Sunday, March 22, 2009

Nigeria's oil curse

“This is an example of how closely we are tied to the global economic chain of crude oil. We're often asked how a strike in Nigeria or an incident in Russia could have an effect on us here.”

-Michael Geeser, Triple A Spokesperson


Nigeria was part of the British Empire from 1906 until October 1, 1960 when it gained its independence from the United Kingdom. Like neighboring Niger, Nigeria takes its name from the Niger River which runs through the two countries. After gaining its independence in 1960 Nigeria fell victim to a series of military coups. The first coup occurred in January of 1966 when Prime Minister Balewa, the second Nigerian prime minister, was assassinated and Major General Johnson Aguiyi-Ironsi assumed power. Ironsi abolished the federal system that was in place at the time and established a military government. But six months after his own accession to power he was killed in a countercoup. Ironsi was succeeded by Major General Yakubu Gowon who restored the federal system in Nigeria.
The Nigerian government has been notoriously known as one of the most corrupt in the world since it gained its independence more than forty years ago. Nigeria is also the leading African oil exporter and supplies the United States with twenty percent of its crude oil imports. There has been a large amount of outcry from the Nigerian people in response to the government poor allocation of funds produced by oil revenues.


Oil


Nigeria is one of the four African nations with membership in OPEC the others being Angola, Algeria, and Libya. Nigeria’s economy is almost completely dependent on its petroleum and liquefied natural gas as they accounted for 93.3% of all Nigerian exports in 2006.[i] Most of these exports were sent to the United States as more than 58% of all Nigerian exports are imported by the US. Oil also accounts for more than eighty percent of the government’s revenue and more than forty percent of the GDP (gross domestic product) in Nigeria.[ii]
Shell is the most prominent oil company operating in Nigeria as it controls over half of all Nigerian oil and gas reserves. The Niger Delta region currently accounts for more than ten percent of Shell’s global production. Other well known oil companies such as Chevron and ExxonMobil are currently operating in the Niger Delta region and many offshore Nigerian oilfields.
There has been a large outcry from the poor of Nigeria, because despite Nigeria’s great wealth of oil the people are not reaping any of the benefits. All of the profits are going to international oil corporations and the corrupt government. Furthermore all of the jobs created by the oil industry are given to the foreign workers of the international oil corporation that mine the oil fields.
Many rebel groups have been sabotaging the oil corporations. In a single year Nigerian rebels took more than a hundred foreign oil workers hostage and held them for ransom. Nigerian rebel groups have also caused many oil spills by sabotaging the oil pipelines which are poorly maintained as well. One area that has suffered the most from these rebel actions is Port Harcourt, which is considered to be the Nigerian oil capital, and the rest of the Niger River Delta along the west coast of Nigeria. Umaru Musa Yar'Adua, Nigeria’s current president, has promised to make this area a priority in an attempt to stop rebel sabotage of the oil industry. Many oil contractors are charging ten times more to work in the Niger Delta due to the recent kidnappings of foreign workers by Nigerian rebels.
Due to the rebel sabotage of oil operations in the Niger Delta, Nigerian revenues are forty percent lower than initially projected and the oil industry significantly underperformed. Aside from reduced production caused by sabotage, a change to offshore oilfields has reduced the government’s short term revenue. The traditional oilfields were managed by joint venture agreements where companies would have to pay the government as it accumulates revenue. The offshore oilfields are governed by more recent production-sharing which allow companies to wait longer before paying large fees to the government.
Aside from the political ramifications the oil industry has on Nigeria, Nigerian gas flares are an ecological hazard. Gas flaring is when oil companies burn gas to separate it from the crude oil. Nigeria outlawed the practice of gas flaring in 1979, but most companies continued and paid small fines or were granted exceptions by the government. These gas flares produce greenhouse gases and contribute to acid rain. In Nigeria, these gas flares burn 20 billion cubic meters and also wastes $500 million worth of gas annually. Russia is only country that wastes more gas through gas flaring and Nigeria now accounts for more than thirteen percent of all gas flaring worldwide. Gas flaring is also another cause of outrage and sabotage as one irate Nigerian put it, “Our environment is being destroyed. So there is an acceptance that if [militants] blow up a pipeline, at least they are taking revenue out of the government's pocket.”[iii]
[i] Economist.com fact sheet on Nigeria
[ii] Pg 114 of A Game as Old as Empire
[iii] Economist “gas flaring”

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