Shell announces 180,000 bpd cut in Nigerian oil production

[updated]

The AP (via Seattle P-I) is reporting that Royal Dutch Shell has announced a 180 thousand barrel per day cut in Nigerian oil export due to an unspecified oil pipeline leak. Residents in the Rivers State region of Nigeria where the leak is said to have occurred are not allowing Shell or Nigerian representatives into the site to investigate.

Currently, the AP is saying that about 650 thousand barrels per day have been curtailed, largely due to violence. Last I heard, spare petroleum production capacity worldwide was only about 500 thousand barrels per day. Thus, even a small relative cut in Nigeria's production capacity (say 180,000 bpd) is a big cut into the world's capacity to keep up with demand.

What does this do? It dramatically expands the risk premium the markets are willing to pay per barrel of oil. According to oil industry executives, the risk premium is about $20 per barrel, or about 25% of the total cost of a barrel of oil.

What can the US do about it? Well, the classical role of the Navy is to protect shipping lanes, and occassionally to provide security for foreign ports. With violence and smuggling on the rise in the oil-rich Niger Delta, it should therefore come as no surprise that our Navy is increasing its presence in the region. From DefenseLink (July 5, emphasis mine):

U.S. military engagement along southwestern Africa's Atlantic coast has increased exponentially, Navy Capt. Tom Rowden, commander of Task Force 65, said during a Pentagon interview last week. It's increased from almost no activity in 2004 to 130 "ship days" in 2005 to even more planned ship days this year, he said.

... Maritime security is critical for the region to benefit from its natural resources and prosper economically, he said. Africa provides almost 15 percent of the United States' oil supply, much of which comes from the Gulf of Guinea. In addition, the region is rich in timber, iron ore, copper and other resources.

How long will it take for us to get more directly involved in Nigeria's local political economy? More importantly, how long will it take for Nigeria enter the Global War on Terrorism?

UPDATE: July 25, 5:12 PM. The Houston Chronicle is saying the leak is cutting 180,000 bpd of Shell's Nigerian production and 30,000 bpd of Chevron's.