MINISTER DAUKORU'S GOALS AS OPEC PRESIDENT

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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)

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Summary
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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.

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Long Experience at Shell and NNPC
Prepares Daukoru for Role in OPEC
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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.

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Daukoru to Highlight Energy
Needs in Developing World
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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.

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Barkindo Acts as OPEC Secretary General
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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

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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.

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Comment
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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

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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