Deadly mixture of guns and oil: those living, or trying to make a living, in the oil-producing Delta region of Nigeria have always demonstrated acute resentment at the way they have been treated by the government and oil companies; now, as Neil Ford reports, there seems to be an upping of the ante.

Government reforms finally seem to be making a big difference to Nigeria's economic stability. The revolution in the banking sector has taken many by surprise, the country is developing one of the world's biggest gas industries and some progress has been made on nurturing a significant non-oil sector.

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Yet the various social, ethnic, regional and religious differences that have long helped to stifle development are continuing to undermine the progress that has been made. Inter-religious attacks have left many dead, while the Niger Delta has once again erupted, highlighting deep divisions and inequalities within Nigerian society.

The recent spate of kidnappings, shootings and pipeline blasts in the Niger Delta have had a massive impact on oil production. Shell's output fell by 455,000 barrels a day (b/d) for a time, forcing international oil prices up by between $1 and $2 a barrel.

Nigerian crude is particularly important because it is mostly light sweet crude, which is favoured by refineries around the world. Other Opec states are operating at close to full capacity at present and there is little spare capacity to compensate for supply disturbance, such as the current instability in the Delta.

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Supplies of refined petroleum products have also been affected by a second bomb attack in recent years on the pipeline that supplies the 125,000 b/d Warri oil refinery. The plant was able to continue production for three weeks as it was able to use stores of crude oil but Nigeria has too little refining capacity to be able to cope with the loss of so much capacity.

A new group called the Movement for the Emancipation of the Niger Delta (Mend) has admitted responsibility for some of the attacks and kidnappings. Some of the hostages have been released and most say they have been well treated but there have been fatalities elsewhere.

An assault on premises owned by Italian oil company Eni-Agip in Port Harcourt resulted in the deaths of eight policemen; while there have been several other shootings and militants also set fire to the Forcados export terminal. Mend has threatened 'total war' in an effort to drive the oil companies out of the Niger Delta, arguing that their operations have resulted in deteriorating living standards in the area.

However, some of the pipeline attacks have stemmed from the various gangs who steal oil to sell on the black market.

Is government unconcerned?

Given that the onshore and shallow water fields of the Niger Delta are estimated to contain about 35bn barrels of oil and most of the country's proven natural gas reserves, it might be expected that the instability would be a major government concern.

Yet Nigeria's oil minister Edmund Daukoru tried to play down the impact of the unrest, arguing that all of the reduced production capacity would be quickly restored. He said: "We have never had a Niger Delta situation where we had a large volume of production taken out for a long time. This was an isolated incident."

Daukoru himself comes from the Niger Delta and he has put some time into finding solutions to the problems of the area since being appointed as presidential adviser on petroleum and energy.

It is true that unrest and armed attacks in the Niger Delta are nothing new, but the frequency of the disturbances has varied greatly over the past 20 years.

Although there is a great deal of resentment towards the oil industry for the various instances of air, water and land pollution, the poverty of many people in the Delta lies at the heart of the problem. The wealth generated by the oil industry has benefited the oil majors themselves and particularly individuals in Nigeria, but the bulk of the population has seen little benefit from the development of national natural resources.

In any event, social unrest and armed attacks are unlikely to have much impact on Nigeria's expanding deepwater arena, where most of the country's new production capacity is being developed, precisely because the oilfields are located some distance offshore.

Moreover, production on a string of the new deepwater fields is being enabled by the use of floating production, storage and off-loading (FPSO) vessels, so the oil produced never has to come on shore. As a result, there are virtually no opportunities for kidnappings or other direct attacks.

The oil industry has managed to operate offshore and in heavily protected onshore areas for many years in countries such as Congo-Brazzaville, Algeria and Angola, during the height of their civil wars, so while the majors would prefer a safer and more stable security situation, they are unlikely to be deterred from making further investment in the country.

Moreover, partly in order to improve their public image and partly to deter attacks, many oil companies have funded local development projects in the Delta. Schools, clinics, roads, power lines and other infrastructural schemes have all been funded, both by the oil firms themselves and by government agencies that in turn have been financed by oil revenues, channelled back to the oil producing region by the federal government in Abuja.

Sources of resentment

However, the diverse ethnic make up of the region--which contains about 250 different ethnic groups, none of which is particularly large--means that the distribution of this funding has been questioned by many. There are so many separate groups in the Niger Delta and development projects have been provided or funded on a rather piecemeal basis, so jealousies have inevitably sprung up.

Another source of resentment stems from the lack of direct links made between the people of the Delta and the oil industry. Almost all industrial materials, foodstuffs and skilled staff required in the oil and gas industry come from outside the Niger Delta and indeed from beyond Nigeria.

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In general, the only jobs available to the bulk of the inhabitants of the Delta are low-skilled positions in catering or security but even the employment that has been generated has done little to help tackle the problem of unemployment and underemployment in the region. As a result, few local people have a direct stake in the success of the oil sector.

The region is one of the less economically developed parts of Nigeria and so some disaffected groups have used opportunities for kidnap and ransom in order to improve local conditions or generate employment. Opec interim secretary-general Alhaji Mohammed Barkindo commented: "Although the Niger Delta is a domestic problem, the impact of the recurring problems there is felt internationally. If you have any hiccup in production facilities in that area it has impact internationally. You have seen in the last couple of weeks how the Niger Delta, with Iran, literarily dominated the entire global scene. Now, the fact that the Opec president is from that part of the country also gives us some credibility, and when he speaks for Nigeria, especially on those issues, the world tends to listen to him."

The problems of the Delta have perhaps encouraged interest in Nigeria's deepwater areas, although the different investment structure has possibly made as much of a difference.

Nigeria's onshore and shallow water fields have been developed by the majors in conjunction with the Nigerian National Petroleum Corporation (NNPC), which has often found it difficult to provide its share of investment capital. The deepwater fields, however, are being developed by the majors under production sharing agreements (PSAs), whereby private sector companies are responsible for all investment.

In the medium term, the questions of a third term for President Olusegun Obasanjo and the possibility of Nigeria's first peaceful transfer of democratic power are of more importance to the oil industry than unrest in the main oil producing region.

John Negroponte, the US director of national intelligence, told the US senate in February: "The most important election on the African horizon will be held in spring 2007 in Nigeria, the continent's most populous country and largest oil producer. The vote has the potential to reinforce a democratic trend away from military rule or it could lead to major disruption in a nation suffering frequent ethno-religious violence, criminal activity and rampant corruption."

He continued: "Speculation that President Obasanjo will try to change the constitution so he can seek a third term in office is raising political tensions and, if proven true, threatens to unleash major turmoil and conflict. Such chaos in Nigeria could lead to disruption of oil supply, secessionist moves by regional governments, major refugee flows, and instability elsewhere in West Africa." A similar situation has already developed on a temporary basis in the Niger Delta but the same scenario on a nationwide scale would be as terrible as it is possible.