IRIN Focus on shift towards offshore oil production

Most of the oil that has earned Nigeria close to US $340 billion since production began over four decades ago has come from onshore sites. From the initial exploration efforts by Royal/Dutch Shell in 1937 up until 1993, all oil activity in the country was restricted to land and shallow waters close to communities in the Niger Delta in the south. As resentment built up among impoverished locals who felt neglected by the government and oil companies despite the huge wealth pumped from their backyards, oil facilities became easy targets for their anger. From the early 1990s, the south was hit by a spate of seizures of oil installations, abductions and other violent acts by militant youths demanding more access to the oil wealth for their people. By the late 1990s, such violence had disrupted production to such an extent that it sometimes reduced Nigeria’s daily crude oil output of about two million barrels by up to a third. For a government that depends on crude oil exports for more than 95 percent of its export income, it was a hard blow. For the oil multinationals, it meant increasing risk. Although onshore production costs in Nigeria are reputed to be the lowest in the world at under two dollars a barrel, this particular attraction was steadily diminished by the increasing risk of operating in the Niger Delta. One major consequence of these developments has been a shift to offshore oil production. The shift was initially slow, but it recently became faster. New oilfield spurs offshore drive "A major spur for offshore oil exploration in Nigeria was the huge discovery made by Shell in its deep offshore Bonga Field," an oil industry expert, Emmanuel Effiong-Duke, told IRIN. "There were also important discoveries by TotalFinaElf and Chevron-Texaco." Effiong-Duke said Shell’s Bonga Field alone was estimated to have total oil reserves of up to two billion barrels and the belief in the oil industry was that there were other, equally prodigious, fields in Nigeria’s deep offshore waters. Exxon-Mobil, Effion-Duke said, always had the bulk all of its operations offshore, "and the fact that it was the least affected by communal disturbances in the oil region was a salutary lesson for all". When President Olusegun Obasanjo announced a fresh round of oil exploration licences early in 2000, barely one year after his election, 11 of the 22 oil blocks on offer were in deep offshore waters, seven were in shallow waters and only four were onshore. While oil multinationals scrambled for the deep offshore licences, there were no bids for the shallow-water and onshore concessions located near the Niger Delta’s restive communities. Although the cost of offshore production, at over US $4 a barrel, is double that of producing onshore, the oil multinationals appear undeterred. With the help of latest oil exploration and production technology, they appear to get more value in the deep waters than in or near the Delta. Closely tied to the 2000 oil-licensing round is an aggressive programme by the government to increase Nigeria’s oil reserves from 20 billion to 30 billion barrels by 2003, and to 50 billion barrels by 2010. Nigeria also hopes to raise its production capacity, now two million barrels per day (bd), to three million bd by 2003 and five million bd by 2010. Confirmed offshore oil deposits has increased from about 30 percent of the country's total reserves in 1997 to about 50 percent today. As Nigeria moves closer to the reserves and production targets set by Obasanjo, this percentage is likely to increase to more than 70. More for the federal government, less for the states These developments are bound to benefit Nigeria’s federal government. In April, the Supreme Court ruled (in a suit brought by the Obasanjo administration against states in the oil region) that the federal government had exclusive control over all revenue from offshore oil and gas operations. This was in the face of agitation by states in the oil region for more control of revenue from resources derived in their area. Activists in the Niger Delta are alarmed by the current trend. Their fear is that after decades of environmental degradation and impoverishment due to oil activities, the federal government and oil multinationals are now preparing not only to deny their states potential revenue, but also to abandon them to their fate. In a joint statement last week, two leading activist groups in the volatile Niger Delta, the Ijaw National Congress (INC) and the Movement for the Survival of Ogoni People (MOSOP), accused Obasanjo's government of aggressively developing offshore oilfields in order to abdicate its responsibilities to the poverty-stricken region. "The INC and MOSOP naturally view the proposed response to rely on offshore oil as ill-conceived, unjust and at odds with the interest of the Nigerian nation," INC and MOSOP said a joint statement. "Apart from being an ignoble retreat from its responsibilities to the people of the Niger Delta, we also see this as a proposal for the economic strangulation of the Niger Delta until we are ready to submit to the government and oil companies on their own terms," they added. The two groups claimed that a presidential committee on security in the oil region, comprising top military and security chiefs and representatives of oil companies, had advised the government to concentrate on offshore oil production as an effective way of containing the disruptive effects of unrest in the region. They argued that lasting solutions were likely to be found only by addressing the "development and environmental problems" of the Niger Delta. Many analysts agree that the shift to offshore production will be effective in curtailing the disruption of oil production by militants that had become a regular occurrence in the last decade. But most believe it will deepen the anger of the people in the region and leave its longstanding political problems festering. "In the short run it will strengthen the hand of the federal government and give it access to more oil revenue," analyst Tunde Balogun told IRIN. "But then, there is the danger that even state governments in the region will join activist groups in pulling Nigeria at the seams, further undermining the multiethnic country’s fragile unity."