US embassy cable - 03LAGOS575

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000575 
 
SIPDIS 
 
 
PARIS FOR OECD/IEA, TASHKENT FOR BURKHALTER 
 
 
E.O. 12958: DECL: 03/18/2004 
TAGS: EPET, ENRG, ECON, ASEC, PINS, NI 
SUBJECT: OIL EXEC SAYS NIGERIAN OIL PRODUCTION AT FULL 
CAPACITY 
 
REF: LAGOS 568 
 
 
Classified By: RHINSON-JONES FOR REASONS 1.5 B, D AND E 
 
 
1. (C) Summary. A senior industry source reports that 
Nigerian crude oil production 
is currently at full capacity.  He states that Nigeria is 
likely producing just 
over 2.2 million barrels of crude per day.  Ongoing communal 
violence in the 
Delta region is beginning to affect Shell Oil's production 
and daily operations 
of ChevronTexaco, and since all producers are pumping "flat 
out," there is no 
one left to pick up any prolonged drop in production.  End 
Summary. 
 
 
2. (C) A senior executive at ExxonMobil told Econoff that 
while the drop in Shell 
Oil's production caused by clashes between ethnic groups in 
Delta State is 
relatively minor in relation to overall output, the GON 
cannot utilize its 
normal practice of reallocating Shell's reduced volume to 
other producers 
because all producers are now pumping "flat out."  The 
executive, who has 20 
years experience working in Mobil Oil's Nigerian and 
international oil 
operations, said that since late February, all crude 
producers in Nigeria have 
been pumping at full capacity, and Nigeria's output should be 
at just over 2.2 
million barrels per day (bpd).  Shell announced this 
afternoon that due to 
ethnic violence, it closed 
five of its facilities in the Warri area, which reduces its 
output by 76,000 
bpd. Shell total output is estimated at 970,000 bpd. 
According to the 
executive, ExxonMobil is producing approximately 620,000 bpd 
of crude and 
condensates.  ChevronTexaco is estimated to be producing 
517,000 bpd. 
 
 
3. (U) In the past week, activists from the Ijaw ethnic 
community have been 
disrupting vessel traffic along the waterways of the Escravos 
River in 
Southwest Delta state near the town of Warri, resulting in 
gun battles with 
police and military units (reftel).  This escalated into 
direct attacks against 
both ethnic Itsekiri villages and a Shell Oil facility.  Both 
Shell and 
ChevronTexaco are moving some personnel out of their field 
operations in the 
delta swamps, primarily out of concern that they will be 
caught in the 
crossfire.  The situation in the area remains volatile and 
very fluid. 
 
 
4. (C) At the time of the discussion between Econoff and the 
ExxonMobil executive, 
Shell's estimated reduction in output was 30,000 bpd, what 
the executive 
described as a "drop in the bucket."  When pressed, he said 
industry watchers 
should begin to worry if Nigeria's overall production drops 
by 100,000 bpd over 
a sustained period.  He also noted that Nigeria's current 
maximum production 
effort is matched throughout OPEC.  He said that OPEC-wide, 
it would be hard to 
pull an additional half-million barrels of crude at this 
time, except perhaps 
from Saudi Arabia. 
 
 
5. (C) Comment.  The GON normally allocates its OPEC quota 
among each of the oil 
producers doing business here.  In the past, whenever any 
given company's 
production levels have been reduced by equipment failure or 
community action, 
as in the case of the take-over by local women of 
ChevronTexaco's Escravos in the summer of 2002, the GON has 
quickly reallocated the anticipated 
production loss to other producers in order to maintain 
overall national output 
levels.  If OPEC quotas are being ignored at this time to 
maximize worldwide 
production, and Nigerian producers are operating at full 
capacity, sustained 
field operation disruptions may begin to have an effect on 
output as the GON 
has nowhere to turn to pick up the slack.  A small producer 
told Econoff that 
his company is still operating at only 35 percent capacity 
under GON quotas. 
It may be that if disruptions in the Delta or elsewhere 
continue, companies 
operating marginal fields will also be asked to operate at 
maximum capacity, 
making every drop of crude truly count. End comment. 
HINSON-JONES