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Shell battles to clean up its act in the Niger Delta

This is Shell’s dirty laundry, an ecological stain on its character that predates BP’s despoliation of the Gulf of Mexico and will likely outlast it by many years… Given the reputational damage it has incurred from oil spills, not to mention the threat to staff of kidnap or murder, a huge question mark hangs over why Shell is here at all.

By Rob Davies 2 April 2012

Viewed from a  helicopter hovering above the Niger Delta, the traces of humanity’s thirst for oil are all too evident.

Far below, tell-tale streaks of oil pollution in vivid ochre and indigo mottle the placid waterways that wind through the verdant jungle.

This is Shell’s dirty laundry, an ecological stain on its character that predates BP’s despoliation of the Gulf of Mexico and will likely outlast it by many years. A UN report predicts a 30-year clean-up job just in Ogoniland – one of the Delta’s worst-affected areas – requiring an initial oil industry contribution of $1bn.

As the largest player in the country, SPDC – Shell’s joint venture with the Nigerian government, France’s Total and Italy’s Eni – is looking at a hefty bill. Mindful of its reputation, Shell has been fighting a global public relations battle to show that it is honouring its obligation to the Delta communities.

But the Anglo-Dutch giant is also at pains to highlight that it is not solely to blame. It says 70 per cent of oil spilled in the Delta is the direct result of a rapidly-growing criminal trend it cannot control.

In a practice the industry calls ‘bunkering’, gangs of men use hacksaws and drills to puncture the 6,000km of pipeline that pumps crude oil to the Bonny export terminal on the coast.

With nothing more than fire and a barrel, they refine the stolen oil into low quality fuel for local sale, or ferry the unrefined crude out in barges to ships moored off the coast.

SPDC staff believe sophisticated crime syndicates, from as far afield as Eastern Europe, are behind the scenes pulling the strings in a multi-billion dollar illegal business. The havoc wrought by this illicit industry is devastating. The spilled oil withers plant life, kills off the fish many communities rely on to survive and poses a danger to public health.

The heat generated by illegal refining ravages soil and kills trees, leaving patches of wasteland that scar the otherwise breath-taking foliage of the Delta. Such devastation has tarnished Shell’s public image, something that frustrates the firm’s Nigerian country chair Mutiu Sunmonu.

‘I’m not surprised that people ignore the fact that the bulk of the pollution is caused by third parties and just concentrate on the emotional bit,’ he told the Daily Mail.

The financial impact is significant too. SPDC lost up to 100,000 barrels a day last year from bunkering, oil worth up to £2.8bn.

Shell’s equity stake in SPDC is 30 per cent, meaning that its share of lost crude was some 30,000 barrels of oil, compared to the 155,000 barrels that Nigeria added to group output last year.

Aside from the loss of crude, SPDC incurred tens of millions more in clean-up costs, compensation payouts and deferred production caused by forced shutdowns when breaches of its pipelines were detected.

Sunmonu fears that existing  measures to solve the problem are having little impact.

‘Crude oil theft is on the increase, no doubt. The most effective measure [to stop it] will be to cut off the overseas  market that is responsible for the bulk of stolen oil.’

The presence in the Delta of  former militia men, who submitted  to an amnesty in 2010, complicates matters.

Many did not find gainful employment and have turned to oil theft to make money, and care little about the impact on life in the Delta.

Ongoing efforts to address bunkering rely in part on paying an army of spotters to report suspicious activity to the authorities.

Shell also has teams working with global oil services firm Schlumberger on systems to detect leaks automatically, allowing for a faster and cheaper response effort.

In a measure of its growing exasperation, Shell is even pondering a costly ‘loop’ in its Trans-Niger Pipeline to circumvent the particularly dangerous Ogoniland region.

Shell recently admitted responsibility for spilling up to 4,000 barrels of oil in Ogoniland, an accident that has left it fighting a lawsuit launched on behalf of the community of Bodo by law firm Leigh Day.

But the company’s fractious relationship with this relatively tiny part of the Delta stretches back much further than the Bodo case.

It was here that environmental activist Ken Saro-Wiwa battled the encroachment of the petroleum industry, only to be summarily tried and hanged when the Nigerian government decided he was too dangerous.

Shell settled accusations of collusion in Saro-Wiwa’s death in 2009 – although it has always denied any culpability – paying out nearly £10m to relatives of Saro-Wiwa and the eight other community leaders who died with him.

The tempestuous nature of Shell’s Nigerian story would suggest that this is a highly lucrative area for the company.

But while Shell does not break down its profits by region, there are significant doubts over how profitable the Delta really is.

Given the reputational damage it has incurred from oil spills, not to mention the threat to staff of kidnap or murder, a huge question mark hangs over why Shell is here at all.

The 277,000 barrels of oil equivalent – including gas – that Shell gets out of the Delta is just a small component of global output of 3.2m bpd, yet has a huge impact on the firm’s image on the world stage.

Part of the answer lies not in the swamps of the Delta, but offshore. Multi-billion-barrel reserves beneath the Atlantic ocean floor represent the future of oil production in Nigeria, against a backdrop of a long-term decline in late-life onshore assets.

The Bonga floating production facility is already producing more than 202,000 barrels a day after starting production in 2005, while more such facilities are in the offing.

Shell’s focus is shifting out to sea, to money-spinning offshore developments and away from an onshore operation that has left it desperately fighting an image crisis. It may be right when it says that 70 per cent of oil spilled here is not Shell’s fault, but its cannot escape a duty to shoulder responsibility for the remaining 30 per cent.

Until it can cut out its own oil spills, Shell must expect the eyes of the world to remain firmly trained on the heart-wrenching sight of a natural paradise besmirched by oil.

As for the bunkerers, they will slip quietly into the dense jungle of the Delta.

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