OIL EXEC SAYS NIGERIAN OIL PRODUCTION AT FULL

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000575

SIPDIS


PARIS FOR OECD/IEA, TASHKENT FOR BURKHALTER


E.O. 12958: DECL: 03/18/2004
TAGS: EPET ENRG ECON ASEC PINS NI
SUBJECT: OIL EXEC SAYS NIGERIAN OIL PRODUCTION AT FULL
CAPACITY

REF: LAGOS 568


Classified By: RHINSON-JONES FOR REASONS 1.5 B, D AND E



1. (C) Summary. A senior industry source reports that
Nigerian crude oil production
is currently at full capacity. He states that Nigeria is
likely producing just
over 2.2 million barrels of crude per day. Ongoing communal
violence in the
Delta region is beginning to affect Shell Oil's production
and daily operations
of ChevronTexaco, and since all producers are pumping "flat
out," there is no
one left to pick up any prolonged drop in production. End
Summary.



2. (C) A senior executive at ExxonMobil told Econoff that
while the drop in Shell
Oil's production caused by clashes between ethnic groups in
Delta State is
relatively minor in relation to overall output, the GON
cannot utilize its
normal practice of reallocating Shell's reduced volume to
other producers
because all producers are now pumping "flat out." The
executive, who has 20
years experience working in Mobil Oil's Nigerian and
international oil
operations, said that since late February, all crude
producers in Nigeria have
been pumping at full capacity, and Nigeria's output should be
at just over 2.2
million barrels per day (bpd). Shell announced this
afternoon that due to
ethnic violence, it closed
five of its facilities in the Warri area, which reduces its
output by 76,000
bpd. Shell total output is estimated at 970,000 bpd.
According to the
executive, ExxonMobil is producing approximately 620,000 bpd
of crude and
condensates. ChevronTexaco is estimated to be producing
517,000 bpd.



3. (U) In the past week, activists from the Ijaw ethnic
community have been
disrupting vessel traffic along the waterways of the Escravos
River in
Southwest Delta state near the town of Warri, resulting in
gun battles with
police and military units (reftel). This escalated into
direct attacks against
both ethnic Itsekiri villages and a Shell Oil facility. Both
Shell and
ChevronTexaco are moving some personnel out of their field
operations in the
delta swamps, primarily out of concern that they will be
caught in the
crossfire. The situation in the area remains volatile and
very fluid.



4. (C) At the time of the discussion between Econoff and the
ExxonMobil executive,
Shell's estimated reduction in output was 30,000 bpd, what
the executive
described as a "drop in the bucket." When pressed, he said
industry watchers
should begin to worry if Nigeria's overall production drops
by 100,000 bpd over
a sustained period. He also noted that Nigeria's current
maximum production
effort is matched throughout OPEC. He said that OPEC-wide,
it would be hard to
pull an additional half-million barrels of crude at this
time, except perhaps
from Saudi Arabia.



5. (C) Comment. The GON normally allocates its OPEC quota
among each of the oil
producers doing business here. In the past, whenever any
given company's
production levels have been reduced by equipment failure or
community action,
as in the case of the take-over by local women of
ChevronTexaco's Escravos in the summer of 2002, the GON has
quickly reallocated the anticipated
production loss to other producers in order to maintain
overall national output
levels. If OPEC quotas are being ignored at this time to
maximize worldwide
production, and Nigerian producers are operating at full
capacity, sustained
field operation disruptions may begin to have an effect on
output as the GON
has nowhere to turn to pick up the slack. A small producer
told Econoff that
his company is still operating at only 35 percent capacity
under GON quotas.
It may be that if disruptions in the Delta or elsewhere
continue, companies
operating marginal fields will also be asked to operate at
maximum capacity,
making every drop of crude truly count. End comment.
HINSON-JONES