Ahead of the OPEC meeting…
Oil has quickly rebounded off…
As global energy supplies come under increasing attack by non-state actors and private energy holdings become key targets of political maneuverings and criminal activities, Oilprice.com discusses the nature of the growing threat and how to reverse the risk with “smart power.”
To help us look at these issues we got together with Corporate intelligence specialists Jellyfish Operations and security expert Jennifer Giroux.
Michael Bagley is the president of Jellyfish, a global boutique intelligence firm that combines on-the-ground intelligence collection and analytics with an unprecedented country-to-country economic diplomacy program that helps governments, corporations, institutions and private individuals forge secure partnerships, discover new opportunities and mitigate operational risks.
Jennifer Giroux is a global security expert who specializes in emerging threats to energy infrastructure in conflict-affected regions.
In the Interview Michael & Jennifer talk about the following:
• Why the risk to global energy supplies is increasing
• Violent entrepreneurialism: Why piracy is on the rise
• The most immediate threats to global energy security
• Which countries are most likely to see attacks in the future
• Why Saudi Arabia could be the next country to have its energy infrastructure come under attack
• Why energy companies assets are becoming key targets.
• How energy companies can create opportunities in Conflict-Affected Regions
• Why companies need more than just intelligence to operate in hostile environments
Oilprice.com: Energy supplies have always been at risk, particularly due to geopolitical maneuverings, transit through countries in conflict and those suffering from ongoing political instability, as well as piracy on the high seas. You have both mentioned that the risk to global energy supplies is increasing. How do you support that claim?
Jennifer Giroux: There is a plethora of energy location and armed conflict data that shows a correlation between conflict or conflict prone regions and oil and gas producing and/or transit states, both onshore and offshore.
While developing the Energy Infrastructure Attack Database (EIAD), we have seen a general rise in attacks on energy assets. In the last decade there has been an average of 327 reported attacks on energy infrastructure globally, and this figure is likely higher due to the fact that not all attacks are reported through open sources.
Pooled together, the data reveals that not only are energy companies increasingly operating in risky, volatile environments and conflict zones, but their assets are becoming key targets for political and criminal reasons.
Michael Bagley: More specifically, non-state actors from Mexico to Colombia, to Nigeria, Iraq, Pakistan and beyond are leveraging their terrain in dynamic ways. They are using energy infrastructure targeting as a tool to air political grievances in a calculated manner. For example, to garner illicit funds by stealing oil products and kidnapping energy sector employees, but also to generate global media attention that not only provides a springboard for groups to publicly challenge a state but also to inspire similar targeting behaviors in other regions.
Jennifer Giroux: Another interesting insight from EIAD shows that while energy attacks are dispersed they tend to have a contagion or clustering effect in certain countries. In such cases, we find that energy infrastructure is targeted on a monthly, weekly, and at times daily basis – leading to broad disruptions that have national and international effects. This has been the case in Egypt’s Sinai Peninsula, where natural gas infrastructure has been targeted on a monthly basis since February 2011 and disrupted energy supplies for Israel and Jordan. Yemen, too, has seen persistent attacks on the Marib-Ras Isa oil pipeline, for instance, that has led to a several-month shutdown that cost the country billions in revenue and shorted global supplies.
Michael Bagley: While those cases represent politically motivated attacks, in Nigeria the oil theft and sabotage business has resulted in Shell declaring force majeure on Nigerian Bonny Light crude oil and shut down 60,000 barrels per day of oil. Offshore, energy carriers are being targeted throughout the Gulf of Guinea, making this the new maritime piracy hotspot. Overall, this is a highly complex issue that makes it increasingly difficult for energy companies to navigate and operate in such spaces.
Oilprice.com: Geographically, what are the most immediate threats to global energy security?
Giroux: Of course with the effects of the Arab spring still percolating, the Middle East and North Africa region will continue to go through a tested and difficult time. With that, the urgent security consideration is Saudi Arabia as attacks or even threats to their installations have the most potential to disrupt supplies and the market. Though there have been some bright spots in Iraq’s oil production, the country still have significant challenges that threaten stability on a near daily basis. I would not be surprised if we see another flashpoint of energy infrastructure attacks in this country.
Bagley: One can also not count on Libya to be a reliable production space given the turmoil and political transitions underway. Another region is Gulf of Guinea where international oil companies are incredibly important for production and exploration activities. Nigeria, and the Niger Delta in particular, produces light sweet crude that is incredibly important for the global market. No doubt that when these supplies are disrupted the market reflects that insecurity with price volatility.
Oilprice.com: While most are aware of the rising incidence of piracy off the Somali coast and the threat to oil transit, how great is the threat now emanating from the Gulf of Guinea as an offshoot in part of the conflicts in Nigeria and unrest in Mali, for instance?
Giroux: Well, as it’s been reported – maritime piracy is on the rise in the Gulf of Guinea. Furthermore, attacks in this region are not confined to the coastal region near Nigeria (where they have been historically) but are not spreading to the shores of Togo, Ghana, Cote d’Ivoire, etc. This reveals not only the security gaps in this region but also the violent entrepreneurialism that is spreading across the states. Offshore attacks in this year are executed by gangs that use brute force to attack ships, steal contents including petrol products, and then release the ship have a few days or weeks.
Bagley: Also, oil theft gangs are multi-national. For example, in a recent arrest of 27 people accused of stealing oil, 5 of them were Nigerians while the remainder were Ghanaians. The key take-away is that this is spreading and will thus become more complex and challenging to untangle the more sophisticated these oil theft gangs become. What’s more is that we cannot forget the regional context – the high unemployment, growing illicit drug trade (transiting drugs from South America via Africa and onto markets in Europe), and weak governance issues. This makes it a high opportunity space for criminal groups to flourish and recruit.
Oilprice.com: How does the nature of the threat provide us with a framework for dealing with the threat?
Giroux: In these volatile regions, multinational energy companies are embedded in host communities that have legitimate grievances related to the lack of public goods and services such as clean water, decent roads, and electricity. These grievances tend to fuel tensions and hostilities with the state that can then ripple over to hostilities with the energy companies in that area.
Bagley: In such cases, the balance of power -- and the impact should they turn their aggression to targeting the country’s energy assets -- is in many cases on the side of the communities. Federal governments and institutions are weak, and responses tend to be military, which generally only exacerbates and escalates conflict. Yet, multinationals have incredible power in these countries and, indeed regions and thus need to re-conceptualize how they operate and do business in such spaces.
Giroux: I would argue that this begins by re-thinking what corporate responsibility means in these zones. Building a school in one community and passing out generators does not address the deep underdevelopment issues and, in fact, can exacerbate grievances. Rather what is needed are better community relations and a development of a more holistic approach that includes not only working with local stakeholders such as community members, local businesses, and NGOs, but also coordinating the delivery of local development needs with other energy companies operating in the same challenging region.
Bagley: Of course, the conventional understanding of states argues that state actors are responsible for the provision of public services like electricity and roads, but in such environments the states are oftentimes too weak and too corrupt for such measures to ever be achieved in a timely and effective manner. This actually creates a great opportunity for the strong multinationals to be better partners with the local community and facilitate the building of roads and other public infrastructure to help develop the local economy – a more sustainable approach that will provide host communities with other opportunities in the formal or licit economy.
Oilprice.com: Are you proposing that multinational companies step in where governments fail to provide? Is this feasible? How would host governments respond and how can this be achieved without serious implications both in terms of cost and relations?
Giroux: As I mentioned, certain activities like buying generators and building schools, etc., are less likely to be considered “strategic” – rather they are piecemeal, CSR-type of activities that create mixed expectations and imbalances in zones where the discrepancies are so great. In my own research, I find that what many multinationals do not realize is that their sheer presence brings with it a whole host of expectations for a community about what is to come. In this respect I am referring to visions of large-scale development, growth, and jobs. I have had countless conversations with people in energy producing regions and a common thread in such conversations is that they see political elites get rich while energy companies can quickly build pipelines, complex facilities, and have large compounds for their employees and yet roads are not built, electricity is scarce or inconsistent, schools are underfunded and overwhelmed, etc. In other words, community members see a mixed picture: they recognize that the money and capacity is there but yet see none of the benefits.
Bagley: The idea then is how can large multi-national companies -- mining, energy, transportation, for example – work together to operate differently in these environments? A shifting of the dynamics involves a more radical way of thinking in a way that produces more sustainable communities where small and medium enterprises (SMEs) can flourish and really develop the economy in tandem with the multi-nationals.
Giroux: A paradigm shift might include thinking differently about the costs of production in such environments – in other words, not only factoring in things like procuring helicopters, materials for building energy infrastructure, paying employees, etc., but also contracting out the development of roads and clean water pipelines that could provide benefits for the community as a whole. Essentially, transforming the local community from simply ‘hosts’ to ‘partners.’
Bagley: I totally agree. The bridge to peace and stability in many countries, particularly conflict-affected regions, requires a delicate but dedicated mix of diplomacy and security by all involved: the local population, the host country government, and the economic partners and investors. Certain countries have a military aspect to factor in as well so integrating these very different communities is how Jellyfish creates “smart power” for our corporate clients.
Oilprice.com: Can you give us some specific recommendations and how this works in certain countries?
Giroux: Well, I think there are some very interesting things happening in the Niger Delta at the moment that I think could be extracted and applied in other areas. For example, Chevron Nigeria Ltd. Created the Foundation for Partnership Initiatives in the Niger Delta, PIND - a $50 million fund that seeks to provide support for socio-economic development in the region. This might be an interesting approach to examine more closely to see who they are working with, what are their concrete goals, and assess what type of impact they might be able to have. Overall, I would recommend that there needs to be a deeper debate about what CSR looks like in underdeveloped, energy producing regions. With that, companies should make assessments when working in such regions that not only take into account the challenges of the operating environment but also illustrate how they can partner with the community to inspire and produce bottom-up driven development initiatives that have local buy-in. I would not get too complicated with this but rather participate and support initiatives that have shared value – like roads linking cities and town, power/electricity infrastructure, sponsoring apprenticeship programs at local schools to meet local business needs, etc.
Bagley: Based on data and trends, as Jennifer points out in her research is that security situations in many countries are getting worse, not necessarily better. This has to do with a variety of geopolitical, military and economic reasons, too, of course, but the current frameworks and approaches are not working as best as they could. Companies can collect intelligence all day long to be aware of or get ahead of certain threats but it still does not always fundamentally change the operating environment. The question then becomes how do certain economic partners such as extractive companies, multinationals and other institutional investors think and perform differently (yet productively) in such environments? The real potential for leadership here is to get the extractive multinational companies to think differently in volatile environments and to change the balance of power in a way that is beneficial for both their ongoing operations and to the communities in which they operate. Jellyfish arranges partnership in over 80 countries where we offer a unique platform for clients to engage the host country governments and the local populations along with the diplomatic and military stakeholders in the country and the region. This use of the “smart power” paradigm by each of the players affects positive change for all involved from an economic, diplomatic and security aspect.
We would like to thank the staff at Jellyfish Operations for their time. For those of you interested in learning more about how Jellyfish can help your business with their cross border intelligence networks and advanced technological capabilities please visit www.jellyfishoperations.com
By. Jen Alic of Oilprice.com
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