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Iraqi Oil Fields - Do Bidders Know What They Could Be Letting Themselves in For?

‘Blood Oil’ has been a term widely used in Nigeria to describe the chaos surrounding the current situation of the oil industry. Angry that profits from oil are not deposited locally, militant gangs are taking it upon themselves to disrupt trade using whatever force they feel necessary.

‘Blood Oil’ has been a term widely used in Nigeria to describe the chaos surrounding the current situation of the oil industry. Angry that profits from oil are not deposited locally, militant gangs are taking it upon themselves to disrupt trade using whatever force they feel necessary.

An operation known as illegal oil ‘bunkering’ involves smugglers tapping into oil pipelines during the night using illegally installed valves. Barges transport the oil to larger ships which move in convoy to rendezvous at sea with a tanker which will spirit away the stolen oil, making it disappear into another cargo bound for sale on the world market.

This ‘bootleg’ industry is thought to be making $60m a day. Participants will stop at no boundary to protect it and to get away with the theft. The ‘bunkering syndicates’ as they are known, operate under the cloak of the conflict between militants and oil companies in the Niger Delta.

They need "security" - gangs of armed heavies to protect their cargos - and threaten anyone who tries to interfere. They don't have to look far to find large groups of unemployed youths willing to do what they are told for a little money.

State governments in the Delta armed militias to carry out widespread rigging during the 2003 elections. But the militiamen say they were abandoned, so they turned to oil theft to fund their activities.

Although they are referred to in the media as "militants", there are few coherent groups. Most are gangs, led by commanders who are perpetually at war with each other. These youths protect bunkering ships, force local community leaders to let the criminals pass and bribe the Nigerian military. The thieves may also need "the boys" to blow up pipelines, forcing the oil company to shut down the flow, allowing them to install an illegal tap in the pipe.

"Hot-tapping", as it is known, requires considerable expertise, usually supplied by a former oil company employee. Observers say that these militants don't see the process of oil theft as stealing. They believe they are taking what is legitimately theirs from the companies and the government. They organize themselves in "bunkering turfs"; outbreaks of violence between them have been frequent and bloody.

A result of this action has meant that Nigeria’s oil production is 1.3m barrels per day short of its production capacity of 3.2m barrels per day – an opportunity cost of over one-third.

Like Nigeria, nationalists in Iraq are suspicious and disgruntled that it will become the only big oil-producing country in the Middle East to allow foreign control of its oil projects. This week, representatives of 35 international oil companies began bidding in London for eight colossal oil and gas fields, but have the bidders considered the consequences of trading in Iraq?

Despite violence being it’s lowest in four years, Iraq is considered to be far more dangerous than Nigeria. "The differential is enormous in terms of the physical threat of being killed by a militant," said Ian Pilcher, a private security consultant who has advised oil companies in both Nigeria and Iraq. "Nigerian hostages are rarely harmed, if at all, and I can't really see West Africans ever setting up roadside bombs."

Iraq is an extremely high risk option but one cannot ignore the high rewards. Current estimates put Iraq's proven oil reserves at 115 billion barrels — more than three times the 36 billion barrels held by Nigeria.

Experts believe Iraq's proven reserves could rise by an additional 70 to 80 billion barrels once security conditions stabilize enough to allow renewed exploration. That would give Iraq the world's second-largest proven oil reserves after Saudi Arabia.

Tremendous potential gains are there to be made in Iraq. However, oil companies must be aware of the situation in Nigeria to assess what may be in store for them should they win bidding in London this week. Iraq could experience similar or worse unrest caused by resentment towards foreign oil companies profiting from what some of the people see as their own wealth. Bidders in London this week should carefully consider the potentially high cost of both bunkering and loss of life before signing any deals


What do you think? Is it wise for foreign companies to invest in Iraq’s oil and gas fields? Vote in the ‘Question of the Week’ found on the English Home Page.

Author: Jo Amey

Source : Neftegaz.RU