This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 000385 
 
SIPDIS 
 
 
STATE FOR AF/W AND EB 
NSC FOR JFRAZER 
 
 
E.O. 12958: DECL: 02/19/2013 
TAGS: EPET ENRG PREL NI OPEC
SUBJECT: NIGERIA PROPOSES NEW OPEC QUOTA SCHEME 
 
Classified by Ambassador Howard F. Jeter; Reasons 1.5 (b) and 
(d). 
 
 
¶1. (C) Summary: Special Assistant on Petroleum Issues 
Kupolokun told the Ambassador on February 14 that Nigeria had 
made a thinly-veiled threat to withdraw from OPEC while 
proposing to other members a new quota allocation scheme 
based on production capacity and socioeconomic indicators 
rather than reserves. Kupolokun enlisted U.S. support for the 
Nigerian position, but the Ambassador indicated we were 
unlikely to put diplomatic pressure on Saudi Arabia or other 
Gulf countries at this time. He did suggest, however, that 
Kupolokun visit Washington soon to discuss energy issues. 
Paragraph 9 is an Action Request. End Summary. 
 
 
¶2. (C) In a February 14 meeting with the Ambassador at the 
ChevronTexaco Managing Director's Abuja residence, Special 
Assistant to the President on Petroleum Issues Funsho 
Kupolokun said Nigeria had proposed to OPEC members the 
preceding week in Vienna a new quota allocation scheme based 
on production capacity and socioeconomic indicators rather 
than reserves. Also present at the meeting with Kupolokun was 
ChevronTexaco Managing Director Jay Pryor. Lagos CG 
Hinson-Jones and Econoff (notetaker) were also there. The 
Nigerian proposal argued that adherence to the current system 
would cripple the Nigerian oil sector and, because that one 
sector is so dominant, have a devastating impact on the 
Nigerian economy at-large. 
 
 
¶3. (C) Kupolokun predicted that Nigerian production capacity 
will grow quickly over the next few years as deepwater fields 
go into production. He said that in 2003 Nigerian production 
capacity will be about 3.1 million barrels per day (mbd), 
while the OPEC quota will be only 2 mbd. Kupolokun forecasted 
that by 2006 Nigerian production capacity will rise to 4.7 
mbd, with a quota of only 2.3 million if the current system 
remains intact. 
 
 
¶4. (C) Kupolokun said several factors contributed to the 
increase in Nigerian production capacity, key among them the 
recent infusion of capital into the sector by the government 
to meet joint venture cash-call arrears that had gone unpaid 
for much of the 1990's. Pryor added that most of that 
investment has gone into deepwater fields that yield light 
crude that is easier to refine into gasoline than onshore 
Bonny crude. U.S. demand for this non-Arab source of crude 
that can be cheaply refined into gasoline has also pushed 
investment in Nigerian deepwater fields, according to Pryor. 
 
 
¶5. (C) Kupolokun acknowledged that maintaining spare capacity 
is key to OPEC's ability to keep world oil prices stable, but 
said that Nigeria's burden in doing so is too high. He said 
that by 2006 if the OPEC quota system is not changed, 
Nigerian spare capacity as a percentage of total capacity 
will be more than 100 percent, while spare capacity for Arab 
OPEC members will be around 25 to 50 percent. Pryor added 
that to be economically viable, deepwater fields must run at 
close to full capacity, unlike the large onshore fields being 
pumped by most other OPEC members. 
 
 
¶6. (C) Kupolokun also made the case that from a socioeconomic 
perspective, Nigeria would find it difficult to keep a lid on 
production. He compared Nigeria to other OPEC countries on a 
series of socioeconomic indicators, summing up the situation 
as follows: "If it is good, like income, we are last, if it 
is bad, like infant mortality, we are first." He said the GON 
is finding it harder and harder to explain to its people why 
it is forsaking additional oil revenues for the benefit of 
rich Arab nations. 
 
 
¶7. (C) Commenting that these two points comprised a 
thinly-veiled threat to withdraw from OPEC, Kupolokun went on 
to outline the Nigerian proposal that the OPEC quota 
allocation system be modified to include production capacity 
as well as account for economic development indicators such 
as GDP per capita and external debt. To ensure that no member 
would face a drop in quota, the Nigerian proposal would allow 
some proportion of the new quota to be based on the old 
system, with the balance based on production capacity and 
those key indicators. Kupolokun reports that Nigeria's 
proposal split OPEC members between Gulf and non-Gulf 
countries, with Saudi Arabia, UAE, Kuwait, and Qatar 
staunchly opposed and Algeria and Libya enthusiastically 
supportive. Kupolokun indicated that a final decision on the 
Nigerian proposal, as well as a similar proposal made by an 
independent consultant, would be made at the mid-March OPEC 
Council of Ministers Meeting. 
 
 
¶8. (C) Kupolokun asked the Ambassador whether the United 
States might be able to provide diplomatic support for 
Nigeria's efforts to win over other OPEC members on their 
quota allocation proposal. The Ambassador expressed sympathy 
for the Nigerian position, but noted that given the current 
state of the world, the United States was unlikely to press 
Saudi Arabia or other Gulf states on an issue as contentious 
as this. He did, however suggest that Kupolokun visit the 
United States soon to have a full discussion on energy issues 
with Washington-based officials interested and dealing with 
energy security issues. Kupolokun indicated interest in the 
idea but said he would consult with his colleagues before 
making a commitment. In a recent chance meeting, Kupolokun 
told the Ambassador the GON is very interested in the idea of 
visiting Washington, but would not want to do so before the 
April National Elections. Kupolokun promised to formalize the 
request in writing. 
 
 
¶9. (C) Action Request: Post requests Washington input on the 
feasibility of a Washington visit by Kupolokun following the 
April Nigerian National Elections. End Action Request. 
 
 
¶10. (C) Comment: The proposal to increase Nigeria's quota is 
strongly backed by ChevronTexaco here in Nigeria. It will 
almost certainly be supported by other oil companies 
operating in Nigeria, including Exxon-Mobil. Although the 
humanitarian benefits to Nigerians of a quota increase were 
stressed in the meeting, the other major factor is more money 
for the oil companies and the GON. End Comment. 
JETER