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Cablegate: Nigeria Energy Update, April 22

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




E.O. 12958: N/A

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

-- 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.

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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
--------------------------------------------- ----

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

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.


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.


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