Nigeria a valued but risky oil source

Shift supervisor Ojerinde Kanoru aboard a floating oil facility 75 miles off the coast of Nigeria.

TEXT OF INTERVIEW

KAI RYSSDAL: Probably should have mentioned this as a factor in the rally on Wall Street today. Oil fell to $134 a barrel, down another 4 bucks at the close. Of course, the price of crude is a fickle beast. And today's a great example. There was an unexpected rise in U.S. oil inventories, usually something that makes prices go down as they did today.

But there was also another militant attack in Nigeria's oil-rich Niger Delta, something that usually makes prices rise. Seeing as how Nigeria produces about 2 million barrels of crude a day, it seems like the next logical step on our tour of why oil prices move the way they do.

Fareed Mohamedi is with the consulting group PFC Energy in Washington. Mr. Mohamedi, welcome to the program.

FAREED MOHAMEDI: Good to be here.

RYSSDAL: Place Nigeria for me in the context of the world oil market, would you?

MOHAMEDI: Well, it is a very important producer for a number of reasons. One, it is a producer of light, sweet crude. And the problems we're having in the world in terms of shortages is really related to light, sweet crude. Those are crudes that you can get high-yielding products like gasoline quickly. Secondly, it's in the Atlantic basin. It's a short ride to the United States and the U.S. has sought out Nigeria as one of the places it wants crude from because it helps diversify our supplies, possibly away from the Middle East.

RYSSDAL: Seems to me it's also important, though, for the headlines that pop up with increasing frequency saying, "Militants attack in the oil-rich south," "Shell pipeline shut down," or whatever company it is. It is extremely unreliable, no?

MOHAMEDI: Yes, it has become a major contributor to price volatility because at any given time something like 600,000 barrels-plus can go off-line. And, in fact, there are whole regions in the Niger Delta that are ungovernable and that are out of the control of the government, and have been taken over, as you say, by militants. And actually the reason that you have these stoppages is because these different groups, especially in the Niger Delta, feel that they are not getting their just share, and saying, "No, we want it now." And especially now because they're so desperate, firstly with their own conditions. But they're frightened that this time the oil boom will leave them behind. And then, once they get ahold of the barrels, they smuggle them, they sell them, they've become self-financing.

RYSSDAL: Let me get back to your point, then, about the United States hoping to get more oil from Nigeria. What does that say about American policy going forward? What can we do to insure that supply?

MOHAMEDI: Well, the U.S. hoped, that as more and more supplies came off deep off-shore, as they call it, from these platforms off the coast, that they would be away from politically volatile areas. But, unfortunately, even those areas have come under attack with . . . recently there was an attack seven miles off the coast by rebel groups.

RYSSDAL: Is there going to come a day when foreign oil companies, the big foreign oil companies, say, "You know what, Nigeria is too hard. It's not worth it. The government's not protecting us. We can't afford to protect our assets there," and they just pull out entirely?

MOHAMEDI: Well, yes, there has been talk about their own personnel, who have been kidnapped and shot at and attacked, on the one hand. On the other hand, the reputation risk. Remember, Shell had a problem a while back associating with an area that had severe human rights problems. So these companies are really re-evaluating. It's still a fluid situation. I think that the fact that it's difficult to find new sources of oil will keep the major oil companies there.

RYSSDAL: What about rising demand from countries like China and India? I mean, it's not like the United States is the only oil customer out there.

MOHAMEDI: No, in fact West African crudes are highly coveted in Asia because they're light, sweet and their refining systems are not as sophisticated in Asia. They also want to diversify away from the Middle East, so they also look at Nigeria as a place to diversify.

RYSSDAL: Mr. Mohamedi, thank you so much for your time.

MOHAMEDI: Thank you.

RYSSDAL: Fareed Mohamedi covers markets and country strategies for PFC, that's a consulting firm in Washington, D.C.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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