You certainly know that energy prices have gone up this year. In particular, the price of oil has risen. And energy price increases have played havoc with Western economies.

Doubtless, your personal costs of living have gone up. It costs more to drive your car. You pay more for food at the supermarket. It costs more to fly on an airline, if the airline still has service to where you want to go. Really, it’s been quite a shock to the system.

Across the U.S., many people and households have run up debts just trying to maintain their lifestyles. And many consumers now find themselves so deep in the hole that they may never get out. Bankruptcy filings are soaring, especially within older demographic groups.

Most local and state governments are in a quandary, as are the feds. With energy costs rising, it is far more expensive to provide necessary services. It costs more to keep the police cars and ambulances running. School districts are strapped to pay for busing students. Some districts are discussing going to a four-day school week.

Even basic street paving has suffered, due to the rising price of asphalt. At the same time, many motorists have cut back on driving, so fuel tax revenues are down in most jurisdictions.

Major US Oil Supplier, Trouble Brewing in a Key Oil Patch …

Things have tightened up, right? But still, you ought to thank your lucky stars that you don’t live in one of the key oil-exporting states of this world. Because that place is descending into chaos, if not anarchy. And it could come back to bite us here in the U.S., much sooner than you expect.

When you think of violence and warfare in a major oil-producing nation, your mind probably focuses on, say, Iraq. And sure, things are dicey in Iraq. But for me, the most worrisome oil-producing area in the world is Nigeria.

Nigeria is the world’s eighth largest oil producing nation. Nigeria claims to have about 36 billion barrels of proved reserves. (That’s 50% more than the U.S.) Overall, the oil industry in Nigeria lifts about 2.5 million barrels per day from onshore and offshore oil fields. There is much more oil left to discover in Nigeria, too.

The U.S. relies on Nigeria for about 850,000 barrels of oil imports per day, or about 7% of total imports. But this may not last much longer. There are profound problems in Nigeria that could disrupt world oil trading patterns and directly affect the U.S. energy supply.

Nigeria’s Lost Riches…

Despite its sizeable oil bounty, most of Nigeria’s 140 million people live in abject poverty and utter third-world squalor. Most Nigerians live no better than millions of others in West Africa, which is the least developed region of the world’s poorest continent.

Oil prices have reached record highs in the past few years. And Nigerian government coffers are swollen to unprecedented levels. Yet the vast majority of Nigerians live worse than they did in years past, when oil prices were low.

There is a long history in Nigeria of squandered wealth and lost riches. Over the past 40 years, Nigeria has received the equivalent of nearly $1.2 trillion from oil production.

Payments of this magnitude have enabled other oil-producing states, like Qatar and the United Arab Emirates, to develop some of the strongest economies in the world. But Nigeria remains mired in backwardness. The country lives with a legacy of corruption.

The Lights Could Go Out Anytime…

One key measure of the progress of any nation is the availability of electricity. Do the lights work? Will they stay on when you flip the switch?

Lagos is the gigantic former capital city of Nigeria, home to more than 8 million people. But in the capital city of a nation enriched by oil wealth, the only way to obtain consistent electric power is through diesel generators.

According to a recent report, Nigeria has about 3,000 megawatts of installed electric capacity. But only about 1,000 megawatts of that are up and running on any given day. By comparison, South Africa has over 30,000 megawatts of installed capacity to serve a population of 42 million (less than one-third that of Nigeria).

Much of Nigeria goes without electric power for weeks at a time. This kind of long-term energy crisis has closed hundreds of factories and put literally millions of people out of work or, at best, into the ranks of the partially employed.

Nigeria has underinvested in its national power system for many decades. The oil money of the past simply did not go into national development. Much of the money was just siphoned off by corrupt officials in previous regimes.

Now things are desperate. A Nigerian government committee recently stated that Nigeria requires $85 billion in immediate short- and medium-term investment to meet its domestic power demand. But it would be physically impossible to install that much new capacity in just the next few years.

Impoverished and Restive People…

While some of the elite live in gated compounds, most of the population of Nigeria lives in slums. Most Nigerians lack electricity and potable water. Food prices are exploding, causing the average caloric intake of many people to decline.

According to the World Bank, nine out of 10 Nigerians live on less than $2 per day. There is no form of public health care in Nigeria, and a serious illness is either a ticket to penury or a death sentence.

Nigeria’s roads are a maze of potholes, bad bridges and washouts. The lack of adequate transportation infrastructure makes it difficult to conduct all but the most rudimentary businesses. Unemployment is rampant, idle youth are ubiquitous and violent crime is on the rise – along with violent radicalism.

To make ends meet, many Nigerians who live near the oil patch engage in a practice called “bunkering.” That is, they tap into oil and fuel pipelines by simply drilling holes in the pipes. Then they siphon off oil or other refined products for sale in the black market. Sometimes, the jury-rigged connections fail, which leads to massive explosions and fires.

Accidents, plus ongoing sabotage by a vigorous insurgency and rampant kidnappings of oil workers, have made oil exports from Nigeria quite problematic. Indeed, Chevron recently declared force majeure (not having to fulfill contract obligation due to uncontrollable events) on several export contracts when a main pipeline was attacked and destroyed by militant Nigerians.

It’s not just the oil pipelines that are a mess, either. Nigeria’s four state-owned refineries can operate only intermittently due to mismanagement and sabotage. So Nigeria’s fuel distribution network is chaotic. Nigeria even has to rely on fuel imports to meet basic domestic needs for cooking and transport. These imports cost Nigeria some $4 billion each year.

A Failing State With Lots of Oil Money…

By normal measures, Nigeria does not function. Life and governance are in a bare-bones form of organized chaos. There is a slim pretence of organized state power and control. Nigeria is a failing state, despite its oil wealth.

Most of the Nigerian population survives despite what its government does, and certainly not because of it.

And in the West – in the U.S., in particular – we may all yet feel the pain of a distant land as it descends into the abyss of nongovernance.

Byron King
Energy and Oil