Concerns about the stability of global oil production are heightened following a failied attack on a key Saudi oil refinery, and attacks on oil workers and production facilities in Nigeria.

Background

Discussion

RAY SUAREZ: Today's foiled terror attack in Saudi Arabia was aimed at a key oil processing facility. The huge Abqaiq oil complex, which is about 30 miles from the Persian Gulf Coast, handles about two thirds of the country's crude oil production. Although exports and production were reportedly not affected, the attack on OPEC's largest producer sent crude oil prices climbing to their highest levels in a month.

But there are threats to supplies and production in Nigeria, the world's fifth largest oil exporter. In the Niger Delta last weekend, where for years dissidents have been demanding control over the region's oil wealth, armed militants kidnapped nine foreign oil workers and set pipelines and other oil facilities on fire.

And in a country of 120 million roughly divided between Christians and Muslims, a wave of sectarian killings also erupted early this week. Muslims attacked Christians in the North protesting the Danish cartoons of the Prophet Muhammad. And in the South, Christians retaliated, killing Muslims. At least 100 people have been killed in the worst communal clashes in Nigeria in two years.

The violence comes amid speculation that the country's elected president, Olusegun Obasanjo, a Christian from the Southwest, is seeking to amend the constitution in order to serve a third term. The speculation has sparked anger among Obasanjo's political opponents in the predominantly Muslim North.

RAY SUAREZ: And late today, militants holding hostages in Nigeria put one of their captives on display. Macon Hawkins of Kosciusko, Texas, appeared in good spirits and urged world leaders to get involved in negotiations for the nine hostages' release.

RAY SUAREZ: For more on the latest instability in oil producing nations, I'm joined by: J. Robinson West, chairman of PFC Energy Incorporated, a consulting firm that advises oil and gas companies and governments on energy issues; and Walter Carrington, who served as U.S. ambassador to Nigeria from 1993 to 1997 -- he is now professor of international relations at Simmons College in Boston.

And Robinson West, should we look at the attack on the Saudi Arabian facility as part of an ongoing threat to the security of world supply, or as an example of the system working, a sign that Saudi Arabian security on their oil infrastructure is effective?

J. ROBINSON WEST: Well, Ray, I think short-term it was very successful from a security standpoint. But long-term I think one has to realize that we've entered an age of energy insecurity, where we have unreliable supply at unreasonable cost all over the world. And the situation in Saudi Arabia, in Iraq, Nigeria that we will talk about later, Venezuela all over the world, this is a very serious problem.

RAY SUAREZ: Ambassador Carrington, in the past, even during the worst of times, during coups and social upheavals, the oil from Nigeria kept flowing. What is different about this time?

WALTER CARRINGTON: Well, I think that this time you have a number of issues coming together at the same time, which is causing great unrest in the Niger-Delta area which is the area in the South that produces most of the oil.

You have, on the one hand, the long neglect that has been felt by people in that area from the federal government in their view of the fact that they are not getting from the oil revenues the kind of development and other attention that they ought to be getting.

And at the same time, you have an uprising of feeling between the houses in the North and the Ebos that has not been seen since the civil war some 40 years ago. When you had the riots over the cartoon in the North, many of the victims of that were Christian Ebos and when their bodies began to come back to the Southeast for burial, that is when you had the reprisals on the part of the Ebos there against the houses who were living among them.

RAY SUAREZ: Robinson West, can you give me some background on the persisting problems between people who live in the oil-producing regions and the companies that are extracting oil from there in Nigeria.

J. ROBINSON WEST: Well, the oil companies in the past I think made some serious mistakes and did neglect the area. But for the last ten, twelve years or whatever, the companies have been working hard to try to make the situation better. But the problem you have is you have rising expectations. You have competition for money between various groups. And also you have tremendous corruption. And the oil companies can, frankly, only do so much. And the government of Nigeria isn't very efficient. And, again, some of the states which have been given a lot of the money recently, are deeply corrupt and aren't getting any money to the people.

RAY SUAREZ: Ambassador, are those confrontations likely to continue, or is there a possibility that what the company offers will be seen as enough by the indigenous people?

WALTER CARRINGTON: Well, I think it's more than just what the companies are likely to offer. I think it's a combination of both what the companies are going to do and what the federal government is going to do. Now one of the problems is that you've got national elections coming up next year and also talk about reforming the constitution.

And one of the issues that is being considered is the issue of whether or not there will be a higher percentage of the oil revenues going to the states in the South -- the states that produce the oil.

If this formula which now exists is not changed and does not provide more help to those areas, then I think things are likely to get worse rather than get better.

RAY SUAREZ: Ambassador, is there a distinction that we should be making about general instability, general civil unrest inside Nigeria, and that that specifically takes place in the oil-producing regions? Or is there an extent to which it doesn't really matter. An unstable Nigeria is a threat to oil supply.

WALTER CARRINGTON: Well, I wouldn't go overboard in terms of talking about Nigeria being unstable. There are two areas recently where you have had problems. You have had problems in the North, mainly because of first of all the adoption of the Sharia law, the criminal penalties, which were extreme extremely harsh, and the question of the riots over the cartoons that first appeared in Denmark.

In the South the problems have really been in the Niger Delta, in about four or five states. Now Nigeria is a large country made up of some 36 states. So I wouldn't talk about unrest throughout the country. I think you've got problems that are really local problems in some areas in the North and in some areas in the Niger Delta.

RAY SUAREZ: Robinson West, when Nigeria cuts back slightly on what it's exporting per day, why does it make a barrel of oil more expensive that's about to come out of the ground in Mexico or Venezuela or in Southeast Asia?

J. ROBINSON WEST: Well, one of the things that's important to remember, Ray, is that it's a world market. And if the price of oil goes up in Rotterdam, it's going to go up in Houston and Singapore, and that Nigeria is important to the world market. It produces about 2.4 million barrels a day, about 20 percent, about half million barrels have been shut in. But this is important for several reasons. One, they produce light sweet crude, very high quality crude is produced in Nigeria.

Secondly, there is almost no excess capacity in the world. Markets are very, very tight. And the third thing is, is that if the market feels that Nigeria is unstable and there could be contagion in the rest of West Africa, then West Africa is becoming very important to the world oil markets as well.

RAY SUAREZ: So light sweet crude is what, less polluting when it burns?

J. ROBINSON WEST: Well, it's easier to refine and creates cleaner products.

RAY SUAREZ: So if it comes off the world market, you can't just go somewhere else and get that grade?

J. ROBINSON WEST: No, you can't -- and what happens is that refineries are configured to take various kinds of crude; light sweet crude is the easiest to process. And it has -- again, it creates better products with less environmental problems.

But one of the things that's also happening is that again, since markets are so tight, there is so little excess capacity in the world market, there is about a million and a half barrels a day excess capacity which I would remind you is primarily in Saudi Arabia where the Abqaiq attempt took today. The markets are very tight, they're very rigid. And if you take that oil out and there is a fear that more oil might come out, it causes the whole market to jump up.

RAY SUAREZ: So Ambassador, tight supplies, a steady stream of buyers for a highly desirable grade of oil, why isn't Nigeria a richer country than it is?

WALTER CARRINGTON: Well, one of the problems, of course, is that Nigeria has a huge population, that even if you didn't have the problems that you have of corruption and of neglect of the areas where the oil is produced, if you do the math, a 120 million to 140 million people, it's not like Kuwait, it's not like some of these other small countries. This is the largest country in terms of population. That's one of the problems.

The other is that I think that this problem of corruption, especially during the last military government, the government of Gen. Abacha, resulted in billions of dollars being squandered, being put away in foreign banks. Now the Obasanjo government is making attempts to get at this problem of corruption, but it is a huge problem to overcome very quickly.

RAY SUAREZ: You talked about energy insecurity, and a coming period of it. So where's the ceiling for oil? And where are we headed -- when you look down the road, what do you see?

J. ROBINSON WEST: We see tight markets. We see growing instability. And we see demand still continuing to grow in Asia, and North America. So I think there's a very good chance you are going to see higher oil prices which means higher gasoline prices, substantially higher.

RAY SUAREZ: And Mr. Ambassador, when you look down the next six months, a year, what do you see for Nigeria?

WALTER CARRINGTON: Well, what I am hoping is that there will be more attention paid to the demands of the people in the Niger Delta region, otherwise I'm afraid that what we are going to see is problems that we're seeing elsewhere, that we see in places like Chechnya and Colombia and other places where militant groups are able to get hold of arms and are able to radicalize the situation in an area where you do not have the kind of military possibilities for the government to be able to put this down. So that I think a lot more attention has to be paid by the government to the problems of the Niger Delta. This is key to the future of Nigeria.

RAY SUAREZ: Ambassador Carrington, Mr. West, thank you both.

J. ROBINSON WEST: Thank you.