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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 that 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 and at the same time the world’s largest and oldest oil fields (and some newer offshore fields, too) are declining more rapidly than oil fields used to decline in the past, just at this very 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 oil fields 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.
Tags: peak oil energy investments
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8 responses so far ↓
1 blacklion // Jun 27, 2008 at 3:34 am
Yeah like invade Nigeria, overthrow its leaders and seize the oilfields? Just like Iraq, I promise you there’ll be cheering crowds to kiss the Marines when they land in Port Harcourt.
2 mark // Jun 27, 2008 at 7:00 am
Good point blacklion, the argument is ethnic in orgin, not likely solvable. The people in the southeat (Ebo’s) actually believe the oil is theirs and not he Nigerian government to take, after all it’s in their land.
3 Jim Kingsdale // Jun 27, 2008 at 11:08 am
Blacklion - I don’t want to be disrespectful, but I sometimes wonder if people can read and understand a simple sentence. I never suggested a military solution imposed from outside. I am talking about diplomats trying to bring two warring sides to an amicable and mutually advantageous agreement. Sure it would not be easy. I said that too. But my point is, why not try. Clearly one side can easily misunderstand and mistrust another side - as your post demonstrates by its lack of understanding - but that’s the business diplomats are in. They explain reality in non threatening ways and point to the advantages of reaching agreements. Some “adult supervision” - to quote myself - is called for in this situation for the good of the global economy as well as the poor people in Nigeria. That does not mean a military invasion.
4 gary // Jun 28, 2008 at 7:43 am
Unfortunately the current administration does not understand diplomacy, mediation, or negotiation. They don’t really seem to understand the effective use of military power either, but they did create AFRICOM last fall, one of the recommendations of the lobbying group - African Oil Policy Initiative Group.
So while I completely agree with your post, I am quite concerned with our current policies. I can only hope a future administration will show more common sense and at least try to come up with a coherent energy policy which would be a vast improvement on what we have now - no energy policy.
5 mark // Jun 28, 2008 at 11:54 am
Energy policy, yes. Negotiations, doubtful…..people recognize when you negotiate out of your own self interest, also people recognize when you are negotiating out of weakness…..our weakness oil.
6 KV // Jun 28, 2008 at 2:21 pm
Jim, you wrote:
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.”
If you believe Zalmay, you are really in trouble. “Not that I know of” means I am not going to tell you.
Zalmay worked for Unocal (taken over by Chevron), so did Maliki, and that Afghan guy. None of them have been able to do the job Bush/Cheney wanted them to do. They are big duds. And, there is never a straight dope from Bush administration on anything. Just take a look at North Korea.
Nigeria has asked for assistance from Brits and the USA to fight MEND. However, MEND is a faceless organization, and so is al-Qaeda. It is like playing where is Waldo, but nobody knows what he looks like.
7 KV // Jun 29, 2008 at 6:19 am
Jim,
MEND is faceless, that is there is nobody in charge. Ignoring that, what is there to negotiate with an organization that has decreed Nigeria’s resources for Nigerians. It is really an internal fight, andNigerian govt. more than likely to know how to approach MEND. UN resources are always available to them if they want, but I do not think we need to put our bloodied heads in that mess.
While we are negotiating, is there a way to do that with Iran or al-Qaeda, or the Son of Bush’s adopted uncle, bin-Ladin?
8 Jonathan M // Jun 29, 2008 at 6:42 am
Yes there is a Nigerian Elephant. There are also a U.S. dollar elephant, a U.S. account balance elephant, a U.S. energy elephant, and a U.S. oil consumption elephant.
I’m always interested when Mr. Market gives the world a global smack on the head to warn about an issue or multiple issues, and the knee-jerk reaction is to say if these people over their could just get your act together, everyone would be better off.
What amazes me is how the globalaization process has dulled the American sense of taking responsibility for its issues.
There was a concept once of American Excellence. I wonder where it went. Mr. Market is informing us that there is a dearth of sould leadership to address the oil issues and the social issues that are entwined with it.
Sure the U.S. can become involved in Nigerian affairs. It would be pragmatic. But American Excellence won’t be reclaimed by parenting the bad children in Nigeria.
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