Shell Group has finally confirmed that its Nigerian arm, Shell Petroleum Development Company of Nigeria (SPDC), has completely shut down its entire operations in the Western Niger Delta owing to increasing attacks on its workers and infrastructure.
Shell has also expressed its full support for the Nigerian content initiatives of the Federal Government but pointed out that the target set by the government was “too aggressive” which could not be met.
Vice-President (Technical), Shell Exploration and Production Africa Limited, Mr. Markus Droll, stated this yesterday in Lagos at a meeting of the West African chapter of the Association of International Petroleum Negotiators (AIPN).
Droll, who acknowledged that there is a long and bright future ahead in Nigeria’s oil and gas sector, however stressed that this could only be realised if the challenges facing the sector were overcome.
He said: “We must find ways to get around funding; we must look for the right pace of Nigerian content; we need a stable and predictive investment climate, and above all, we have to get towards getting a more secure operating environment, especially in the delta. I think I am not exaggerating or overstating the point if I say that security today is our biggest challenge.
“As I speak here, we have zero production in our western operations in the delta. We have completely closed down after the most recent attack in Forcados on Monday. At the moment, we are trying to put out two well fires on some offshore platforms and that is essentially the stage of the last of the production in that area to be closed in. The situation in the East is no much better – East of the delta – Bonny and Port Harcourt. There we have less than 150,000 barrels per day. Now, SPDC’s production capacity if everything is running and we have free access to all the facilities, should be somewhere around 800,000 barrels per day; possibly more.”
The Shell Vice-President also acknowledged that the country has abundant gas resources to meet both domestic and export requirements, but regretted that the world-class Nigerian Liquefied Natural Gas (NLNG) plant is virtually empty owing to inadequate gas supply.
He said: “We are also not producing enough gas to actually feed NLNG properly. So, on the part of NLNG, world class facility is actually being left empty as we speak. And that also has survival implications in terms of long term contracts NLNG has made with various customers around the world. And until reality persists, reputation is extremely important.”
I spent five years working in Brunei; the worst that would happen in Brunei is to miss one LNG cargo because we have a very strong feeling that the Japanese and Korean customers would be very unforgiving if they lose confidence in you as an operator, if you cannot meet your cargoes. What is happening in NLNG today is that we cannot send enough gas to keep the company going.
“The effects are less revenue, higher security costs and much higher contract costs. I cannot exaggerate by saying that we are struggling to make money in a company like SPDC today. What this means is that we worry about security of jobs for our own employees; and we worry about the jobs for the contractors.”
He also faulted the 70 per cent target set for local content by 2010, saying that it was “too aggressive a target”.
He said: “If you set 20 per cent local content today, it can’t be 40 per cent tomorrow; that takes time and every other country that actually goes through that journey knows that. If you set too aggressive a target, you will fail and everyone will say, ‘I think we told you it can’t be done in Nigeria’.”
THISDAY had reported on Monday that owing to the increasing spate of attacks on its workers and installations by militants and other criminal gangs, SPDC had suspended its entire operations in the western Niger Delta.
Citing an industry source, Reuters also reported on Monday that there was virtually no crude oil production from the company’s facilities in the western Niger Delta.
But the oil major said its decision to suspend operations in the area was not due to militant attacks, saying it believed in the future of Nigeria and was committed to the country for the long term.
“We have not embarked on a general evacuation of staff from the Niger Delta as a result of the security situation,” it said, maintaining that it had evacuated some non-essential staff from some key facilities in western Delta to ensure their safety.
THISDAY had also reported that SPDC had declared that its crude oil production had further dropped to 140,000 barrels per day, from 999, 000barrels per day its Joint Venture produced in 2003.
Royal Dutch Shell’s Africa Regional Communications Director, Olav Ljosne, had told Reuters that attacks by militants in recent days had cut oil output from facilities operated by SPDC joint venture to around 140,000 barrels per day.
Ljosne said: “In the past 10 days, we have had five attacks that have reduced our oil production to around 140,000 barrels per day.”
SPDC, the largest private oil company in Nigeria, operates a joint venture in which the Nigerian National Petroleum Corporation (NNPC) holds 55 per cent, Shell 30 per cent, Total 10 per cent and Agip 5 per cent.
With this drop in its output, Royal Dutch Shell’s operation in the country is being largely sustained by offshore production from the giant Bonga deepwater field, which is currently producing in excess of 100,000 barrels per day, but far below its capacity.
The 225,000 barrels per day capacity Bonga field, which came on stream in 2005, is however being operated under a Production Sharing Contract (PSC) with the NNPC by Shell Nigeria Exploration and Production Company (SNEPCO), the second arm of the Shell Group.
Jul32009