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NIGERIA: Shell to raise Nigerian oil production

by Jad MouawadInternational Herald Tribune
April 4th, 2007

A year after being forced to shut down more than half of its oil output in Nigeria because of militant violence, Royal Dutch Shell said it expected to resume full production within the next "five to six months," after agreeing with local communities that it could safely return to the Niger Delta.

Shell shut down about 500,000 barrels a day of production from its fields in the Western part of the Delta after a rebel group called the Movement for the Emancipation of the Niger Delta, or MEND, attacked several production and export facilities in early 2006. Since then, endemic violence in the region has crimped up to a quarter of Nigeria's total oil production.

In the past year, foreign oil companies have suffered from a series of attacks, bombings and kidnappings by armed activists who seek a greater share of the country's oil revenue. Shell, which is the biggest foreign oil operator in Nigeria, has been seeking ways to restart production in the country ever since. The company still pumps about 500,000 barrels a day from the Eastern Delta region and from several large offshore platforms.

Because of the shutdowns, which are affecting over a fifth of its oil production, Nigeria is currently producing about two million barrels a day. If production gets restored, as Shell hopes, Nigeria will exceed its OPEC quota, which currently stands at around 2.2 million barrels a day.

This is not the first time Shell outlined plans to resume its production from the Delta and there is no guarantee that it will succeed. The recurring violence in the Niger Delta has contributed to the rise in oil prices in recent years and has slowed Nigeria's plans to increase its production. Nigeria is Africa's biggest oil producer. But the return of Nigeria's shut production, if it happens, will be welcomed by global energy markets, which remain edgy because of geopolitical tensions in the Gulf.

"We see this year as a year when we start clawing back our production," Basil Omiyi, the Shell managing director for Nigeria, said during an interview Tuesday in Abuja, the Nigerian capital. "I don't see anything standing in our way of restarting our production."

Omiyi, in his first extensive public comments in over a year, said that in return for being allowed back in the Western Delta, Shell planned to "significantly" increase the amount of work it awards to local communities by shifting more service contracts to local villages and businesses. That include things such as food catering, barge or boat leasing, maintenance, or water transportation.

His comments were an indication that the company may have found an accommodation with some of the groups that have been behind the violence. Omiyi said he had not received any security guarantees from militant groups like MEND, nor had he negotiated with them. Yet he felt confident enough to allow his workers back in the fields.

In recent weeks, the company has sent teams to inspect damage to its infrastructure in the Western part of the Delta and begin repairs to pipelines, flow stations and other infrastructure.

"What has changed is that the level of violence in that particular region has gone down," Omiyi said. "We've had a series of dialogue with the communities. The communities depend on the oil and gas industry for a significant amount of income in the region and everybody has got to a point where they are saying let's drop the political part of this and let's get back to business."

But Shell's optimism contrasts with the tense situation in Nigeria, where elections are scheduled for April 14 and 21. These would mark the first transition from one civilian government to another since Nigerian independence in 1960.

In the Delta, where most of the country's oil production is concentrated, political tensions have largely fueled the armed militant movement, which has singled out oil companies as a way to force the government to inject more money into the region. Activists from the Delta states complain that the region is much neglected by the federal government and suffers from political corruption.

Also adding to the violence there, criminal gangs have been increasingly active in the taking of foreign hostages, especially expatriate oil workers, and releasing them only after ransoms have been paid. So far this year, more than 70 foreigners have been kidnapped, though most are quickly freed. [Kidnappers released two foreign oil workers, a Briton and a Dutchmen, on Wednesday who were abducted last month, the Associated Press reported.]

Omiyi declined to provide an overall figure of how much business Shell might be willing to shift to businesses run by local companies or individuals in the Delta states. But he said the new approach would eventually inject more funds into the local economies of the Delta region than the company currently spends through its traditional community development programs.

Civil organizations and human rights groups have long criticized oil companies, and Shell in particular, for the way they manage their relations with local communities, saying they tend to favor some groups over others, or local chiefs over the communities at large.

Omiyi described the plan to resume production as part of a new strategy by Shell to involve local communities more closely in its operations. He said the breakthrough was a result of the combined efforts of the government, the local authorities and local communities to put an end to the violence.



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