cheap petroleum. As a result, American legislators and oil companies are now focused on the Caspian Sea region of the former Soviet Union as an alternate source of oil. Where they are not looking is Nigeria despite apparent benefits both the United States and Nigeria could reap if Nigeria were bumped up a few notches in the oil supply hierarchy. The oil rich Nigerian Delta has been under exploration for three decades and the country already ranks as America's 5th largest oil supplier. More Petro dollars flowing to Nigeria could buoy the nascent, pro-American democracy of the most populous West African nation. In return, a stable Nigeria could keep her neighbors in line, opening the door to American businesses always searching for better markets. Unfortunately the reality is hardly so rosy. Nigeria suffers from instability and inadequacy, both of which bar her from becoming America's new best friend.

Production, Protests and Pollution
In 1998 over 1000 Nigerians perished in a pipeline blaze known as the Jesse fire. Two years later another sixty people were killed at Ebute Oko in Lagos. The fires were caused by the vandalism of local pipelines to siphon off the oil. One stray spark set the crude oil ablaze, resulting in a loss of life and a drop in oil revenue. For the Delta region, such incidents are a common occurrence. According to Nigeria's Pipeline and Product Marketing Company, there were 764 deliberate breaks in the Delta region's pipelines in the year 2000 alone. Over 1500 breaks have occurred since 1993.1 The culprits are typically Nigeria's youth protesting the poor distribution of oil wealth among the population. Under Sani Abacha's rule, most petroleum benefits flowed straight into the pockets of oil company executives and the government elite. Although democracy replaced Abacha's military regime in 1999, most Nigerians still have not seen any benefits from the reportedly $320 billion received from crude exports since 1970.2 Instead they have witnessed a stead decrease in their quality of life. This past November, 2516 barrels of oil spilled out over the East Niger Delta. Sixteen barrels spilled in the West Delta. Crude oil from both incidents has choked streams, killing local fish populations and polluting underground water sources. Uncontrolled gas flares spout 2 billion cubic feet of gas daily resulting in random fires and respiratory problems among nearby residents.

For many Nigerians, the oil that was supposed to bring great prosperity has only deepened their poverty. To demand greater control over their country's black gold, locals have resorted to pipeline vandalism and even kidnapping of oil company executives. Trade unions have ordered strikes and urged their workers to join students in protests aimed to bring attention to their cause. Demonstrations have become so violent that on many occasions military troops are required to restore order—a throwback to the Abacha days. But the combined work of saboteurs and protestors has begun to have an effect. At least seven pipelines are so frequently vandalized that oil companies have ceased using them. This wrench in production has cut Nigerian exports by up to one-third. The loss to the Nigerian government tops 12 billion naira, or over US$96 million.

Clearly a top priority of President Olusegun Obasanju is to stabilize Nigeria's oil sector but the task is a daunting one. The Nigerian oil industry is very regulated. A mandated number barrels must be sold to local Nigerian refineries at nearly half the price earned in international markets. The result is extremely low gasoline prices in Nigeria, but also less revenue from export sales. For every barrel set aside for domestic use, one less barrel is available for lucrative export.3 Domestic revenues have also dropped as smugglers seek a higher price for Nigerian oil in neighboring countries. Smuggling has led to a scarcity of fuel forcing oil-rich Nigeria to import oil to bridge the difference. Obasanju has floated the idea of forcing local refineries to purchase Nigerian oil at prices more in line with international markets. The increase in revenues could then be spent on much needed infrastructure improvements not only in the oil sector but across the rest of the country, as well.

Obasanju's plans for reform, though, have met stern resistance. Trade unions argue that deregulation will result in higher gasoline prices. Locally produced goods will become more expensive and cheap imports will push local producers out of the market, adding to Nigeria's already high unemployment rates. On the contrary, higher oil rates will add money to the bloated coffers of the executive and government elite. Nigeria's rampant corruption makes it unlikely the state's oil revenues will ever return to Nigerian citizens in the form of improved schools or healthcare. For most Nigerians, inexpensive oil is the one and only benefit they reap from their country's natural resources and they are loath to relinquish their small sliver of the economic pie.

This mixture of increasing violence, military interventions, over regulation and pollution has not created an ideal environment for a lucrative oil industry in the Niger Delta. Would-be investors are hesitant to commit to a region with spotty production schedules, uncertain supply and a not-so-distant past of military rule, which in Africa often leads to nationalization. This instability also keeps Nigeria's largest potential investor—the American government—at a distance. The United States is already dealing with unstable regimes in the Persian Gulf and is not looking to replace one uncertain supplier with another. What she needs is a solid, pro-American nation who can immediately supply her with cheap petrol over the long-term.Unfortunately, Nigeria doesn't quite come up to scratch.

In Short Supply
Even if President Obasanju could miraculously set a promising course for the Nigerian oil sector in the next few years, Nigeria still might get the shrift from the Americans. Nigerian oil supplies are inadequate for America's long-term needs and simply cannot compare to current reserves in the Caspian Sea. Nigeria has known oil reserves of 22.5 billion barrels with an unknown number of potentially undiscovered reserves. By comparison, the Caspian Sea has eighteen to thirty-four billion barrels ready for extraction, with another 235 billion barrels waiting to be tapped. Initial discoveries in Kazakhstan have been called "spectacular" and analysts predict the Caspian has the potential supply of roughly one-quarter of current Middle East reserves, which accounts for two-thirds of the world's remaining oil.4 Furthermore, the Caspian is literally bubbling over with natural gas—a nice complement to the oil industry. The Caspian Sea region holds about 248 trillion cubic feet of natural gas. Nigeria's total gas reserves top only 124 trillion cubic feet; a sizable amount (9th largest in the world) but still half of what's available in the Caspian.

Of course the Caspian isn't immune to a certain measure of instability. The region has only recently emerged from Soviet rule and some governments are as shaky as that of President Obasanju's. Five countries—Turkmenistan, Kazakhstan, Azerbaijan, Iran and Russia—border the Caspian Sea and have yet to agree on just who owns which part and whom may award oil and gas contracts. In addition, the war in Afghanistan right next door threatens to spill over its borders. Regardless, the US government and American oil companies consider the Caspian to be a safer bet than Nigeria. A projected $13 billion investment over the next five years coupled with a 10% growth in Caspian oil production fosters a growing optimism that the region will stabilize in the near future.

Unfortunately the same can't be said for Nigeria. Average supplies, deteriorating infrastructure, and civil unrest are strong strikes against her. Another blight is the fact that Nigeria is a card-carrying OPEC member and subject to cartel quotas—exactly what the US government is trying to avoid. Nigeria's best hope of occupying the coveted place as America's number one oil supplier would be the timely demise of America's even larger suppliers. However, oil production in Mexico, Canada and Venezuela is strong and steady. Russia is also well placed to edge out Nigeria in the case of a major shift in the oil supply scene. So barring any miraculous discovery of reserves that could top the Caspian's, Nigeria will simply have to settle for fifth place, and America's fifth best friend.

1 Bello, Olusola and Yinka Olusanya. 764 Cases of Pipeline Vadalisation Recorded in 2000; Vanguard. 09 January 2001. Available at allafrica.com. [13 December 2001].

2 Focus on Neglected Niger River Delta; 12 December 2001; United Nations Integration Regional Information Networks (UN IRIN). Available at allafrica.com. [14 December 2001].

3 Oil: Nigeria's Blessing & Curse; 8 June 2000. allafrica.com. [11 December 2001].

5 Country Analysis Briefs: Caspian Sea Region; Energy Information Administration of the US Department of Energy; July 2001. allafrica.com. [17 December 2001].

Taylor Baines is a freelance journalist, specializing in South African issues.

Article copyright © Taylor Baines; all rights reserved
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