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Shell’s future in Nigeria in doubt

The Observer: Shell’s future in Nigeria in doubt

Nick Mathiason
Sunday April 13 2008

Royal Dutch Shell is facing pressure from the Nigerian government and increasingly violent opposition in the Niger Delta oil-producing region, raising questions over its long-term future in the country.

Sources in the Delta say the Nigerian government has withheld up to $1bn as part of a production-sharing agreement while the two sides are locked in talks over how to pay for new investments in the oil industry. The decision to withhold funds is preventing contractors from getting paid, say sources.

The government of President Umaru Yar’Adua, who last year won an election fraught with intimidation, is taking a harder line on historic oil contracts, many of which are being renegotiated. Pressure on Shell comes as a steel firm controlled by the Mittal family attacked the Nigerian government last week, after its concessions were confiscated.

The difficulties for Shell and other western oil producers, including Chevron and Agip, could push oil prices to new heights. Last week, US light crude reached an all-time record of $112.21.

Shell says that 95 per cent of profits from its joint venture go to the Nigerian federal government. But Nigeria believes that it has been shortchanged by the oil majors.

‘The whole Shell position is looking vulnerable,’ said a source in the Niger Delta. ‘I don’t want to make predictions, but we are not too optimistic. There’s a change in the environment. I am expecting this year to be very rough.’

A Shell spokesman said: ‘The funds made available by the government to the Shell joint-venture for 2007 are significantly short of the existing requirement. We are discussing this with the state-owned oil company and the government and are confident the issues will be resolved to the benefit of concerned parties.’

Shell also claims that the government is failing to come up with cash to deal with gas flaring from oil facilities. Anger in local communities at the pollution caused by the gas flaring and the inability of local and national governments, as well as oil firms, to provide basic infrastructure in the Delta has prompted protesting youths to regularly invade and occupy vital facilities. The latest invasion took place on Friday and disrupted production, which is running at well below capacity.

Production levels in the Delta, a lawless and poverty-stricken zone where armed gangs connected to local politicians control communities, have been severely affected by violence and the theft of oil from pipelines.

This article appeared in the Observer on Sunday April 13 2008 on p1 of the Business news & features section.

http://www.guardian.co.uk/business/2008/apr/13/royaldutchshell.oil

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