Nigeria: Will China’s oil firm be different in operations in the Niger Delta?

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The spread of China in Africa is taking shape in Nigeria’s oil fields as contract books, and oil drilling licenses exchange hands in Nigeria’s capital city of Abuja. The Nigerian government is planning to sell large stakes of its oil slabs, especially the ones currently unused by western energy firms, and China is ready to buy. But will the Chinese oil firm operate differently?

Cnooc, one of China’s state-owned oil and gas groups, is vying to secure 49 per cent stakes in 23 oil blocks, partially or wholly owned by western oil companies in a deal that might be worth over $30bn, Financial Times reported. The proposals which officials say are in the early stage of negotiations would see the Chinese firm gain control of more than one in six barrels of crude in Nigeria.

“We are in talks with many companies at the moment and certainly Cnooc is one of those. They have been a good company for us and we will see what happens,” Nigerian Oil Minister Rilwanu Lukman was quoted in an interview with local reporters.

Despite the promises of improved oil production in the offer by China, some Nigerian officials worry that the Chinese practice of importing its own staff could worsen bitterness in the delta.

Cnooc Ltd. is also reported to be in talks with Uganda over a large oil project. This report follows confirmation by Nigerian government officials on Tuesday, September 29, 2009, that the Chinese firm is in quest of Nigerian oil blocks. China’s trade and investment has significantly reduced Africa’s dependence on traditional partners in Europe and the US; fuelling the continent’s impressive growth in recent years, experts have said.

The U.S. and European oil companies however, are still the biggest operators in Nigeria, but the Nigerian government has reportedly grown critical of the western firms for not fully utilizing their onshore drilling licenses. Experts and analysts, believe that this criticism is a mere bargaining tactic.

Most of the licenses operated by Royal Dutch Shell, Chevron and ExxonMobil had originally expired last November and December. Royal Dutch Shell PLC has sold some of its unused drilling rights to other companies, and looking to sell some additional oil holdings in Nigeria, it is reported.

Chevron and Exxon won a year’s extension to the rights, meaning their licenses are due to expire later this year, while Shell successfully sought a court injunction allowing it to continue to operate its blocks while it challenged the expiry, a Nigerian oil industry source said.

The International Energy Agency forecasts Chinese crude oil demand to grow to 8.3 million barrels per day for 2009. This demand will slightly fall in October due to higher domestic inventories, and then increase to 8.6 million barrels per day in 2010. With domestic production basically flat, China must import almost two-thirds of the oil it needs.

Rebel warning

The Movement for the Emancipation of the Niger Delta advised Cnooc Ltd. not to invest in Nigerian oil until peace was achieved in the Niger delta region. The rebel group on September 29 2009 opposed a bid by the Chinese firm to secure 6bn barrels of crude reserves.

“The Chinese should be careful about investments until there is justice in that region. We can guarantee that if the government of Nigeria fails to address the root issues, the Chinese will regret they were negotiating with the wrong people,” a spokesman for the Movement for the Emancipation of the Niger Delta (MEND), is quoted by reporters.

MEND claim that China’s entry into the oil industry in Nigeria will be a disaster for the oil-bearing communities, given Chinese companies’ record in other African counties. MEND is notorious in blowing up pipelines, oil facilities, and kidnapping oil workers in the name of justice for the people of the delta, who remain poor despite the oil wealth beneath their lands.

The group is also involved in the bunkering and illicit trade of oil; a multi-billion-dollar industry. The unrest has cut Nigeria’s oil production by a million barrels a day, allowing Angola to overtake it as Africa’s top oil producer.

Nigeria currently pumps between 1.8 million and 1.9 million barrels a day, with over 500,000 barrels a day of oil production capacity cut down by the militant attacks, the Paris based International Energy Agency estimates. The militants want the government to send federal oil revenues to the impoverished area, to withdraw troops and help people return to their homes.

A cease-fire between the rebels and the Nigerian army declared in July expired in September, but the rebels announced they would extend it for one month, holding off on planned attacks on oil installations and kidnappings. A statement from the rebels urged the Nigerian government to use the truce extension to enter into serious peace talks and offer concessions.


Chatham House, a U.K.based think tank, published a study highlighting how a series of oil deals, signed with the Nigerian government back in 2004-2005 in exchange for bankrolling infrastructure projects with Asian companies, including Chinese state-run firms, had generally failed to produce their proposed result. The biggest reason for the failure, it said, was the Nigerian government’s lack of follow-up mechanisms to enforce the deals. Nonetheless it remains unclear if Cnooc Ltd. is offering to invest cash on more non-oil projects in the latest round of contract negotiations.

Following Cnooc’s interest, the Nigerian government is hoping a recent cease-fire agreement in the country’s main oil-producing Niger Delta region will continue so producers can restart operations in various areas. But analysts say the government’s policy of paying militants to lay down their arms has generally failed because the root causes of the militancy which has been poverty and lack of education and life opportunities, hasn’t been tackled.

Africa’s trade with China has doubled in the last three years, reaching $106.7 billion in 2008, according to the Financial Times. A new UN study argues that African governments and companies must play smart if they are to reap the full benefits of South-South trade: “Whilst some emerging economies have a strategy for Africa, Africa does not have a strategy towards the emerging economies,” notes the UN Office of the Special Adviser on Africa (OSAA) in the new report.

According to MEND, and its supporters, the people of the Niger Delta have suffered record degradation of their environment due to unchecked pollution produced by the oil industry. As a result of dispossessing people from their lands in favor of foreign oil interests, within a single generation, many now have no ability to fish or farm. People living in the Niger Delta have found themselves in a situation where their government and the international oil companies own all the oil under their feet, the revenues of which are rarely seen by the people who are suffering from the consequences of oil activities.

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