MINISTER DAUKORU'S GOALS AS OPEC PRESIDENT

C O N F I D E N T I A L SECTION 01 OF 03 LAGOS 000311 SIPDIS SIPDIS STATE PASS DOE FOR DAS GPERSON AND CGAY TREASURY FOR ASEVERENS AND SRENENDER COMMERCE FOR KBURRESS STATE PASS TRANSPORTATION FOR MARAD STATE PASS OPIC FOR ZHAN AND MSTUCKART STATE PASS TDA FOR NCABOT STATE PASS EXIM FOR JRICHTER STATE PASS USTR FOR ASST USTR SLISER STATE PASS USAID FOR GWEYNAND AND SLAWAETZ E.O. 12958: DECL: 03/01/2016 TAGS: ENRG EPET EINV NI SUBJECT: MINISTER DAUKORU'S GOALS AS OPEC PRESIDENT Classified By: Acting Pol/Econ Chief Shannon Ross for Reasons 1.4 (D & E) -------------- Summary -------------- ¶1. (SBU) With Nigeria now holding the top two positions in OPEC, we expect OPEC President Minister Daukoru's priorities to be establishing market stability, achieving balanced production and price levels, producing more accurate demand projections, and gaining greater attention to environmental issues. He will also highlight the issue of unmet energy demand in developing countries. Finally, he may use his role to promote an increased OPEC quota for Nigeria, or argue for exempting deepwater production from OPEC quotas. Nigerian industry figures remain concerned maintaining OPEC quotas in the face of increased deepwater production costs will disadvantage the country economically. -------------- Long Experience at Shell and NNPC Prepares Daukoru for Role in OPEC -------------- ¶2. (SBU) Nigerian Minister of State for Petroleum Resources Dr. Edmund Daukoru became President of the Organization of Petroleum Exporting Countries (OPEC) on January 1, 2006. Minister of State is in effect a junior ministerial title; President Obasanjo retains the title of Minister of Petroleum Resources. Nonetheless, Minister Daukoru carries out all day-to-day management of the Ministry functions. Minister Daukoru is a former employee of Shell, with over thirty years of industry experience, and holds his Ph.D. (1970) in Geology from the Imperial College of Science and Technology in London. Before his appointment as Minister he served as the Presidential Adviser on Petroleum Resources, acting in a de facto ministerial role from November 2003 until his appointment as Minister in July 2005. Prior to his appointment as Adviser, he was the Group Managing Director of the national oil company, Nigerian National Petroleum Corporation (NNPC),from June 1992 to October 1993. Minister Daukoru is a native of Bayelsa State, one of the three top oil-producing states in Nigeria, and is one of the few senior energy industry or government figures the volatile region can point to as one of their wn. -------------- Daukoru to Highlight Energy Needs in Developing World -------------- ¶3. (U) Since his appointment as OPEC President, Minister Daukoru has emphasized the establishment of market stability, balanced production and price levels, more accurate demand projections and attention to environmental issues as priority areas for his tenure. Environmental issues are key area of contention in Nigeria, with many residents of the Niger Delta claiming their environment has been systematically degraded by decades of petroleum production activities. While promising to sustain energy talks between OPEC and the European Union (EU),Daukoru said he will also highlight the issue of unmet energy demand in developing countries, through support for such projects as the West African Gas Pipeline (WAGP) and the Trans-Saharan Gas Pipeline projects. -------------- Barkindo Acts as OPEC Secretary General -------------- ¶4. (U) Shortly after coming into office, Dr. Daukoru appointed Mohammed Barkindo as acting Secretary General of OPEC. At the December 2005 138th meeting of OPEC, Daukoru LAGOS 00000311 002 OF 003 was given the title of (Acting) Secretary General, a responsibility he delegated to Barkindo. Barkindo, a petroleum economist by training, was Deputy Managing Director of Nigeria,s flagship liquified natural gas project, Nigerian NLG (NLNG),and served on OPEC's Economic Commission Board for 14 years. As Secretary General he is based at OPEC's Vienna headquarters, running daily activities. His appointment runs through 2006. -------------- Comment -------------- ¶5. (C) Comment: With a long industry background, industry figures generally consider Daukoru a well-reasoned and well-informed interlocutor. He generally takes a pro-industry position, but is not always able to ensure policies he favors are implemented. Some industry figures consider his influence secondary to that of NNPC Group Managing Director (GMD) Funsho Kupolokun, as NNPC holds a majority equity stake in the joint venture operations which continue to dominate Nigeria,s petroleum landscape. Daukoru's new role at OPEC has reinforced an industry view that he increasingly occupied with the international stage and promoting Nigeria,s petroleum industry internationally, rather than it's day-to-day evolution. ¶6. (C) Comment continued: One issue of particular concern to U.S. energy companies operating in Nigeria has been the evolution of Nigerian content policies. Both the USG and GON recognize the need to increase Nigerian content for the long-term economic and political stability of Nigeria. However, Mission remains concerned such policies should be implemented in a measured, well-planned manner that does not disrupt petroleum operations or scare away foreign investment for new projects. While Daukoru has typically been able to hold the line on the most extreme national content measures proposed by the National Assembly, NNPC has enacted similar measures as policy directives, with no legislative oversight or recourse for firms which may be adversely affected. NNPC measures include a directive to conduct all front-end engineering design (FEED) in Nigeria by the end of 2006. While industry figures support conducting FEED in-country where possible, they note the three new LNG projects (Brass LNG, OK LNG, and ExxonMobil LNG) proposed in Nigeria will require 10,000 highly experienced engineers during the next few years; Nigeria currently only has about 1,000 such engineers. How Nigeria will support the implementation of this directive and other like it, while maintaining its competitiveness in the international gas market, remains an open question. ¶7. (SBU) Comment continued: With Nigeria holding the two top positions at OPEC, we expect African energy projects such as WAGP and the TransSahara pipeline to receive OPEC,s full support. Despite recent OPEC quota increases, we could also see Nigeria use its roles at OPEC to push for a higher Nigerian quota, with an eye to deepwater projects due to come on line within the next two years. (Note: Shell,s Bonga project came on-line in December 2005, and we expect deepwater fields Agbami and Erha to come on-line within the next couple of years.) Nigeria could attempt to forge alliances with other nations who are on the forefront of deepwater production, and argue for increased OPEC quotas, or exempting deepwater production from OPEC quotas altogether. Dr. Ayoola, NNPC,s head of Exploration and Production, presented a paper in 2005 which neatly summarized Nigerian concerns about its expanding deepwater operations. As Nigeria deepwater production increases, Nigeria,s average cost of production per barrel will also rise, as more expensive deepwater barrels are substituted for less expensive on-shore/shallow water barrels. If Nigeria,s quota remains constant, the country fears it could end up LAGOS 00000311 003 OF 003 economically disadvantaged. The Nigerian press has expressed similar fears. ¶8. (C) Comment continued: Compounding Nigerian anxieties on this point is a common belief among Nigerian industry members that the GON did not negotiate a good deal for the country during its initial round of deepwater projects. With 100 percent cost recovery under its first production sharing contracts, the GON is concerned it will not see an increased tax flow from these projects for several years to come. End comment. HOWE