Shell Faces New Risks in Nigeria
As the second largest energy company in the world after Exxon-Mobil, Royal Dutch Shell has been a major player in Nigerian oil and gas from the beginning, overseeing the first commercial export of oil from the country in 1958 from the Oloibiri Field. Their success over the years has been notable, with operations are spread over 30,000 square kilometres in the Niger Delta, including more than 6,000 kilometres of flowlines and pipelines, 86 oil fields, 1,000 producing wells, 68 flowstations, 10 gas plants and two major oil export terminals at Bonny and Forcados.
But after a number of accidents, attacks by militants, and political scandals, is Shell’s honeymoon with Nigeria coming to an end? Some recent events and transactions indicate a shift in the Dutch company’s strategy in the country, opening a window of opportunity for new operators.
The past year has battered and bruised Shell’s operations in Nigeria, with both environmental issues and political risk increasing. Just this week, the company was forced to conduct emergency repairs on a sabotaged trunkline pipeline in Nembe Creek, Bayelsa State, where more than 200 barrels of oil were siphoned off by thieves, forcing Shell to cut production by 70,000 barrels a day during the repairs. Sabotage and theft by militant gangs is currently on the rise following a brief lull since its height in 2005, while the company reportedly suffers the loss of between 70 to 200 barrels of oil stolen per day.
In December 2010, Shell also experienced its worst oil spill in Nigeria in the past decade, as more than 40,000 barrels of crude oil was spilled at the offshore Bonga Field (the accident being caused by tanker mishap instead of the usual sabotage). According to a report in the Washington Post, “Some environmentalists say as much as 550 million gallons of oil poured into the delta during Shell’s roughly 50 years of production in Nigeria — a rate roughly comparable to one Exxon Valdez disaster per year.”
As a result, political pressure against Shell has also been mounting from civil society. The Environmental Rights Action/Friends of the Earth (ERA/FoEN) has been on the offensive since the spill at Bonga Field, issuing statements demanding that the government secure independent verification of spillage data while enforcing clean-up payments. The company’s environmental and human rights record has been under scrutiny at the highest levels, with the United Nations Environment Programme (UNEP) issuing a harsh report in August 2011 that examined the ecological and public health ramifications of oil spills in Ogoniland. One of the UNEP report’s key findings included the following: “Control and maintenance of oilfield infrastructure in Ogoniland has been and remains inadequate: the Shell Petroleum Development Company’s own procedures have not been applied, creating public health and safety issues.”
Even before all these issues came about, there were indications that Shell may be scaling back its exposure to Nigerian energy. Shell is the 30% owner of the joint venture Shell Petroleum Development Company of Nigeria Limited (SPDC), which also features major stakeholders such as the state-owned NNPC with (55%), TotalFinaElf (10%) and Agip (5%), which together is responsible for a whopping 50% of all oil production in the country. However in November 2011, Shell completed the sale of its shares in two major oil producing blocks (OML 26 and OML 42), while at the same time they are working to close ongoing deals to sell their stakes to three other blocks (OML 30, 34 and 40).