TFIZ01: NIGERIAN CRUDE PRODUCTION DROPS ABOUT 33%

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 000558

SIPDIS


SENSITIVE


S-ES/O PLEASE ALERT AF/FO (A/S KANSTEINER) AND E STAFF


E.O. 12958: DECL: 1.6X1
TAGS: EPET CASC AINR ASEC PINS ELAB PREF NI IZ
SUBJECT: TFIZ01: NIGERIAN CRUDE PRODUCTION DROPS ABOUT 33%


REFS: (A) Abuja 554
- (B) Abuja 555
- (C) Lagos 624
- (D) FBIS RESTON 231918ZMAR03(AFP)


CLASSIFIED BY AMBASSADOR HOWARD F. JETER. REASON 1.5(c) and
(d).



1. (SBU) Summary: Ongoing ethnic strife may cut Nigeria's
crude production by 33% and its exports by 43% -- larger cuts
than most media are reporting. The evacuation of Escravos,
hub for 440,000 of ChevronTexaco's 510,000 bpd, is expected to
conclude March 24. ChevronTexaco seeks U.S. imagery support.
These cuts amount to about one percent of world daily crude
production, but the impact on the U.S. is likely to be
disproportionate. Meanwhile, Nigeria's national labor
federation is threatening a general strike for April 1.
End Summary.



2. (SBU) Further to Refs A-C, ChevronTexaco (CT) Managing
Director Jay Pryor late afternoon of March 23 told the
Ambassador that CT was suspending all crude production
dependent on the Escravos tank farm, about 440,000 of CT's
average 510,000 bpd. Pryor said Shell was losing 240,000 to
280,000 bpd because of strife precipitated by Ijaw militias,
and that TotalFinaElf had lost between 30,000 and 40,000 bpd.



3. (SBU) Assuming Pryor's figures are correct, and they have
also been verified by the British High Commission, Nigeria's
daily production has fallen from around 2.2 mbpd to about 1.46
mbpd, a drop of approximately 33%, in under a week. If
Nigeria continues to use 450,000 bpd for internal consumption
(domestic refining and swaps for refined products),then
exports will have dropped 43%. COMMENT: We have no reason to
doubt Pryor's figures, but most media, including Ref D, give a
lower figure (around 195,000 bpd) for Shell losses. However,
major producers (and Shell is Nigeria's largest) often have
excess capacity. Shell's losses in the affected areas could
well be on the order of 260,000 bpd, but it might be able to
"make up" some of that from other fields. CT's production, on
the other hand, is heavily concentrated around Escravos and
its production is now 70,000 bpd from two other facilities.
END COMMENT.


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EVACUATION
--------------

4. (U) According to Pryor, the two Antonov transport aircraft
CT had planned to use to evacuate personnel and IDPs from
Escravos were not able to make the trip from South Africa.
However, CT was able to deploy a fleet of smaller aircraft.
It expects to complete the evacuation by mid-day on Monday,
March 24. From 35-50 persons will remain at the tank farm to
provide maintenance and keep utilities operating, among other
tasks. Another 8-9 persons will stay on CT's platform at the
mouth of the river.



5. (SBU) Pryor reported that approximately 280 GON security
personnel, a mixture of Army, Navy and Police (MOPOL) were in
and around Escravos. There have been no problems in the 36
hours prior to his conversation with the Ambassador.


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IMAGERY
--------------

6. (C) Pryor reported that the GON was already pressing CT to
bring Escravos back into operation but that CT thought the
Escravos area remained too tense and unstable for operations
to resume. Even once the GON provided CT with an "all-clear,"
the company would be reluctant to resume operations without
independent confirmation (via imagery) that calm had returned.


--------------
COMMENT
--------------



7. (C) We understand that the USG has sometimes provided U.S.
firms imagery of oil-producing areas that had suffered from
instability or insurgency. We understand, for example, that
this was done in Angola. We believe CT must understand that
USG imagery assets are fully deployed for other purposes at
this time. Nonetheless, we pass along CT's request, as we
know that each day with Escravos off-line is a day with
440,000 barrels of crude lost to U.S. and world markets.



8. (SBU) 735,000 bpd would amount to just under one percent
of daily worldwide crude oil production (79 mbpd). There is
no guarantee that production losses will not climb higher
before stability returns to the Niger Delta. As we reported
previously (Ref B),inter-ethnic tensions in the Niger Delta
are being aggravated by electoral politics. Meanwhile, the
Nigeria Labour Congress (NLC) is publicly threatening a
nationwide general strike for April 1, if the GON fails to
implement a 12.5% increase in civil service salaries and the
minimum wage. While the last NLC-sponsored general strike (an
effort to roll back an increase in motor fuel prices) fizzled,
organized labor in Nigeria remains a potent force. Oil
companies may be reluctant to restart production in the days
ahead if they fear the petroleum sector unions (NUPENG and
PENGASSAN) might join the general strike. They certainly will
not resume without iron-clad assurances of security.



9. (SBU) Lost Nigerian oil production may have a larger
impact on the U.S. than mere percentages would suggest. The
U.S. has long been the largest consumer of Nigerian crude; in
2001 our average daily imports from Nigeria were about 800,000
bpd (according to a "Newsweek" article that cited the IEA).
In addition, Nigeria sells crude oil to Caribbean and Canadian
refineries that blend its light, sweet crude with heavier
varieties (primarily from Canada and Venezuela) to refine
motor fuels that are then sold in the U.S. Precise figures
are impossible to derive, but estimates from 2000 suggested
the U.S. was the end-consumer of about 80% (between 1.2 and
1.3 mbpd) of Nigeria's crude production that year. Canada's
Deputy High Commissioner recently told us that this business
continued to be important for refineries on his country's
Atlantic coast.



10. (SBU) If production losses in the 700,000-plus bpd range
continue for very long, Nigeria will have to draw down its
foreign exchange reserves (already lower than a year ago)
further to support the Naira. For political reasons, the GON
cannot permit a significant devaluation of the currency now,
just weeks before national elections. One of many tools that
Nigeria traditionally has used to maintain its influence in
West Africa has been to provide other countries with some
crude oil on concessional terms. We do not know the current
daily volume of these deals. However, the GON may have to
reduce or halt deliveries of such shipments until production
returns to normal.



11. (U) Abidjan minimize considered.
JETER