Nigeria: The Elephant in the Corner

Nigerian oil production is now down to 1.5 mb/d according to a Financial Times report.  Thus it appears that nearly 1 mb/d has been taken off line by the militant actions of MEND, the paramilitary group that purports to be fighting for social justice for the people of the Niger Delta where most of the oil is produced but where little of the revenue is distributed.

In a recent post, I commented that

Iran, Venezuela, Mexico, Nigeria, and Iraq together represent an enormous percentage of the world’s oil deposits and production that is being mismanaged.  The political and management dysfunctions in all of these countries simultaneously is a major reason for the world’s current energy crisis.  If these countries all operated in a standard capitalist mode, I suspect oil would be below $50 a barrel.

Of those five countries, my sense is that Nigeria is the only opportunity for new efforts at outside intervention to have a positive impact.  The other four countries are either moving slowly toward better oil management, as in the case of Iraq, or are stuck with a government unable or unwilling to marshal the talent and funding required to increase oil production in the case of Mexico, Venezuela, and Iran.   

The Nigerian conflict may be as intractable as the others, but we won’t know that unless some adult supervision is attempted.   The reason Nigeria might be susceptible to a negotiated settlement is that it sounds a lot more like a business negotiation than a war.  MEND simply wants a better deal for their southern tribes, it seems, while the government made up of different tribes from the North want to keep the status quo that flows nearly all oil revenues to the central government, minus whatever they can steal. 

Tonight I was part of a small audience for the U.S. Ambassador to the U.N., Zalmay Khalilzad, a Bush administration insider, and I had an opportunity to ask him a question.   I said, “Mr. Ambassador, is the U.N. or any other group you know of doing anything to try to mediate the problems in Nigeria that are limiting oil production?”  His answer, in so many words, was, “Not that I know of.”  

For me there are two points to keep in mind.  The first is the inexplicable lack of interest the U.S. government seems to have in trying to bring back to the market about 1 mb/d of Nigerian light sweet crude by attempting to mediate the problems there.  Such an effort might not be successful, of course, but the chances have to be greater than zero and the potential payoff for the U.S. economy would be huge.  If Nigeria brought its production back to 2.5 mb/d and within a few years all the way to 3.5 mb/d, I think the price of oil would be $25 - $50 lower than it is, maybe more.  So you’d think maybe our President would  assign someone to look into it.

The second point all this brings home to me is simply the bad luck the world is having in terms of oil.  By that I mean just as the developing world’s oil demand is exploding,  the world’s largest and oldest oilfields (and some newer offshore fields, too) are declining more rapidly than oilfields used to decline in the past. Just at this juncture of rising demand and stagnant supply, five countries that together produce some 13 mb/d of oil and, more importantly have the potential to produce an additional 5 - 10 mb/d, have become saddled with governments that are so incompetent, corrupt, and/or insane that they cannot operate their oilfields rationally. 

We can talk all day about Peak Oil and Export Land Models, decline rates, and demand growth.  But at the end of the day, what is really killing the world’s oil supply is the g-d awful governance of five of the most oil endowed countries on earth.  There’s not much that can be done about these facts (other than try to make a difference in Nigeria, which nobody seems interested in doing).  But it is fascinating to think that if only those five countries had the political systems of western democracies - or reasonably benign dictators like the Saudis- there would be no global oil problem.

So we go back to estimating supply and demand, leaving the elephant in the corner because there’s nothing to be done.  Maybe in a larger sense the world is better off dealing with the oil emergency now when more oil is left in the ground due to corruption, incompetence, insanity, and hoarding than later when more of the oil is just gone. 

Comments

[logicalthought]

My guess is that the Nigerian oil interests will take care of their "rebels" with a suitcase or two full of cash.

[SnerdlyMortsnerd]

>>>
Maybe in a larger sense the world is better off dealing with the oil emergency now when more oil is left in the ground due to corruption, incompetence, insanity, and hoarding than later when more of the oil is just gone.
>>>

The author saved his common sense for the last sentence... was the

[testfunction]

Drill drill drill off the coasts of the USA and in Alaska / ANWR.....and help prevent the dollar collapse at the same time you introduce elasticity into the world markets

[BrianPursley]

This is a good article.

I like this article because it correctly states that Nigerian production is down because of political and not geological factors.

We live on an oil planet in an oil universe. We will never run out of hydrocarbons. Ever.

oilismastery.blogspot..../

[Itsonlymoney]

Oil has been both a blessing and a curse for many countries. I agree that the sooner we eliminate waste, renew our transportation infrastructure, and develop alternative sources of energy the better. This is just a trial run for the real calamity that is on its way if we don't act effectively now.

[john s.gordon]

mismanagement - caused the 1791 revolution in france. here we go again. the french revolution is still a work in progress.
> jack

[PeterSterling]

There is a way out of this mess.

Make America energy self sufficient:

strategicnine.com/

[cal48koho]

Another thoughtful article by Jim and his suggestion that the current incompetent bushies should get involved in Nigeria is wishful micturition in the wind I'm afraid.I hope someone in the next administration is a reader of Kingsdale so we can get cracking on a rational energy and foreign policy ASAP. If we don't start to mount a Manhattan Project style electrification of our transportation network pretty soon, it will be too late to avert a major crash of our economy. Also,It is puzzling why Jim seems to attract so many panglossian comments.

[rmgreenwald]

Solid article with some good points and observations; however, the US doesn't really have any direct means to impact greater stability (and more oil production) in any of these areas, IMHO. Perhaps instead of focusing on resources in other parts of the world, the US should look to areas that it can directly control such as allowing access to the oil reserves that surround the US: in Gulf of Mexico and Alaska. With all due respect to those who wish to preserve the environment, this isn't an 'either/or' proposition, because I believe that the environment and drilling can peacefully co-exist. There are proven means of drilling and production that would allow increased oil production with minimal impact on the areas in question. In addition: we shouldn't be debating an 'oil vs. alternative fuel' platform: we should be agressively looking to capitalize on both opportunities, finding environmentally sound ways to better use the natural gas and coal deposits within the US, and also reducing our overall energy consumption.

[oldtrdr]

Jim,

Congrats on yet another well-reasoned, well written article. There is a handful of contributors that keep me a faithful reader of SA, and you're one of them.

Jan

[richjoy]

Thanks Jim...we need your well-reasoned voice!

[mbc3216]

A very insightful article. Why don't you send it to Obama and his group.

[User 36265]

Your article is very timely. It is amazing how the U.S. has ignored the importance of Nigeria as we struggle to survive until alternate fuel sources mature.

[galewhitaker]

Jim Pursley - "We live on an oil planet in an oil universe. We will never run out of hydrocarbons. Ever.
". You are absolutely right when you say we will never run out of carbon energy. The problem is that some time in the not to distant future the price of extracting carbon energy is going to be more than the resulting product. It currently costs $600,000 dollars to lease a deep ocean drill rig. How many days have to go by before you have spent more than the value of the oil that is buried under the ocean? Some times the drillers spend billions only to find there is no oil at all. There is a domino affect involved because as the price of oil escalates so does the cost of operating the rig. This same logic applies to all alternative carbon energy schemes (oil shale for example).

[starkoski]

Jim, at the end of the day we can talk about peak oil & increasing world demand and that is what we should do. Now - immediately and the next day too and the one after that because that is what the real problem really is. The world's old supergiant oil fields are significantly in decline and the decline is getting more profound and world demand is increasing fast. This is the viewpoint of Matt Simmons and I share that viewpoint too. Your viewpoint that the politically unstable producers that are having trouble maintaining their production is the essence of our delima is narrow-minded & superficial. The world must replace 4M/day/year just to make up for existing oil well depletion & new demand. The world can't do that and the supply - demand imbalance will just keep getting worse. Today demand is 87 MBD & supply is 85 MBD. Expect the gap to widen each year with continuing higher prices. Its the peak Jim - get ready for oil at $300/barrel in 2011.