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Nigerian Oil Threat

While the fur has been flying on financial markets, the bullets have been flying in the Niger Delta. The Niger Delta news didn't make many headlines last week, but the conflict there continues to be a major drag on oil supplies -- and with the Nigerian government in disarray, there's no end in sight.

The usually accurate spokesperson for the Movement for the Emancipation of the Niger Delta (MEND) reported in an e-mail that there had been several new attacks on oil facilities last week. On Friday, Royal Dutch Shell acknowledged that an "upsurge" of attacks had taken place and that earnings would take a hit as a result.

Bloomberg quoted Nigeria's state oil company as saying that the country's daily crude oil output has fallen by 280,000 barrels since Sept. 13, as a result of MEND's attacks in the Niger Delta region. Crude production fell 22 percent to 1.9 million barrels a day since the end of 2005, when the country was pumping about 2.5 million barrels a day, Bloomberg said. A senior European oil executive told me that the total amount of production lost as a result of fighting could be as high as 1.2 million barrels a day, and that if the fighting were to stop and production were to return to normal, output could top 3 million barrels a day. That would help drive down world prices, which dipped this week before rebounding to $104 a barrel.

But fighting isn't likely to end soon. That's partly because the Nigerian government may step up efforts to crack down on insurgents, especially if rival government officials in the capital city of Abuja want to prove their toughness. As the Eurasia Group, a consulting firm, noted in a update on Friday,

"The new counter-terror law passed by the Nigerian Congress signals a renewed military offensive against the MEND, as well as the termination of the floundering peace summit plans. Moreover, the health of President Umaru Yar'Adua continues to be a question, raising concern about political instability around the succession process if he dies."

In an August report, the Eurasia Group noted that Yar'Adua had reshuffled military leaders before going on a "little hajj" to Saudi Arabia, where he might have received medical treatment for kidney and/or cardiovascular problems. Worried about a possible coup, he sent two dozen officers into retirement. If Yar'Adua dies, the vice president would bring a different ethnic group to power. Yar'Adua and northern Muslim elites may be trying to change the succession order.

None of this augurs well for making peace in the Niger Delta.

Here a few examples of what the MEND spokesperson, who goes by the name Jomo Gbomo, has been reporting about an offensive that he or she calls "Hurricane Barbarossa." He has a distinctive style and consistent point.

The week started like this: "At 2210 Hrs on Monday, September 15, 2008, a major crude oil pipeline at Bakana Front in Degema Local Government Area in Rivers state of Nigeria belonging to the Shell Petroleum Development Company was destroyed with high explosives by Movement for the Emancipation of the Niger Delta (MEND) detonation engineers backed by heavily armed fighters."

The next day Gbomo said: "About 2200 Hrs on Tuesday, September 16, 2008, fighters from the Movement for the Emancipation of the Niger Delta (MEND) and the Niger Delta Volunteer Force (NDVF) in a new alliance attacked and destroyed the Orubiri flow station operated by the Shell Petroleum Development Company in Rivers state of Nigeria.

"All the soldiers on guard were killed and provided more weapons for the campaign. Their houseboat was equally destroyed...

"Soldiers and oil workers are advised to abandon all oil facilities including the off shore rigs of Bonga and Agbami as we want to minimize casualties before Hurricane Barbarossa arrives....A word is enough for the wise."

The next day, he reported: "A very major trunk crude oil pipeline we believe may belong to both Agip and Shell has been blown up today, September 17, 2008 at about 0930 Hrs by our explosives specialists at Rumuekpe, in Rivers state of Nigeria."

And the following day Gbomo had more to report: "At 1830 Hrs today, September 18, 2008, fighters from the Movement for the Emancipation of the Niger Delta (MEND) using high explosives have destroyed a major pipeline belonging to Shell Development Company at the Elem-Kalabari Cawthorne Channel axis in Rivers state of Nigeria.

"A gunboat patrol who happened to bump into the MEND fighters begged for their lives and showed their magazines to proof that they had not fired from their guns. They were spared and allowed to go but not after they had pledged loyalty to the struggle and denounced the criminality of the oil companies and the government. One of the soldiers actually defecated in his trousers."

On Sunday Gbomo said that the offensive called Hurricane Barbarossa had been "downgraded" to a "tropical storm" and that MEND would declare a ceasefire. It's always hard to tell whether that sort of thing is done out of magnanimity or necessity, but there's no denying that it was a rough week for the oil companies in the delta.

Shell said it was "deeply concerned" about casualties and civilians. "We are equally concerned about the resultant damage to oil and gas facilities and possible environmental damage caused by crude oil that has been spilled from damaged equipment," the company said in an email. The company urged dialogue. "This is desirable not just because of oil and gas production but also for the sake of millions of innocent, law abiding residents of the Niger Delta whose safety and means of livelihood are severely impacted by the crisis," Shell said.

You would think this hassle would be enough to send the oil companies packing, but there is enough high-quality oil in the Niger Delta that they are willing to wait. And wait. And wait.

Paolo Scaroni, the chief executive of the Italian oil giant ENI, talked about this during a stop at the Post this week. "It's very oil rich," he said. He said that ENI has been doing business in Nigeria since the 1950s, even during the Nigerian-Biafran war, the civil war that lasted from 1967 to 1970. The secessionist Biafra region included much of the oil production region in the delta. Scaroni said that if ENI could wait through that bloody conflict, it could wait now. But, he acknowledged, "It's not Switzerland."

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Comments (9)

spiderman2:

THE FOOLPROOF BAILOUT

Unless the HOLES in the financial system are properly plugged up, this 700 billion dollar bailout will just GO TO WASTE. The reason why we are in this FINANCIAL MESS is because all those holes came into play at full throttle. Some people simply abused the weakness of the dollar for their benefit. Upon seeing the weakness of the dollar, they played up the price of oil. They can do it because as we have seen last Monday, there is no regulation that can stop them from doing so. With very high oil prices, the companies become vulnerable and weak. Here comes the SHORT SELLERS taking advantage of that weakness and betted that the stock prices of these companies would fail. As a result of stocks plunging, many companies struggled and many could have borrowed money from banks and in the process raised the interest rates. Also, profits from short selling contribute to excess liquidity and to offset this liquidity, interest rates are raised. As interest rates climbed, so does the mortgage interest rates. Many homeowners defaulted which put banks on a tough situation. Again the SHORT SELLERS saw the opportunity to profit so they came BETTING AGAINST the banks until we see all these big banks failed.

Now, we can see that there are THREE BIG SUCKING HOLES that came into play that put us into this mess. The FIRST are the SPECULATORS who played up THE PRICE OF OIL. The SECOND are SHORT SELLERS which pulled down the stock market. The resulting HOLE (third hole) which these two sucking holes created are the FORECLOSED houses which continue to burden the financial system.

The SOLUTION to this mess is simply to PLUG UP these THREE HOLES. First is to create an OIL PRICE STABILIZATION LAW which I explained in my earlier posts. Second is to PERMANENTLY BAN SHORT SELLERS. Thirdly, if they want a bailout, it should be used to relieve the homeowners by lowering their mortgage interest payments and return the foreclosed houses to its previous owners under a restructured payment scheme that's affordable. The third solution will release the banks from bad debt and can therefore continue and start clean anew.

The hedgefunds which will be affected by the ban on short selling can look for MORE PRODUCTIVE investments like the manufacturing sectors and new technologies sectors. This shift of investment would lower interest rates because manufacturers would not be crowding in the banks for loans. This will also make our manufacturing sectors competitive. As a result more jobs will be created.

This is WIN-ALL SCENARIO and to achieve this, THESE THREE HOLES MUST BE ATTENDED TO, otherwise, NO BAILOUT WILL SUCCEED.

GOD BLESS AMERICA.

Donald Imazona(Ghana based) :

Hello,
Well,a goodday to everyone here,the comments that I am about to say are just my personal opinion which is cheap.When you look @ other nations of the World everyone with is own perculiar problem,but such problems,could be brought to controllable measure.Those who have been saddled with responsibility of Leadership,show have one thing @ the back of their mind.When Providence,Fate etc presents an opportunity for to lead to see it has a time to loot,cause confusion and Chaos in the land,please in other to have peace,especially in the Niger Delta Region,"Give to Ceaser,what is Ceaser.Ciao

spiderman2:


THIS INSANITY MUST STOP ( Our National Security is AT STAKE)

It is high time this INSANITY SHOULD STOP. The reason why the U.S economy is so vulnerable to Wall Street speculation is because of SHORT SELLING. The economists DO NOT REALIZE that these people (short sellers) are like PRINTING MONEY UNHINDERED. Earning money at the expense of others (short selling) is NOT EARNING BUT STEALING. It's the same reason why we can't print money freely because it is tantamount to stealing.

UNLESS the regulators BAN THIS SHORT SELLING IN THE STOCK MARKET, Americans will continue to SUFFER ECONOMICALLY as what is happening now. The ENEMIES of America does not need an airplane to crash to our buildings. They only need to PLAY UP THE OIL PRICE IN THE STOCK MARKET and then start BETTING ON THE OTHER STOCKS TO FAIL thru SHORT SELLING. Not only can they ruin the economy of America, but they can also make themselves rich by doing so.

NOW WHERE ARE THE BRAINS OF OUR LEADERS AND ANALYSTS ?

BAN SHORT-SELLING AND IMPLEMENT THAT OIL PRICE STABILIZATION MECHANISM NOW and all will be well again.

That 700 billion dollar bail-out should be used to relieve American homeowners by lowering their mortgage interest rates and those who already lost their homes should be asked to return with their payments restructured.

spiderman2:

WE NEED THAT OIL PRICE STABILIZATION MECHANISM LAW NOW.

We have seen how the price of oil jumped 16 points in just one day for no valid reason. It's very clear that the government (both Congress and the executive branch) has NOT DONE anything to rein-in speculators. It is therefore NOT farfetched that oil would rise up again to an all time high as before.

I hope they would now legislate a bill that would rein-in the STUPIDITY of these speculators. Oil has been the lifeblood of world economy and people should not be allowed to play on this commodity. It's very clear that the speculators are not using their minds. They do not understand that they are slowly hanging themselves as the price of oil shoots up to where the economy cannot perform anymore. Their money would be deemed useless if there would be a work stoppage worldwide.

I hope Congress would make a law that put a price cap on oil everytime speculators are playing with it. If the price of oil today (Monday) is 120 dollars per barrel, the price cap tomorrow (Tuesday) should be 120 dollars per barrel. Since it cannot go up that price, there would be massive panic selling which would pull down it's price. If the price of oil closes at 110 dollars tomorrow (Tuesday), the price cap should be set at 110 dollars per barrel on Wednesday. There is no way to go for the price of oil but DOWN if this mechanism would be put into place. Once the oil price reaches a SANE LEVEL of maybe about 90 dollars, regulators can then SWITCH-OFF that mechanism so it can settle to it's true value. There must be a body that can switch that mechanism on or off as the need requires.

We NEED THAT MECHANISM NOW AND CONGRESS SHOULD ACT NOW BEFORE THESE IDIOTIC SPECULATORS WOULD HAMMER THE ECONOMY AGAIN.

Jim:

Oil revenues produce the corrupt politics of Nigeria , but it seems the collective wisdom of the market is to just "wait it out".,

anonymous:

I recently returned from several years in Nigeria, where I followed the situation very closely.

While the e-mails of Jomo Gbomo are usually accurate with regard to pipeline attacks, some of his postings can be laced with propagandistic rhetoric which cannot be substantiated. Examples include a report that Henry Okah, a leader of MEND, had been killed while in a Nigerian prison and that the group had responded to a plea from Barack Obama, which never existed.

The reason why the problem can't be curbed is that local and some federal lawmakers and powerbrokers are in bed with the militants. Even the military is involved. And disrupted pipelines pave the way illegal oil bunkering. Not a bad business with oil at $130/barrel.

And even though Nigeria is the fifth-biggest exporter to the U.S., it's production of about 1.8 million barrels a day pales to that of the U.S.'s, which exceeds more than 8 million.

In other words, don't count on Nigeria to solve the oil problem. There is a long way to go before it will make a meaningful contribution. Nigeria is still very much the wild west.

BM:

yes, while it seems that MEND is doing a terrible thing, why are the oil companies not doing anything to address the reasons for MEND's attacking. I am not supporting terrorism, but read/watch the link below and it is easier to understand the motivation and the environment of the Niger Delta's situation:


http://www.npr.org/templates/story/story.php?storyId=92155119

bs:

If we invade nigeria we it could be possible get oil for under 100$ a barrel, but then we would have to rebuild another country...But wut the hell we got money to burn!!!Don't we??????

MB:

Sounds like a job for the US military. Can't allow that flow of oil to be stopped. I think a reinstitution of the draft is in order, so that all oil installations worldwide can be defended by US troops.

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