Nigeria: The Elephant in the Corner 15 comments
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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.
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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.
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The author saved his common sense for the last sentence... was the
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..../
> jack
Make America energy self sufficient:
strategicnine.com/
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
". 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).