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Thesis & Antithesis

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greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

19 February 2006

African oil

Two oil stories are making headlines in Africa these days: civil unrest in Nigeria and government management of oil revenues in Chad. The two stories are emblematic of the challenges that oil producers face and the developments there merit close attention.

In Nigeria, nine foreign workers have been kidnapped following a declaration from the Movement for the Emancipation of the Niger Delta which declared “total war” on foreign oil companies and gave them until Friday tonight to leave the country. The background to this latest events is well narrated in a Christian Science Monitor article: the dispute includes “local control of oil wealth, a $1.5 billion payment by Shell to compensate for pollution, and the release from jail of an oil-region militia leader … The dispute [in January 2006] grew out of a disagreement over which contractor should clean up the oil spill. In the wake of the accident, the village council appointed a contractor to do the job. Shell appointed another, and when he arrived, villagers chased him away. The reason: The village-appointed firm had agreed to do such things as fixing the village's defunct water wells and providing plastic chairs for residents sit on.”

In Chad, a battle is developing between the World Bank and the national government over an agreement on how to spend oil revenues. The World Bank helped finance a 670-mile pipeline on the condition that the money would be spent on poverty reduction programs. Since then, the Chadian government has come under pressure and has chosen to revise the agreement with the World Bank, prompting the bank to suspend “$124 million of International Development Association funds allocated to eight Chadian projects.”

In a general sense, both stories underscore the political troubles that emerge from oil. In Nigeria, it is likely that the increased militarism will force a greater consensus against the interests of the Niger Delta people; it is also likely to increase the premium for doing business in Nigeria, adversely affecting their and their country’s overall interests in the long run. In Chad, the story is more complicated and less explosive at the moment; but this battle between the World Bank and the government underlines the difficulty of handling oil revenues: the presence of the World Bank has allowed for more leeway, but it has also showed the limits of trying to make an a priori agreement about how to distribute oil money.

References:
“Oil workers kidnapped in Nigeria,” BBC News, 18 Feb 06 (link); “FACTBOX: Nigeria’s foreign oil firms,” Reuters News Alert, 18 Feb 06 (link); Abraham McLaughlin, “Behind rising oil cost: Nigeria,” Christian Science Monitor, 19 Jan 06 (link)

“The Chadian experiment,” Oil & Gas Journal, 13 Feb 06; Lydia Polgreen + Celia W. Dugger, “Chad's Oil Riches, Meant for Poor, Are Diverted,” New York Times, 18 Feb 06 (link)

A summary, from Reuters, of foreign operations in Nigeria: “Royal Dutch Shell is the largest, producing over 40 percent of Nigeria’s oil. It employs 5,000 people; Exxon Mobil is Nigeria's second largest oil producer, with about 720,000 barrels of oil equivalent per day (boepd) of crude, condensate and natural gas liquids. It has 1,900 employees; France's Total produced around 270,000 boepd in 2004 in Nigeria and has about 1,200 employees; Italy's ENI produced around 161,000 boepd in 2004; U.S. major Chevron averaged production of 117,000 bpd of oil in 2004. It employs over 2,000 people.”

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