US embassy cable - 02ABUJA2438

C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 002438 
 
SIPDIS 
 
 
E.O. 12958:  N/A 
TAGS: EPET, ETRD, PREL, NI 
SUBJECT:  TOP OIL ADVISORS ENTHUSIASTIC ABOUT ENERGY FUTURE 
 
 
Classified by Howard F. Jeter, reason 1.5 (b) and (d) 
 
 
1. (SBU) Summary: On July 25 Assistant Secretary Kansteiner and 
Ambassador 
Jeter discussed oil and gas issues with Dr. Rilwanu Lukman, Obasanjo's 
Special Advisor 
on Petroleum and Energy, and the current President of OPEC.  Lukman 
denied rumors 
that Nigeria will leave OPEC under alleged U.S. pressure, adding that 
Nigeria plans to 
increase its oil and gas production within OPEC's quota framework. 
Jackson Gaius- 
Obaseki, Group Managing Director of the Nigerian National Petroleum 
Corporation 
(NNPC), and  Funsho Kupolokun, Special Assistant to the President on 
Petroleum 
Matters, participated in the meeting. End Summary. 
 
 
--------------------------------------- 
OPEC: Rumors of U.S. Pressure 
--------------------------------------- 
 
 
3. (SBU)  Commenting on rumors that the United States is pressuring 
Nigeria to leave 
OPEC, Lukman said the rumors had provoked a $1.50-a barrel drop in oil 
prices.  These 
rumors do not reflect reality, he said, since America receives an ample 
supply of oil at an 
acceptable price.  A/S Kansteiner stated that it was not USG policy to 
pressure Nigeria to 
quit OPEC.  While U.S. policy was against cartels in general, it was 
Nigeria's decision 
whether to remain in the organization, Kansteiner stressed.  The 
Ambassador questioned 
whether the source of the rumors is a recently released report by the 
African Oil Policy 
Initiative Group encouraging the United States to import more African 
oil, a report that 
may have been mistaken as official. 
 
 
3. (C)  Lukman said that Nigeria would not leave OPEC, citing as 
evidence the drop in 
oil prices caused by the rumored break with OPEC.  He asserted that 
Nigeria benefited 
from its OPEC membership and believed Nigeria would be able to obtain a 
larger OPEC 
quota in the near future. Lukman said the NNPC and its partners can 
easily augment 
production by a million barrels a day.  According to Lukman, Nigeria's 
ability to increase 
its production will allow the country to export more oil through the 
OPEC framework, 
with anticipated cooperation from Mexico, Norway, and Oman. (Comment: 
Lukman is 
not the only one worried about reports on Nigeria's alleged plans to 
leave OPEC.  The 
Venezuelan Charge recently told the Ambassador that President Chavez 
had called him in 
a near panic about Nigeria's rumored OPEC departure.  The Charge said 
he assured his 
President there was nothing to the rumor but that personally he thought 
the Nigeria would 
leave OPEC sooner rather than later. There were too many compelling 
domestic 
economic demands on the Nigerian Government, the Charge said, for 
Nigeria to stay 
within the bounds of the OPEC quota system.  End Comment) 
 
 
4. (C)  As President of OPEC, Lukman expressed concern about Russia and 
called it the 
"wild card" in the OPEC equation.  Lukman suspects Russia, despite its 
recent 
commitment to synchronize its production policy with OPEC, may not 
cooperate in 
keeping prices within acceptable limits.  Lukman said OPEC producers 
may consider 
augmenting production at their September meeting should U.S. economic 
activity pick 
up.  OPEC members are committed to "keeping the price right" and 
delivering ample 
supply to their customers, he said, even if the problems in the Middle 
East persist. 
 
 
----------------------------- 
Future Production Plans 
----------------------------- 
 
 
5. (SBU)  Focusing on Nigeria's contribution to world energy supply, 
Lukman discussed 
his country's plans to widen its energy base through continued 
exploration and capacity 
building.  He said the NNPC is well positioned to take advantage of the 
world's 
increasing demand for energy, and foresees many opportunities for 
Nigeria to expand its 
share of the international oil and gas markets. 
 
 
6. (C) Kansteiner asked Lukman's opinion on the oil development 
potential around Sao 
Tome. While he sees potential for increased oil production in that 
region, Lukman said 
most of the oil is located at such depths that technological advances 
will be required 
before oil can be efficiently produced.  Nigeria and Sao Tome plan to 
solicit bids for nine 
deepwater blocks in the Joint Development Zone. 
 
 
7. (SBU) Lukman focused on Nigeria's developing gas resources. Although 
Nigeria 
depends heavily on oil today, he is optimistic that Nigeria will yet 
earn as much revenue 
from gas as it does from oil. Lukman emphasized that natural gas 
exploration was a high 
priority of President Obasanjo and that, in fact, it was Obasanjo who 
had converted him 
to believing that gas had as much revenue generating power as oil did 
for Nigeria. 
Lukman believes it is only a matter of time before Nigeria, the world's 
tenth largest gas 
exporter, amasses the necessary financial and technical ability to 
become one of the 
biggest exporters of natural gas.  Lukman is satisfied with the 
progress of new gas 
projects, including Shell's floating gas facility, scheduled for 
completion in 2008, and 
ExxonMobil's facility, scheduled for 2009. 
 
 
8. (C) Gaius-Obaseki said the United States is the market of choice for 
Nigeria's gas 
exports because of high prices.  Kansteiner replied that increasing 
demand and new 
infrastructure will transform the United States into an even more 
attractive outlet.  While 
Gaius-Obaseki acknowledged that the United States will remain an 
important market, he 
said the NNPC wants to diversify its market. 
 
 
9. (SBU)  Lukman anticipates that West Africa will become a significant 
natural gas 
market serviced via the West African Gas Pipeline, scheduled for 
completion in 2004. 
Lukman believes construction is moving forward.  Farther in the future, 
Nigeria itself 
will consume more gas through a trans-Nigerian pipeline.  Years ago, 
the GON 
considered building a pipeline to service the entire country, but the 
project was not 
economically viable.  Higher world gas prices may warrant 
reconsideration of the project. 
 
 
--------------------------------------------- ---- 
Delta Security and American Investment 
--------------------------------------------- ---- 
 
 
10. (SBU)  Kansteiner raised concerns held by American oil companies. 
Alluding to the 
recent occupation of Chevron's facilities in the Delta region by 
disaffected women, 
Kansteiner wondered whether security concerns will deter investors from 
Nigeria. 
Lukman replied that oil firms will continue to invest in Nigeria since 
it is likely that 
stability will take hold in the Delta region. Lukman nonetheless 
acknowledged that 
security agencies must be prepared to manage difficult situations. 
 
 
11. (C)  Kansteiner mentioned another concern, the lack of provisions 
in production- 
sharing contracts, the agreements governing the deepwater oil blocks, 
specifying which 
party or parties own the gas development rights.  Gaius-Obaseki 
acknowledged the 
omission, but added that terms can be negotiated on a case by case 
basis.  Kansteiner 
inquired about Nigeria's delay in approving the recent ChevronTexaco 
merger.  Lukman 
replied the government is addressing this situation. 
 
 
------------ 
Comment 
------------ 
 
 
12. (C) Comment.  Lukman's statements about Nigeria's production plans 
parallel 
information the Embassy and the Consulate has received from the oil 
companies; they 
expect Nigeria to develop a four million barrels a day production 
capacity by 2010. 
(However, this production measure is dependent on the GON's ability to 
invest in the 
additional capacity.  Also, it depends on the economic utility of that 
added capacity.  It 
would make little sense to sink money into additional production if you 
cannot sell the 
additional amount due to OPEC production quotas.  Lukman expressed 
confidence in 
Nigeria's ability to increase its production through a larger OPEC 
quota.  As we have 
previously reported, should Nigeria not obtain a larger dispensation, 
over time its 
production will most likely exceed the current one, as it has in the 
past. 
 
 
13. (C) Lukman downplayed the seriousness with which ChevronTexaco 
views the 
GON's delay in approving the ChevronTexaco merger.  The company 
contends that it has 
followed the law and notes that Nigeria is the only country in which it 
is having 
problems.   Mission will continue to work toward a resolution of this 
issue.  End 
Comment. 
 
 
14. (U) Assistant Secretary Kansteiner did not see this message prior 
to his departure. 
 
 
15. (U) Drafted: Econ/Lagos: Melissa Cline 
 
 
JETER