Nigerian Oil: the Role of Multinational Oil Companies

Nigerian Oil: The Role of Multinational Oil Companies

Amarachi Okorie

E297c Term Paper

Spring Quarter 2005

Outline

Introduction

Background
Oil Producing Regions & Peoples
National History of Mismanagement
Legacy of Oil Production
Corruption, Crime, Conflict
Corruption and Crime
Conflict and Displacement
Environmental Disaster
Oil Spills
Gas Flares
Consequential Poverty
Repairing the Niger Delta
Eradication of Conflict and Violence
Improving Security Policies
Mediation Within Communities
Judicial Reform
Self-Governance
Environmental Restoration
Pollutants
Health Education & Benefits
Natural Resource Conservation
Addressing Poverty
Compensation
Community Building
Education & Employment
Positive Development
Chinese in Africa
Renewable Energy
Conclusion

References

Introduction

Although Nigeria is the largest African oil exporter and the fifth among the Organization of Petroleum Exporting Countries (OPEC), over 70% of its population lives in poverty. The petroleum sector currently makes up about 40% of the GDP, and about 95 percent of exports. With over 35 million barrels in oil reserves and producing about 2.5 million barrels per day, the Niger Delta region in southern Nigeria is a major crude oil exporter to both the US and Western Europe. But despite the apparent abundance of such a coveted and lucrative resource, the economic situation in Nigeria is appallingly non-correlative.

The objective of this paper is to examine the role of multinational oil companies in the culture of economic and environmental impoverishment; to consider what compensatory action should be taken by these entities, and also recommend various strategies and programs they should implement to bolster and restore the Niger Delta.

In the following sections, I first describe the oil-producing areas, followed by an overview of historical factors that have contributed to the long-ailing Nigerian economy. Next, I examine the socio-economic, political and environmental consequences of oil drilling and production, focusing on the role of multinational corporations involved. Third, I prescribe strategies for compensation and development that the oil companies should adopt in order to rebuild and develop their host communities, as is their responsibility. And last, I discuss successful investment and development projects to serve as exemplary models for multinational oil companies.

I. Background

In order to appreciate the oil issues plaguing Nigeria, it is important to first understand the geography of the oil-producing regions, and identify the primary beneficiaries of the highly lucrative oil industry.

A. Oil Producing Regions & Peoples

The majority of Nigerian oil is located in close to 250 small fields in the Niger Delta, with less than 50 million barrels per field. The following map shows the location of the Niger Delta region, with key oil fields highlighted:

Figure 1: Map of the Niger Delta

The Niger Delta is in Southern Nigeria and consists of the tributaries that run from the Niger River, through the land, and into the Atlantic Ocean. The cities of Port Harcourt and Warri are home to major oil refineries owned jointly by the major multinationals and the Nigerian National Petroleum Corporation (NNPC). The following table displays these companies, their stakes in the major fields along with their production quantities.

Major Nigerian Oil Production Joint-Ventures
Operator
(% interest) / Other
Partners
(% interest) / NNPC
(% interest) / Major Producing Fields / Production
Barrels per Day
Shell (30%) / TotalFinaElf (10%)
Agip (5%) / 55% / Bonny or Eastern Division - Nembe, Cawthorn Channel, Ekulama, Imo River, Kolo Creek, Adibawa and Etelelbou
Forcados or Western Division - Forcados Yorki, Jones Creek, Olomoro, Otumara, Sapele, Egwa and Odidi / 950,000 (2003 Est.)
ExxonMobil (40%) / None / 60% / Edop, Ubit, Oso, Unam and Asasa / 500,000 (2003 Est.)
ChevronTexaco (40%) / None / 60% / Meren, Okan, Benin River, Delta/Delta South, Inda, Meji and Robertkiri
Funiwa, Middelton, North Apoi, Pennington and Sengana / 485,000 (2003 Est.)
Agip (20%) / Phillips (20%) / 60% / Obama, Obiafu, M'Bede, Abgara and Oshi / 150,000 (2003 Est.)
TotalFinaElf (40%) / None / 60% / Obagi, Aghigo, Okpoko, Upomami, Afia and Obodo-Jatumi / 150,000 (2003 Est.)

Table I: Oil Fields in the Niger Delta (from the US Energy Information Administration)

The locations listed in the fourth column represents the numerous communities and peoples of the tribes in Imo, Edo, Abia, Delta, Ondo, Edo, Rivers, Akwa Ibom, Baylesa and Cross Rivers states. These ethnic groups include the Ijaw, Ogoni, Urhobo, Itsekeri, Ogba, Egbema and Ndoni.

According to the Nigerian constitution, the federal government owns all minerals, oil, and gas in Nigeria, and thus has preeminence over the oil in the Niger Delta. Table I shows that the Nigerian government, through the NNPC, holds 55 to 60% of the production interest in these primary fields. But despite its dominant stake, the oil revenue has not made significant positive difference in the lives of the citizens of those regions.

B. National History of Mismanagement

Since 1970, when Nigeria began large-scale exportation of crude oil, a long string of corrupt military dictators, politicians and government officials, both domestic and international, have profited from bribery, kickbacks, and other dishonest means, on a relentless march of exploitation that has consistently sunk the oil-rich country into the list of the 30 poorest countries in the world. A 2002 World Bank document on the OPEC revealed that approximately 80% of revenues from Nigerian oil and natural gas accrue to only 1% of the population. The other 20% of revenues is spread out to 99% of the population, “leaving Nigeria with the second lowest per capita oil export earnings put at $212 (N28,408) per person in 2004” [Vanguard].

Additionally, there are the losses caused by corruption and crude oil theft, estimated at more than 100,000 barrels a day. According to anti-graft chief Nuhu Ribadu, corruption costs Nigeria 40 % of $20 billion annual oil income, and about 4% of national oil exports are stolen every day in Nigeria (Reuters). Also, a commission of inquiry lead by economist Pius Okigbo, appointed by General Abacha shortly after taking power in 1993, estimated that $12.2 billion in oil earnings had disappeared between 1990 and 1994 [HRW]. In a government rife with bribery and corruption at all levels, many such incidents of wrongdoing occur with no individual or organization held to account.

In the remainder of this paper I highlight the role of multinationals in funding and perpetrating such systematic abuse of power and resources by first examining the socio-economic and environmental impact of the presence of oil corporations in the Niger Delta area of Southern Nigeria.

II. Legacy of Oil Production

There are 18 international oil companies operating in Nigeria, with a few dominant players such as Shell, Exxon/Mobil, Chevron/Texaco, Elf and Agip accounting for an estimated 99% of the crude oil production [NIPC]. Some of these majors, for instance Shell, have had a presence in Nigeria since the 1950s; it is thus important to examine the long-term impact of their presence and policies on the tribes and peoples of the coastal Niger River Delta in order to determine a path towards repair of economic and environmental damages. The most serious consequences of oil drilling and production in the Delta include the persistence of unrest and crime due to corrupt, ineffectual governance and the degradation of life-engendering natural resources.

Corruption, Crime, Conflict

Over the decades of oil production, the severe corruption problem at the federal level has seeped down to local levels, to the heads of the communities in the Niger Delta. With numerous complicated layers composing the system of bribery, payoffs and kickbacks, oil-motivated crime and conflict between indigenes and the government-backed multinationals, have given rise to unsafe, violence-ridden communities. These problems have been worsened by a chronic lack of transactional transparency and concern for the welfare of indigenes. Federal and state government officials, the military, representatives of multinational oil companies, heads of local communities, and gangs have jointly woven the tangled web of corruption and crime.

1. Corruption and Crime

The percolating resentment of inequitable and negligent fiscal policies amongst the peoples and tribes of the Niger Delta towards the government and oil companies has erupted into more frequent and explosive confrontations in recent years. For instance, in their desperation towrest a livelihood for themselves, unemployed youth join tribal warlords, gangs and militant groups to takeover oil fields, sabotage facilities, kidnap oil workers, andengage in other aggressive negotiation tactics, intending to force multinationals to acquiesce to various monetary, political and social demands.

Among the elements fueling tensions is the issue of awarding “protection” contracts and employment. Contracts are essentially payoffs granted by oil companies to local chiefs and influential people in the communities. They are awarded, purportedly, to protect oil-drilling operations from piracy and crude oil thievery (bunkering) by other gangs. The contracts are also used to distribute employment to a very limited pool of indigenes. They are often inequitably and corruptly distributed, and end up pitting tribe against tribe, gang against gang, and result in intra- and inter-community rivalries and violence.

2. Conflict and Displacement

In recent years, thousands of civilians have been caught and massacred in the crossfire between the military-backed oil companies and tribal gangs, and well as local militants, and even environmentalists. Most notorious were the 1999 assassination of Ogoni environmental and social activist Ken Saro-Wiwa and the subsequent rioting and annihilation of the town of Odi by Nigerian military forces on behalf of Shell.

Numerous similar incidents of unrest quelled by force in towns such as Umuechem and Tombia have resulted in appalling loss of lives and property, as well as the displacement of citizens, with a handful of major cities like Port Harcourt experiencing a surge in refugee emigration from the oil-producing regions. There have also been incidents of peaceful protests, as in the town of Kaiama, during which hundreds of youths were gunned down and women violated by the federal soldiers called in by oil companies [BBC].

Such military involvement, at the request of the power-wielding multinationals, has done nothing to resolve the larger problem of the efforts of the oil companies, both active and passive -- in collusion with the federal government -- to suppress the rights and rightful privileges of the Niger Delta peoples by consciously and systematically eliminating them from decision-making processes. These policies have resulted in decades of blatant dispossession and exploitation of land resources without substantial reciprocal compensation or community development. Moreover, lack of self-determination and social justice leads to further unrest, as uneducated, jobless and hungry young men continue to join ethnic and political militias to vent their frustration and earn livelihoods from oil bunkering and piracy.

Environmental Disaster

The regions of the Niger Delta are known for their highly swampy conditions ideal for a fishing economy, but after over four decades of oil spills and gas flares, much of the fishing creeks are now barren; land has been seriously damaged and reduced to wasteland.

1. Oil Spills, Leakage and Waste

Based on quantities reported by the operating companies, the NNPC estimates that approximately 2,300 cubic meters of oil are spilled in 300 separate incidents every year. And due to under-reporting, the aggregate spillage is believed to be at least ten times higher. A Human Rights Watch report also cites statistics from the Department of Petroleum Resources (DPR) that between 1976 and 1996 a total of 4,835 incidents resulted in the spillage of about 2.5 million barrels (102.7 million U.S. gallons), of which an estimated 1.9 million barrels (79.7 million U.S. gallons; 77 percent) were lost to the environment [HRW]. Records for the period show that approximately 6%, 25% and 69% respectively of the oil spilled in the Delta were in land, swamps and offshore ecological beds [CEAR].

A 1998 Oil Spill Intelligence Report documents the largest Nigerian spill, an offshore well blowout in 1980, during which more than 200,000 barrels of oil (8.4 million U.S. gallons) discharged into the Atlantic Ocean from a Texaco facility. DPR estimated that over 400,000 barrels (16.8 million U.S. gallons) were spilled in this incident [OSI]. Following this major 1980 spill, as many as 180 people from one community were reported dead as a result of water pollution. In fact, tests conducted to determine the hydrocarbon content of drinking water in some Delta communities found levels of 360-600 times the levels allowed in European Union countries [HRW].

The saturation of soil with hydrocarbon content from oil spills is similarly dismal. In addition to harming human life, vegetation such as mangrove forests is particularly susceptible to oil spills, because the soil soaks up the oil, and it is released every rainy season. The 1980 spill destroyed 340 hectares of mangroves. And all over the Delta there have been numerous reports of dying marine life, of severe impact to fishing communities.

In a human rights violation press release, the Environmental Rights Action (ERA) in Nigeria held ExxonMobil responsible for a 1998 oil spill in Akwa Ibom State, which released over 40,0000 barrels of crude oil into area rivers, creeks and farmlands. The spill has continued to affect the ecological systems of several neighboring communities in Rivers, Bayelsa and Delta states [ERA]. Other oil companies, including Shell, have received similar attention for environmentally destructive production and disposal practices.

In addition to oil spills, damaged and corroded pipelines have leaked significant amounts of oil and production waste into the environment. Oil and gas pipelines are ubiquitous and have contributed to the devaluation and destruction of farmland and natural vegetation.

High pressure pipelines are susceptible to oil leaks; they “spurt out over a wide area, destroying crops, artificial fishponds used for fish farming…economically valuable trees…and other income-generating assets….a small leak can wipe out a year’s food supply for a family, with it wiping out income from products sold for cash” [HRW].

2. Gas Flares

In addition to degradation of air and water quality from oil pollution, gas flaring – the practice of burning off natural gases that are byproducts of oil production - causes acid rain, which damages and hinders the pollination and growth of crops in these predominantly farming communities [TO]. An estimated 20% of global gas flares occur in the Niger Delta, from approximately two billion cubic feet of natural gas burned daily. Gas flares are also suspected to contribute to global warming which leads to increases in GHG emissions and frequency of natural disasters like flooding.

Further, the toll exacted by air pollution and induced hotter temperatures on the health of the people who live in very close proximity to the oil plants, and who live in impoverished village settlements without hospitals, electricity or clean running water, has been extreme and largely disregarded by oil companies, the Nigerian government, and the international community at large.

Consequential Poverty

Most communities in the Niger Delta earn their livelihoods by fishing and farming. But with the land devaluation and damage to natural resources, agriculture has suffered, food has become increasingly expensive and even scarce, and exportation of key crops such as palm products has decreased dramatically.

With corrupt administration at all government levels, necessary infrastructure such as roads, clean running water and electricity are unavailable to these communities, worsening their conditions. Proper healthcare is also not accessible to numerous localities, where the effects of environmental pollution are the most evident.

Exacerbating the poor living conditions is the widespread lack of formal education and literacy. Moreover, adequate higher education is for the well-to-do, leaving virtually the entire population barely literate, unemployable and collectively incapable of communal self-development.

Further, the oil companies in the region only train and employ a handful of indigenes for jobs other than manual labor, choosing instead to bring in predominantly foreign workers. As a result, the income and profits from oil drilling do not significantly infuse the local economy. And given the historical lack of adequate economic compensation or social responsibility, by both oil companies and the federal government, the peoples of the Niger Delta have continued to marinate in poverty despite the world-coveted treasure in their own backyard.

III. Repairing the Niger Delta

In view of the devastating legacy of oil production in Nigeria, and the lack of just, corruption-free government, I propose that the multinational oil companies take a more proactive role in securing and safeguarding the right of the peoples of the oil-rich Niger Delta to freedom and a livelihood. They should implement reparatory action to mitigate the decades of damage wrought on the peoples and lands of the Delta as a result of oil production.

In this section I recommend action for the oil companies to take in response to the major problems presented in the previous section. National and international rights groups such as the Environmental Rights Action (ERA) group in Nigeria and Human Rights Watch have made some of these recommendations in the past.

A.Eradication of Conflict and Violence

Oil company prerogatives have long been at the heart of conflicts and crime waves that have claimed the lives and livelihoods of many indigenes of the Delta. With great leeway given by the Nigerian Federal government to largely act as sovereign entities, multinationals have great responsibility in ensuring that the unrest arising from discontent over their policies be handled with methods in keeping with human rights standards.