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Shell must build new relationship with Nigeria


June 20, 2008

Shell must build new relationship with Nigeria

Out of sight, out of mind and out of risk, was Shell’s strategy in shifting the focus of its Nigerian exploration activity offshore in the Gulf of Guinea.

But a gang of thugs in high-powered speedboats has just wrecked the oil company’s dream of freedom on the high seas.

Shell’s ocean venture was never a cheap option – the lease on a deep-water drilling rig can cost as much as $500,000 a day and the Bonga project has set Shell back $3.6 billion.

Even that pales into insignificance, however, when compared with the lost opportunity of 350,000 barrels per day. This is the amount of oil output forgone by SPDC, the Shell-operated onshore joint venture, which struggles to keep the wells flowing despite daily harassment, sabotage and the threat of abduction by militant separatist groups and ordinary criminals in the Niger Delta.

The market value of that oil forgone over a year is about $17 billion at prevailing market prices.

Of course. the greatest part of that loss is to the Nigerian Government, which owns 55 per cent of SPDC and extracts even more in taxes and royalties.

Shell would dearly love to be rid of its troubles onshore, where it is too visible and too vulnerable to political blackmail as well as the ordinary kind.

It would probably also like to be rid of the Nigerian National Petroleum Corporation, the state oil company that owns the stake in SPDC. Earlier this year Shell took a deep breath and began a cost-cutting drive at SPDC, which has become a bloated job creation scheme for Nigerians.

But will it ever escape? Even as Shell sought to reduce the financial burden of supporting employment in the Delta, it finds itself bankrolling the Nigerian state with loans.

NNPC owes the SPDC joint venture some $2 billion and Shell has now agreed to lend that amount and a further $1 billion, representing future anticipated shortfalls in funding the state’s share of oil industry costs.

Shell is not the World Bank and unless it gets more barrels in exchange for loans, this funding arrangement could end up as another messy row, with Shell further embroiled in the corrupt politics of dependency.

The time has come for Shell to establish a business relationship with Nigeria on cold and commercial terms. and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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