US embassy cable - 03LAGOS827

UNCLAS SECTION 01 OF 04 LAGOS 000827 
 
SIPDIS 
 
 
PARIS FOR OECD/IEA 
TASHKENT FOR BURKHALTER 
 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, EFIN, ECON, EINV, PINS, NI 
SUBJECT: NIGERIA ENERGY UPDATE, April 22 
 
 
REFS:     A: Lagos 731 
          B: Lagos 568 
          C: Lagos 499 
          D: Lagos 677 
 
 
1. (U) This update includes: 
 
 
-- Slowly but Surely: Delta Oil Operations Ramp Up 
 
 
-- Between the Lines: Fuel Shortages Continue During 
Elections 
 
 
-- Fits and Starts: NEPA Privatization Continues while 
Power Capacity Expands Amidst Crises and Outages 
 
 
--------------------------------------------- -- 
Slowly but Surely: Delta Oil Operations Ramp Up 
--------------------------------------------- -- 
 
 
2. (U) ChevronTexaco and Shell Oil continue to ramp up 
their crude oil production in the Niger River delta, 
after local ethnic violence forced them to close 
operations in mid-March.  Chevron continues to aim for 
an end of the month production target of 310,000 
barrels per day (bpd) (reftel A), down from 460,000 bpd 
it produced prior to the closures.  A spokesperson for 
Chevron told Econoff on April 17 that the company is 
producing near 300,000 bpd. Shell Oil publicly stated 
it had been producing 18,000 bpd from its affected 
facilities during the first week of April, and a 
Reuters report indicated that it may soon reach 100,000 
of the 320,000 bpd shut-in, if it is not already doing 
so.  Shell produced about 460,000 bpd before the 
clashes between Ijaw militants and Itsekiri villagers, 
which ultimately led to the shutting-in of some 800,000 
bpd from the region for more than 10 days.  Shell 
reportedly has rescheduled its April exports. 
 
 
3. (U) The U.S. Energy Information Administration (EIA) 
reports that Nigeria's crude oil exports to the United 
States fell from 798,000 barrels per day in January to 
494,000 bpd in February, ranking it as the sixth 
largest source of imported oil to the U.S. for the 
month, behind Mexico, Canada, Saudi Arabia, Iraq and 
Venezuela.  While February 2003 exports exceeded last 
year's February numbers by some 50,000 bpd, these 
exports occurred prior to the clashes in the Delta, 
which shut in some 40 percent of Nigeria's overall 
crude production. 
 
 
4. (U) Meanwhile, the delta region appears to have 
remained mostly calm in recent weeks and through the 
first two rounds of national elections.  Acts of 
violence were reported prior to the April 12 National 
Assembly elections, and deaths were reported on April 
13 after a gun battle erupted between militants and the 
military during an attempt to hold delayed elections in 
some Delta State local government areas (LGA).  Prior 
to the elections, President Obasanjo held a meeting 
with a number of Warri area chiefs and traditional 
leaders from different ethnic groups in an attempt to 
restore peace and find a lasting solution to the 
ongoing tension.  No disruption to oil production was 
reported as a result of election-related violence.  The 
Chevron spokesperson told Econoff on April 22 that the 
Escravos area remained quiet through the elections thus 
far, with a presence of about 200 military personnel in 
the area.  Tension may rise with local elections 
scheduled for May 3, as the original flare-up between 
the Ijaw and the Itsekiri was based on disputed 
electoral boundaries for local government 
representation (reftel B).  But, Chevron's spokesperson 
believes the group assembled by President Obasanjo is 
making progress toward reaching an accord. 
 
 
--------------------------------------------- ---- 
Between the Lines: Fuel Shortages Continue During 
Elections 
--------------------------------------------- ---- 
 
 
5. (U) During this historic election period, Nigerians 
are finding themselves waiting in lines, but not just 
at their polling stations.  Fuel queues remain 
commonplace throughout the country, albeit on a more 
sporadic basis than experienced in February and March. 
Reliable and definitive explanations for the ongoing 
shortages are difficult to come by, as various players 
in the downstream industry blame one another, and new 
events continue to overtake GON efforts at resolving 
the situation. 
6. (U) At first, inopportune domestic refinery 
maintenance, combined with the opportunistic diversion 
of gasoline shipments bound for Nigeria to more 
lucrative U.S. and Venezuelan markets, resulted in a 
serious fuel shortage across all of Nigeria (reftel C). 
Because the GON mandates an artificially low pump price 
for fuel products, private marketers withdrew from the 
import business, leaving the Nigerian National 
Petroleum Corporation (NNPC) as the sole importer of 
fuel (reftel D).  NNPC professes that it has now 
brought in enough fuel and is moving it through its 
subsidiary, the Pipelines and Products Marketing 
Company (PPMC), and accuses depot managers and 
marketers of diverting fuel from designated supply 
routes and filling stations to sell on the black market 
to those willing and able to pay higher prices. 
 
 
7. (U) In addition, according to a Lagos-based 
financial risk consulting firm, Nigerian drivers, 
sensitive to the ongoing fuel shortage, now generally 
insist on filling their tanks as often as possible, 
compared to a pre-crisis habit of keeping, on average, 
only a third of a tank of gasoline in their cars. 
Financial Derivatives Company reports that this trend 
has pushed up daily demand for gasoline from 19 million 
liters to 32 million.  Furthermore, ongoing trouble in 
the delta region has reduced Nigeria's already 
inadequate domestic refinery production and makes it 
even more unpredictable. Just as Chevron brought its 
Escravos terminal back online and started pumping crude 
oil to the refinery in Warri, vandals blew up a supply 
pipeline to the refinery, again halting its production 
and that of the refinery in Kaduna. 
 
 
8. (U) Nigerians now face sporadic and unpredictable 
fuel queues.  In Lagos, stations close less often and 
for shorter periods of time than a few weeks ago, but 
consumers must still wait in gasoline lines at least 
several days a week, and black market sellers hawking 
fuel street-side from jerry cans and plastic jugs still 
appear during crunch times.   Embassy Econoff, 
traveling through northern Nigeria to Plateau state 
during the National Assembly elections April 12, 
reported fuel openly being sold in filling stations at 
70 to 120 naira per liter (the government-imposed price 
is 26 naira per liter).  AmConsul Econoff traveling in 
the Southeast through Anambra and northern Delta states 
noted extensive fuel queues during the weekends of both 
the legislative and presidential and gubernatorial 
elections, the latter having taken place April 19.  In 
the Delta State capital of Asaba, cars were simply left 
in place unattended in the roadway from all directions 
approaching gas stations for what appeared to have been 
several days at a time.  Even the drivers of the 
ubiquitous motorbikes used for public transport were 
forced to crowd en masse at fuel stations, sometimes 
leaving their cycles parked at the gates until gas 
would be sold again. 
 
 
9. (U) While some of this shut-down may have been due 
to government efforts to limit movement and commerce on 
election day, Econoff's driver reported difficulty 
finding fuel along the way from Lagos to Port Harcourt 
two days prior to the legislative elections, and in the 
Asaba-Onitsha area on either side of the Niger River 
during the presidential and gubernatorial elections. 
Most stations were not open the Sundays following each 
election day, and queues formed as early as 6:00 a.m. 
on the Monday after Easter, a Nigerian national 
holiday. One independent fuel station owner in southern 
Anambra state told Econoff that he was forced to sell 
his gasoline at higher than sanctioned prices because, 
since late January, he has been able to buy only black 
market stock from his distribution depot at premium 
prices, and at irregular intervals.  He lamented the 
situation and said he saw no end in sight.  The station 
was closed when Econoff returned to the area two days 
later.  President Obasanjo reportedly stated during a 
presidential debate sponsored by the Nigeria Labour 
Congress on April 16 that the current government-fixed 
pump price of 26 naira per liter of gasoline cannot be 
sustained, but did not propose a specific price 
increase and did not indicate a government commitment 
to one. 
--------------------------------------------- --------- 
Fits and Starts: NEPA Privatization Continues 
While Power Capacity Expands Amidst Crises and Outages 
--------------------------------------------- --------- 
 
 
10. (U) In late March, the Bureau of Public Enterprises 
(BPE) announced that the federal government had 
approved the naming and delineation of 18 new companies 
to be derived from the National Electric Power 
Authority (NEPA).  This follows the work of the 
National Council on Privatization (NCP), which in 
August 2002 recommended the creation of six power 
generation business units, 11 distribution units, and 
one transmission unit.  A spokesperson for BPE relesed 
a statement indicating the transmission company is to 
be named Nigerian Electricity Transmission Company 
Limited, and headquartered in Abuja.  Generating 
companies are to be based essentially on current power 
stations, and the distribution companies will cover 
regional areas and population centers generally 
according to existing operations.  It is unclear when 
the sale of these companies will take place.  The 
National Assembly passed an energy reform bill, which 
could clear the way for the sales, but we have seen no 
sign that President Obasanjo will sign the bill before 
it expires. 
 
 
11. (U) Meanwhile, the federal government has boasted 
of an increase in power capacity, but many communities 
continue experiencing power outages and load shedding. 
NEPA's managing director, Joseph Makoju, reported in a 
newspaper interview that, due to the rehabilitation of 
both thermal and hydro generating units, the company 
now has a power generation capacity of 4,800 megawatts 
(mw), but averages between 3,000 and 3,300 mw of 
output. 
 
 
12. (U) Specifically, NEPA and government officials 
report that the Egbin Thermal Power Station on the 
outskirts of Lagos has all six of its turbines 
operational for the first time in ten years. 
Unconfirmed reports put Egbin's production at about 
1,600 mw, but recently it produced as little as 600 mw 
when a natural gas line supplying the plant was cut 
during the ethnic crisis in Warri.  Further, the Daily 
Trust newspaper reported that NEPA officials have 
admitted that power interruptions in the Abuja region 
will continue throughout 2003, due to insufficient 
transmission capacity in relation to population growth. 
Work has begun on new transmission lines throughout 
Rivers state, and there appears to be progress on 
expanding power supply in Bayelsa state. 
 
 
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Comment 
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13. (U) Comment. As we have commented time and again in 
recent weeks, all the developments reported here may be 
greatly affected by the ultimate outcome of the current 
elections.  Some analysts expect the pace of 
deregulation and privatization of different facets of 
the energy sector to increase dramatically in a second 
Obasanjo term.  Everyone is waiting to see if peace in 
the Delta will be maintained, and what effect the 
outcome of the elections will have on efforts to build 
sustainable mechanisms to ensure such peace and foster 
further development.  Tough decisions regarding fuel 
import price parity, the scope and nature of 
privatizing state owned enterprises, and the 
intergovernmental distribution of oil revenues were 
delayed pending the nationwide elections.  Now, the 
relative political strength of the winners, and the 
public's reaction to their victories, will be our first 
indications of where the Nigerian energy sector is 
headed in the second-half of 2003, and perhaps beyond. 
End comment. 
 
 
HINSON-JONES