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Cablegate: Tfiz01: Waiting for a Sign: Nigeria Oil Execs

This record is a partial extract of the original cable. The full text of the original cable is not available.

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

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