SHELL OFFICIALS DISCUSS NIGERIA PETROLEUM

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 000735 SIPDIS SIPDIS DEPT PASS USTR FOR AGAMA, EXIM FOR RICHTER DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS DOE FOR GPERSON, CHAYLOCK TREASURY FOR PETERS AND HALL E.O. 12958: DECL: 04/18/2018 TAGS: EPET OREP PGOV ECON EFIN PREL EINV SENV ETRD NI SUBJECT: SHELL OFFICIALS DISCUSS NIGERIA PETROLEUM SITUATION WITH SENATOR CORKER REF: ABUJA 637 Classified By: Ambassador Robin R. Sanders, reasons 1.4 (b) and (d). ¶1. (C) Summary: Shell officials told Senator Bob Corker and Ambassador that Nigeria's oil production can reach three million barrels per day in the near to mid-term under present security conditions, but government targets of four million BPD are unrealistic within that time frame given security obstacles and investment conditions. Nonetheless, Shell and others may invest as much as $80 billion in new oil and gas projects in the next five years. There could be 30-40 billion barrels of oil as yet untapped, and natural gas reserves could prove to be double current estimates. Shell estimates total bunkered volumes at 100,000 BPD. Shell and the other international oil companies operating in Nigeria make most of their money on volume, not margins. Shell is willing to do more in the electric power sector; is ready to fund environmental assessment in Ogoniland and says Ogoni representatives are agreeable to having the assessment move forward. End summary. ¶2. (SBU) Shell Country Chair Basil Omiyi and Government Relations Representative Peter Francis met in Abuja on March 16 with Senator Bob Corker, Ambassador, Econ Counselor, and Military Assistant to Senator Corker. The Senator was visiting Nigeria with Codel Shelby. ¶3. (C) In response to questions from Senator Corker and Ambassador Sanders, Omiyi described the current situation in the petroleum sector and prospects for near to mid-term growth. Omiyi currently chairs the industry producers group and also sits on a government coordinating committee for the energy sector. He predicted new investments totaling about $80 billion over the next five years, including major investments by Shell. Omiyi noted that there were two new liquefied natural gas (LNG) plants on the drawing boards and talk of a Trans-Sahara Gas Pipeline. There will be additional gas-fired power plants, he added. ¶4. (C) Omiyi noted that Shell and other international oil companies are reopening producing areas following a decrease in violence in the Niger Delta from earlier peaks. He predicted that Nigeria's total crude oil production could rise to three million BPD in the short to medium term "under current security conditions" with a maximum offshore production of one million BPD. He called the GON target of four million BPD under current conditions unrealistic, but said Nigeria could reach that level by 2010 given improvements in both security and policy incentives. He noted that 70 percent of Nigeria's oil is onshore and deep offshore fields are moving towards maturity. Mentioning that Nigeria's OPEC quota is 2.1 BPD, he said current production capacity was 2.5 million, if shut-in areas were brought back on line. Gas reserves are 184 trillion cubic feet, but could double in the future. There may be 30-40 billion barrels of as yet untapped oil reserves, Omiyi stated. ¶5. (C) On security, Omiyi said the GON was looking to the U.S. as a partner, both onshore and offshore. In the meantime, issues with Delta militants remain unresolved as are questions of who provides security. Shell believes the GON should fill that role. Currently, 300,000 BPD are shut in, Omiyi said. Shell has experienced kidnappings and one staff member and three contractors have been murdered. ¶6. (C) On illegal bunkering, Omiyi said there were many complicit relationships between government and criminals. One single company is having 33,000 BPD stolen from its pipelines. Most bunkering takes place by barges tapping into pipelines and then heading for the high seas. Ambassador noted that barges are now mechanized. Omiyi estimated total bunkering at 100,000 BPD, with half taken from IOC producing areas and half from shut-in areas. Bunkerers naturally do not take the same care with environmental precautions as the IOCs. ¶7. (C) Addressing financials, Omiyi said that Nigeria's tax rate was the second highest in the world, with 85 percent tax on top of a 20 percent royalty fees. IOCs therefore made money in Nigeria based on volume, not margin. He said that if the GON does not approach future tax structures carefully, ABUJA 00000735 002 OF 002 that could impact investment, particularly as contractor costs and costs from ongoing conflict were higher in Nigeria than elsewhere. In the past -- before outbreak of violence in the Delta -- onshore costs ran as low as four dollars per barrel. ¶8. (C) Shell is also willing to invest further in electricity production, Omiyi said, once the GON pays in its share for the large gas-powered plant Shell has already built. The government needs help to develop the Delta, and is looking to improve incentives for foreign firms to invest in new power plants to serve local industry and consumers. ¶9. (C) Omiyi reported that Shell had almost reached closure with government officials and Ogoni leaders to commence a $10 million environmental assessment in Ogoniland, to be financed by Shell and conducted by the United Nations Environmental Program. Omiyi downplayed the seriousness of environmental damage in Ogoniland, saying that affected areas were limited and the price tag for the study was driven by high UNEP charges. Shell was willing to incur those costs do to the credibility UNEP would bring to the study. ¶10. (U) Senator's Corker's office did not have the opportunity to clear this cable. SANDERS