US embassy cable - 03LAGOS707

UNCLAS SECTION 01 OF 02 LAGOS 000707 
 
SIPDIS 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
 
PARIS FOR OECD/IEA 
TASHKENT FOR BURKHALTER 
 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, EFIN, ECON, EINV, PINS, NI 
SUBJECT: TFIZ01: WAITING FOR A SIGN: NIGERIA OIL  EXECS 
SAY THEY ARE NOT READY TO RETURN TO THE DELTA 
 
REFS:     A: Lagos 624 
          B: Lagos 568 
          C: Lagos 677 
          D: Lagos 575 
          E: Lagos 499 
 
 
 
 
1. (SBU) Summary:  In the informal setting of a monthly 
luncheon, oil company executives today talked about the 
crisis in the Niger River delta (refs A and B), and 
indicated the industry is in no hurry to return 
evacuated employees to the swamps.  They consider the 
loss of revenue from the closed facilities minimal in 
comparison to the risk to staff safety and property 
security that may yet occur if they restart operations. 
They also note that Nigeria's refineries are mostly 
closed, and the country now imports 100 percent of the 
fuel it consumes, with no end in sight to the fuel 
shortage.  End Summary. 
 
 
---------------------------------- 
No Hurry to Get Back in the Swamps 
---------------------------------- 
 
 
2. (SBU) On April 3, ConGen attended the monthly Lagos 
American Business Luncheon. The luncheon is a venue for 
the managing directors of American businesses, mostly 
from the oil sector, to meet informally and discuss 
issues of mutual concern. Today's topic of discussion 
naturally gravitated toward the situation in the Delta. 
The oil executives present said that companies are 
probably losing only five to six percent of an 
estimated total loss of $25 million per day of 
production income.  They arrive at this percentage by 
deducting from total revenues the 60 percent share 
taken by their joint venture partner, the Nigerian 
National Petroleum Corporation (NNPC), as well as taxes 
and other fees and associated costs.  According to 
these executives, the companies have little incentive - 
- monetary or otherwise -- to resume production before 
safety concerns are addressed.  None would speculate 
whether production would resume before the election. 
Chevron-Texaco and Shell Oil representatives have 
previously stated that, before they return staff to 
facilities in the Warri and Escravos area, the 
companies will need specific assurances from the 
government and local population that peace will be 
maintained and that the oil firms' workers will be safe 
(ref C). 
 
 
--------------------------------------------- ------- 
Nothing More to Give: Crude Capacity at Outer Limits 
--------------------------------------------- ------- 
 
 
3. (SBU) The executives also said the GON has asked all 
companies to produce as much crude as possible in May, 
June and July.  However, the company executives report 
that even when full production resumes, there is no 
extra capacity in the system to produce much more than 
the approximately 2.2 million barrels per day (bpd) 
that was pumped before the outbreak of violence in the 
delta.  This confirms a conversation Econoff had with a 
major oil producer representative on March 31, who said 
the GON may publicly report that there is excess 
capacity in crude oil production that may be tapped in 
the future, but in reality, the companies have little 
capacity beyond the production allocation levels 
established for each of them.  The company 
representatives stated that there is no cost-incentive 
to build-out beyond the allocation level. Post 
previously reported that Nigeria's crude oil output is 
at maximum capacity (ref D). 
 
 
--------------------------------------------- --------- 
Not from Around Here: Nigeria Now Imports all its Fuel 
--------------------------------------------- --------- 
 
 
4. (SBU) The executives reported that all of the 
petroleum products currently consumed in Nigeria are 
bought on the international market.  These imports are 
arriving at a slower rate than the berths can handle. 
It was reported that Mobil's tanks run dry every two to 
three days waiting for shipments. 
 
 
5. (SBU) It was said that northern Nigeria's supply of 
oil for refinery production and its supply of imported 
fuel comes through Chevron's pipelines originating in 
Escravos (ref C). Thus, surmised the executives, as 
long as Chevron's production is shut down, long gas 
queues throughout the country but particularly in the 
north will continue.  The refineries in Warri and 
Kaduna are completely down and technical problems are 
preventing the refinery in Port Harcourt from upgrading 
the product it has available. 
 
 
6. (U) Fuel lines were also the subject of discussion 
at the Lagos Business School monthly breakfast on April 
1.  John Pototsky, managing director of Mobil's 
downstream operations, reported that Nigeria's fuel 
shortage was due to fuel sellers failing to fulfill 
their contracts (ref E).  However, Chief Rasheed 
Gbadamosi, Chairman of the Petroleum Products Pricing 
Regulatory Committee (PPPRC), blamed the fuel shortage 
on a combination of factors namely, rejected cargo that 
did not meet Nigerian specifications, the United 
States' purchase of available supplies when the price 
first jumped, and consumer panic-buying.  Pototsky 
echoed the fact that some consumer panic-buying is 
occurring, as demand for finished petroleum products 
rose from 21 million liters per day to 32 million over 
the course of recent weeks. 
 
 
7. (SBU) Comment: Pototsky also reiterated Post's 
previous analyses, that unless fundamental change is 
brought to the downstream sector, Nigeria will continue 
to experience fuel shortages (ref C and E).  He 
identified the necessary fixes as refinery repair and 
maintenance, pipeline repairs, and market pricing for 
gasoline sales.  These issues will remain acute in the 
two weeks leading up to the nationwide elections.  If 
oil does not flow from the Delta soon, Nigeria will 
continue to lose much needed revenue as well as crude 
for its under-capacity refineries.  Gasoline queues 
will persist and perhaps increase; all of which will 
raise the already high tension levels in many 
communities throughout the country. End Comment. 
 
 
HINSON-JONES