Not a week passes without some news of either sabotage of Nigeria's oil industry infrastructure, or an attack on the industry's expatriate work force. Although the loss of production is usually insignificant, it permits speculators to drive up oil prices by playing on fears of long term supply disruptions.
Nigeria is the 10th largest oil producer in the world. It is also a member of OPEC.Its economy is largely dependent on this sector which supplies 95% of its foreign exchange earnings. It is estimated that Nigeria has proven oil reserves of about 35.2 billion barrels.The Nigerian government plans to increase the reserves to 40 billion barrels by 2010. Nigeria currently produces 2.1 mbpd of crude. Most of Nigeria's crude is 'light' crude with a very low sulphur content, and its 'Bonny Light' is a highly prized commodity. Most of the production is controlled by major oil multinationals, with Shell accounting for almost half. Chevron and Exxon Mobil are also present. In addition Nigeria also has vast reserves of natural gas estimated at 176 trillion cubic feet. Most of it, along with its oil, is located in the Niger River Delta.It is estimated that at current levels of production Nigeria has enough gas to last another 240 years.
If Nigeria has such abundant natural resources then what is the reason behind the current civil unrest which finds expression in attacks on oil facilities and foreign workers? Till about 50 years back Nigeria was an exporter of agricultural commodities and was self sufficient in food. Today it imports not only food but also most of its fuel. Nigeia stands out as a glaring example of failed governance, largely due to the abundance of its most valuable asset, oil.
The development of the oil industry gradually brought about major environmental changes in the wetlands of the Niger Delta.Roads and pipelines cris-crossing the marshes have disrupted spawning grounds, and construction of oil terminals,modern ports and increased shipping traffic has driven away the fish from shallow waters near the shores into deeper waters. With the destruction of the traditional way of life,unemployment and poverty have become widespread. Recent reports suggest that foreign oil companies have adopted improper strategies to deal with the situation. To start with, they underestimated or maybe deliberately overlooked the likely damage their activities would cause to the environment.Claims of compensation filed by villagers for damages to their land or for land purchases have ben deliberately dragged to court where they linger on for years with no end in sight.They also adopted the strategy of paying off village chiefs for drilling rights with no benefits reaching the common man. The Nigerian oil industry was nationalized in 1971 and the Nigerian National Petroleum Corporation owns about 60% of multinational oil operations onshore. Although government oil revenues have soared most of it is being misappropriated or wasted. It is estimated that almost 70% of Nigeria's oil revenues are being lost in this way.
The first mass protest against multinational oil companies started in 1990, when the popular writer Ken Saro-Wiwa founded the Movement for the Survival of Ogoni People. Unnerved by his popular support, he was arrested on charges of murder, and hanged along with eight of his supporters in 1995. The trial is widely regarded as having been a sham and it is alleged that Shell was also involved.Things have steadily got worse over time and since a few years back an armed group, the Movement for the Emancipation of the Niger Delta or MEND has been carrying out attacks on oil infrastructure facilities, mostly run by Shell, in Nigeria.Oil companies have responded by drilling for new fields offshore where they feel safer.
The situation in Nigeria is turning increasingly volatile, and with oil prices already on the boil, any major disruption in Nigerian oil supplies could drive up global oil prices to much higher levels than at present.