Worries over Nigerian security help raise crude price

June 27, 2005
A threat from Islamic terrorists and the kidnapping of six oil workers raised concerns about security in Nigeria and helped push the price of crude oil past $59/bbl on June 20.

A threat from Islamic terrorists and the kidnapping of six oil workers raised concerns about security in Nigeria and helped push the price of crude oil past $59/bbl on June 20.

“The high crude prices are certainly a reaction to the unrest in Nigeria and the effects of western countries removing embassy staff there,” said Daniel Hynes, an energy analyst with ANZ Bank in Melbourne, Australia.

A terrorist threat forced the US, British, and German governments to close their consulates in Lagos on June 16 and 17. The US consulate reopened on June 20.

Intelligence from foreign Islamic militant channels was reported to have uncovered a planned attack on the US presence in the country. Reports did not detail which section of the US presence might be under threat. A US diplomatic source said the consulate closure had averted the threat but said further closures could not be ruled out.

Terrorist leader Osama bin Laden reportedly has called Nigeria a candidate for liberation.

Nigerian exports

According to the US Energy Information Administration, most of Nigeria’s exports of 1.9 million b/d of crude go to the US and Western Europe, with Asia and Latin America becoming increasingly important.

In 2004, according to the EIA, Nigerian crude exports to the US averaged 1.1 million b/d. In December 2004, Nigerian President Olusegun Obasanjo announced intentions for his country to account for up to 15% of US oil imports.

Oil revenues represent more than 95% of Nigeria’s foreign income and more than 80% of total government revenue. But nearly all of the country’s production of around 2.5 million b/d comes from the restive southern Niger Delta region.

To undermine the country’s oil industry, bin Laden seeks to play on tensions in the 130-million strong population, split between the predominantly Christian south and the Muslim north.

The US last month said it had uncovered links between bin Laden’s al-Qaeda network and Nigeria, a report that echoed one in February by the United Nations, which claimed the terrorist organization was making inroads into West Africa as a whole.

US diplomats in Nigeria believe al-Qaeda does not have an active recruiting and training network in the country at the moment, but they note that Nigeria has an open border.


The crude-price rise of June 20 also was partly a reaction to the kidnapping of two German and four Nigerian Royal Dutch/Shell subcontractors by gunmen who had stopped a company supply boat on June 15 as it sailed to an offshore oil field.

The men were released unconditionally on June 18, according to a spokesman, who said the two Germans were in the care of their direct employer, Bilfinger Berger Gas & Oil Services Ltd., an affiliate of German construction giant Julius Berger, which provides services to oil and gas companies in the Niger Delta region.

A Nigerian group called the Iduwuni National Union for Peace and Development claimed responsibility for the kidnappings. The group demanded that Shell pay local communities $20 million in compensation for pollution and environmental degradation.

Shell reportedly said the Iduwuni group also was dissatisfied with the company’s efforts to deliver promised jobs and amenities to nine communities near a key offshore oil field in Nigeria.

Oil workers in the region have long been subjected to kidnapping by local militants determined to obtain concessions from international oil companies. However, the kidnapping of the six workers may also be linked to disgruntled representatives at a conference on Nigeria’s constitution.

On June 16, negotiators announced a 1-week postponement of the constitution-writing conference after delegates from a southern oil-producing region walked out over a dispute in sharing petroleum revenues with the central government.

On June 14, the day before the kidnapping, conference delegates voted to give petroleum-producing states 17% of the oil revenues from their areas, with the rest going to the central government.

But participants from the Niger Delta walked out after having campaigned for a 50% share in the petroleum revenues from their region.

On June 16, the delegates said they would return only if the conference agreed to give oil-producing states 25% of their oil revenues at first and to increase that amount to 50% over 5 years.

“As the bearers of the brunt of petroleum exploration and exploitation, we live with a devastated and polluted environment, inhospitable and fragile terrain that makes infrastructural development difficult and expensive,” the oil-region delegates said in a letter released to reporters.