Offshore boom brings little hope oil wealth will trickle down

Oil production is set to leap by 10 percent next year in Nigeria, already Africa’s leading oil producing nation, but the country’s impoverished people are unlikely to reap any of the benefits. By 2010, the government estimates production will have jumped to 4 million barrels per day, putting production on a par with Mexico or about half as much as oil giant Russia. The source of this new boom is a host of offshore fields opening up in Nigeria’s Atlantic waters. The first of these giant reservoirs of oil, Bonga, began production under Royal Dutch Shell in November. The new facilities operate on huge, floating storage vessels out in the open ocean far away from the impoverished, restive villages of the Niger Delta where violence has caused severe disruptions to oil operations in the past decade and half. By early next year when the Bonga field attains peak production of 225,000 barrels per day -- a production rate expected to last at least ten years -- Nigeria’s oil exports will jump 10 points to 2.75 million barrels per day. Other huge, deep offshore fields such as ExxonMobil’s Erha and Yolo fields, Chevron’s Agbami, and Total’s Akpo fields and several smaller discoveries will drive production to the 2010 peak. “Bonga will deliver excellent value to the government and people of Nigeria, co-venturers and shareholders for many years to come,” gushed Chima Ibeneche, head of Shell Nigeria Exploration and Production Company, the Shell subsidiary overseeing its offshore fields in Nigeria, when he announced start of production. However, while there is no doubt the offshore fields will translate into more money for the government and the oil companies, doubts abound that they will result in benefits for poor Nigerians, who make up a whopping more than 70 percent of the population. Indeed only one percent of the country’s population control the more than US $300 billion that have accrued to successive governments from oil since oil exports began nearly 50 years ago, according to a report by the US Energy Information Administration, citing a 2004 World Bank document. But oil has warped the Nigerian economy and society. During the oil boom of the 1970s, military governments in power quickly abandoned other sources of export income such as agricultural commodities and other minerals, in favour of oil. Since then, oil has accounted for more than 95 percent of Nigeria’s export income and more than 80 percent of total government revenue. Oil too is at the heart of a culture of corruption that has pervaded a succession of military and civilian governments. “The military adventurer shooting himself into power and the politician desperate to rig elections, have one sole object in mind: it is to get hold of the oil money,” said Nigerian political analyst Ike Onyekwere. “For them the ordinary people never mattered.” Decades of corrupt rulers have rendered oil-rich Nigeria poor. The country now ranks low globally in health, education, literacy and life expectancy, and high in HIV/AIDS, maternal deaths, crime and corruption. Though President Olusegun Obasajo has waged a personal war on corruption since coming into office in 1999, progress is slow. This year Nigeria was ranked the seventh most corrupt country in the world, by Berlin-based watchdog Transparency International, an improvement on 2004 when it was second to last. Poverty feeds unrest In the Niger Delta decades of seething anger by inhabitants who bore the brunt of the pollution and environmental degradation of oil production without its benefits, exploded in the 1990s. Attempts by activists such as Ken Saro-Wiwa to lead non-violent agitation in the deprived Delta communities drew vicious repression from the authorities. Military strongman General Sani Abacha hanged Saro-Wiwa despite a deeply flawed trial for murder to serve as a lesson to an increasingly restive delta. But ten years on, the Shell oil facility that was at the heart of Saro-Wiwa’s protest remains closed and the creeks and waterways of the Delta have become a haven for armed militia groups who target oil installations and their workers, at times cutting national oil exports by a third. Similarly Chevron pulled out of fields producing more than 130,000 barrels per day after three employees, including two Americans, plus their four military guards were killed in a militia ambush in April 2004. Though violence is a problem in the Niger Delta, onshore production will never be shut down completely as the returns are just too high. “It is unlikely the oil companies will pull out of the onshore fields. In fact it won’t happen,” a senior official of an oil multinational told IRIN. “Onshore oil in Nigeria is so cheap compared to offshore production that it will remain attractive, no matter the odds,” he said. While it costs an average of US$ 2 a barrel to produce onshore in Nigeria, which is one of the lowest production costs worldwide, offshore costs go as high as US$ 5-7 a barrel, industry sources say. Global market forces Most industry analysts see the main advantage of offshore oil as complimentary to onshore production, swelling production and export capacity and smoothing out troughs caused by disruptions or shutdowns. But much of the offshore exploration began amid the growing unrest in the Delta in the early 1990s, and it was in 1993 that Shell signed a contract with state-owned Nigerian National Petroleum Corporation to develop the Bonga field. Given the higher cost of offshore production however, today it is the raging price of crude -- over US $40 a barrel throughout 2005 -- that clinched the deal on deep water oil production across the Gulf of Guinea. From Gabon, to Equatorial Guinea to prospecting in Liberia and Sierra Leone, the Gulf of Guinea has acquired a new and increasingly strategic significance as an alternative to the Persian Gulf for the United States. The US has supplied Nigeria with naval vessels to help it assert more effective control over the Niger Delta and its waters in the Gulf of Guinea. There have also been joint military exercises between the US and the Nigerian military to exchange ideas on conflict in a delta environment. John Cambell, the US Ambassador to Nigeria, was last week reported as saying at a press conference with Funso Kupolokun, head of the state-owned Nigerian National Petroleum Corporation, that Washington has no plans to establish a permanent military base in the Gulf of Guinea and only has a military training arrangement with Obasanjo’s government. "The major challenge is how to transit from a state of conflict to that of sustainable peace,” Kupolokun told reporters. But analysts doubt that the average Nigerian has anything to look forward to from the increase in oil production except more instability. “People are not convinced there has been any significant change in attitude among those in government to give them their fair share of the national wealth,” said analyst Onyekwere. “And for that reason, the social and political instability, the restiveness, will continue, erupting into violent conflict from time to time,” he added.