Thursday, Feb 02, 2012

By Neena Rai and Sarah Kent

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Shippers are on the alert as instability in Nigeria threatens to worsen an already serious problem with piracy in the Gulf of Guinea, a key trade route for commodities such as crude oil and cocoa.

"The risks off Nigeria are increasing because of an increase in militancy in the Delta region," said Rory Lamrock, a maritime analyst at AKE Group, a risk consultancy.

The company does not have a risk assessment scale for the maritime industry, but Lamrock added that if it did "we would definitely be pushing it up."

According to the United Nation's International Maritime Organization, five attacks have been reported off the coast of West Africa in the first three weeks of this year alone.

Last year, the IMO reported a 28% increase in attacks in the region compared to a year earlier, with 64 attacks reported in 2011, up from 46 in 2010. However, the International Maritime Bureau--a nonprofit organization set up to counter maritime crime--warns that reported numbers aren't representative of the real severity of piracy in the region.

"There are a couple of areas we are watching very closely," said Erik Rabjerg Nielsen, the head of daily operations at the container freight division of A.P. Moller-Maersk A/S, the world's largest shipping company.

"In West Africa we're seeing armed robbery more and it has escalated recently," he added.

Increased risk would also mean increased costs. Shippers already take elaborate measures to protect their vessels against pirate attack, including hardening the ship to prevent illegal boarding (water hoses, barbed wire) and installing panic rooms.

Maersk estimated that its anti-piracy costs rose to $200 million in 2011, double what it spent in 2010, and "if West Africa gets worse we would need to spend more on our anti-piracy costs," Nielsen added.

"These attacks (In West Africa) are generally for theft rather than for kidnap and ransom, and include the theft of oil. Some have been politically motivated (connection to the Movement for the Emancipation of the Niger Delta), where the level of violence is higher than off Somalia's coast," a spokesman for the IMO said.

An additional concern is that Nigeria, which seems to be the hub of pirate activity in the region, is a major supplier of both crude oil and cocoa to the U.S. and Europe.

The country is Africa's largest oil exporter and was the fifth biggest source of crude imports to the U.S. in the first 10 months of 2011, according to data from the U.S. Energy Information Administration. Threats earlier this month that the country could shut down its oil production due to a dispute over oil subsidies helped send the price of oil futures to their highest since August.

Threats of piracy to Nigeria--West Africa's fourth largest cocoa producer--come at a time when supply concerns already weigh on the market with the region's crops under pressure due to hot and dry weather.

-By Neena Rai, Dow Jones Newswires; 4420-7842-9450; neena.rai@dowjones.com.

(END) Dow Jones Newswires

02-02-12 1218GMT