S E C R E T SECTION 01 OF 03 ABUJA 001486

SIPDIS

NOFORN

E.O. 12958: DECL: 08/27/2014
TAGS: PREL PGOV NI DELTAVIOLENCE
SUBJECT: NIGERIA'S DELTA SNAKEPIT: WILL WE AND NIGERIA BE
SNAKEBIT?

Classified By: Ambassador John Campbell for Reasons 1.5 (B & D).


1. (S/NF) SUMMARY: Nigeria's Delta is the fifth largest
supplier of oil to the U.S. and also supplies some 80 percent
of the Nigerian Government's revenues. It is not under GON
control, however, and is awash with well-armed and
well-funded private militias, environmental catastrophes, oil
theft (an average of 120,000 bbl/day), corruption, poverty
and death. This has been true for some years now, but the
growing capabilities of the militias, their abundance of
funding to buy more and better weapons, communications gear
and politicians, and no proportional effort by the GON to
regain control, has the oil majors there very worried about
the future. The issue is not keeping oil flowing today, but
rather whether, and under what terms, oil and gas will flow
in the all-too-foreseeable future if current trends are
permitted to continue -- issues that could affect the
viability of the Nigerian state as well as our energy
supplies. END SUMMARY.

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A CATALOG OF PROBLEMS
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2. (C) The list of benefits from Nigeria's Delta is short and
powerful:

-- Nigeria is the fifth largest supplier of oil to the U.S.,
out of an output of some 2.3 million barrels per day
(bbl/day). That output will almost certainly expand, and be
augmented by significant exports of gas.

-- The Nigerian Government (GON) depends on oil and gas for
around 80 percent of its budget. GON revenues may grow as
the price of oil continues to be well higher than the 25
usdols/bbl figure for revenue in the budget, but the
percentage of the GON budget is expected to be stable despite
changing oil prices because excess revenues are being kept
separate in an escrow account.

-- Oil, gas and service companies from the U.S. and other
countries make major profits from their Nigerian operations,
despite the Delta's growing list of costs and dangers.


3. (C) The list of ills is long and longstanding:

-- The GON exercises little control in many areas, and there

has been no meaningful economic or social development outside
of the oil companies' operations. Despite many police
checkpoints, people live in fear and armed robberies take
place in broad daylight.

-- Violence in the Delta has become a way of life, and deaths
are underreported by the media (although there are also
instances where the media exaggerates). Shell reports that
more than 1000 people died in clashes the past year.

-- Infrastructure is decaying, and environmental damage from
oil operations has made the traditional economy of
subsistence farming or fishing difficult or impossible in
most areas.

-- Some ethnic groups have well-funded, well-armed militias,
especially the Ijaw. Many of these militias join well-armed
gangs in oil theft rings, political hits, and "security
contracts" from oil companies, as well as carry on
longstanding tribal competition for economic and political
resources.

-- Large numbers of the Delta's high density population are
internally displaced. These pockets, and Delta society in
general, have spawned an anti-establishment culture among
Delta youth. Chieftancy feuds, economic stagnation and the
multiplicity of conflicts have made traditional society and
elders progressively more irrelevant over the years.

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AND THINGS MAY GET MUCH WORSE
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4. (C) Over the many years of having to essentially provide
their own security and do their own community development,
the oil companies have poured money into select
villages/clans to buy protection or placate local
populations. Over three decades that money has piled up guns
in the hands of Delta villagers. That growing stockpile of
arms has made the militias a tough opponent for GON security
services since the 1990s, and new funds from systemic oil
theft is growing militia arms further in both quantity and
quality.


5. (C) "Bunkering," the theft and sale of crude oil, now an
average of some 120,000 bbl/day, has become a massive source
of illicit funds. Even a conservative price of 23 usdols/bbl
would make that a one billion dollar per year illicit
industry, and we suspect the oil is sold at somewhat higher
than 23 usdols/bbl at least to North Korea and other
customers in this time of 47 usdols/bbl international prices.
The oil is loaded on barges similar to those used in the oil
companies' legal operations, and transferred to tankers at
sea for shipment anywhere in the world. The large
deposits/closer to markets advantages that the oil majors
enjoy in Nigeria are now also enjoyed by oil theft cartels.


6. (S/NF) While the oil majors do not like losing those
120,000 bbl/day, that is not the main reason behind press
stories that some are considering leaving Nigeria. Their
revenues from the 2.3 million bbl/day that is shipped by them
legally is more than enough even given their present costs.
What the oil majors fear is that illicit bunkering industry
funding a continuing and escalating security threat from
militias and gangs, which the oil majors' traditional
approaches cannot contain, and which the GON so far has not
decisively tried to end.


7. (S/NF) Already the risk premium insurance companies charge
for the Delta has doubled contract costs there for the energy
sector companies that do not self-insure. Shifting to
offshore fields was an attractive option, but now well armed
and coordinated gangs have hit oil platforms in the Gulf of
Guinea. ChevronTexaco's security officials contact the
Ambassador frequently, and its managers claim it will cost
650 million dollars to restore on-shore facilities damaged by
militias/bunkerers

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WHY DOESN'T THE GON DO SOMETHING ABOUT THIS?
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8. (S/NF) Actually the oil is being stolen from Nigeria, not
from the oil companies, but one problem is that many in the
GON are being paid by the thieves, or otherwise profit from
the thefts and other lawlessness in the Delta. Corruption is
a major problem at all levels of the Nigerian Government, but
many important officials are rumored to be deeply involved in
the business of bunkering too.


9. (S) In addition to the personal-gain reasons among GON
officials to let things continue, there are serious obstacles
to the GON taking decisive action. In the absence of
security, providing meaningful economic and social
development for the region as a whole would be impossible.
The GON has done little, and donors' assistance programs are
a drop in a bucket compared with a billion-dollar illicit
industry.


10. (S/NF) The GON sending in the army to restore order would
present difficulties even if President Obsasanjo had the will
to make it happen. Despite some progress in
professionalization, major human rights violations would be a
major possibility. Moreover, the militias are well armed for
their swamp environment, have good communications/control,
and have the potential funds to be far better paid than
Nigeria's soldiers. They could, and do sometimes, put up a
hard fight. Over the past year the Nigerian military's Joint
Task Force in the Delta has not even tried to establish full
GON control during its "Operation Restore Hope." It has
reduced some of the sabotage of oil company facilities but,
as one captain of a Nigerian navy vessel noted about
anti-bunkering operations, "We have gotten the little guys,
but we aren't going after the big guys."


11. (S) And a decisive military effort, even backed by a
development effort with enough funding to compete with the
bunkerers for people's allegiance, would not be enough.
There must be a political component. The elections in the
Delta in 1999 and 2003 were widely regarded as a sham.
Nevertheless, most of the age-old ethnic feuds have become
political in Nigeria's "democracy." Mainstream politicians
now use militias or gangs as politics by other means (a
growing problem for Nigeria outside the Delta too). This
plus all the illicit "new money" has led to the Ijaw and
other feuding tribes being divided amongst themselves, as
well as a breakdown in the influence of "traditional leaders."


12. (S) A possible worst-case scenario is that these
politicians, massively funded by oil theft corruption and
using those funds to field private militias, might decide
there is more money to be made by using these assets to form
cartels to organize and reduce violence in the theft of oil.
It is not impossible that cartels based on such massive
illicit industry could someday threaten Nigeria's polity.
More probable is that the bunkering will continue, with
alternating cooperation and fighting among the bunkerers, and
half-hearted efforts by the GON and major bunkerers to stop
the minor league thieves.

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WHAT CAN THIS PROBLEM DO TO US?
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13. (S/NF) ChevronTexaco's and Shell's hints in public that
the present situation might cause them to withdraw from
Nigeria are, for now, not realistic. Both make too much
money here. But as the militias obtain more arms, and notice
that there is more money to be made threatening oil companies
than threatening each other, a few violent attacks on company
facilities or employees could alter that equation.
International terrorist attacks would have the same effect.
But the oil would continue to flow, with interruptions
perhaps in some operations, even if U.S. oil majors were
replaced at the pumps.


14. (S/NF) The threat is more long term. Nigeria's proven
oil reserves are growing and gas (LNG) is beginning to come
on line in significant amounts, but it requires continued and
expanding capital investment. Non-U.S. operators, even the
Nigerian Government, could possibly keep a considerable
proportion of present production going but not invest the
massive amounts needed for growth. And such a massive
illicit industry pushing the GON even farther from control of
the Delta raises the possibility of civil war if Nigeria's
other teeming millions lose access through the government to
the Delta's revenues.


15. (S/NF) Nigeria's leaders, as well as the oil majors, know
these potential dangers. The oil majors appear to have come
to the conclusion that drastic changes must be made to the
current paradigm in the Delta. Getting the Nigerian
Government to pay the drastic costs, and take decisive action
for the future despite many of its leaders' present gains
from the status quo, may well be a different story. The
forces against altering the status quo grow stronger with
every illicit barrel sold, even if they do not use a
McDonalds sign to advertise how many.
CAMPBELL