Nigeria

Nigeria’s enormous oil and gas resources will be needed to help meet growing demand for energy in the country and around the world. We are working closely with the government to help realise Nigeria’s energy potential and support development.

These are difficult times for Nigeria. The country depends on the oil industry for 95% of its export earnings and 80% of government revenues. Yet since early 2006 its energy production has fallen. This is mainly because of the security situation in the Niger Delta, the country’s oil producing region, which has forced oil companies to reduce or suspend production to protect their staff and facilities. The drop in oil prices will make things harder, reducing the revenues available to government for development.

Nigeria is important for us. We have been there for over 50 years and the country is one of our biggest sources of oil and gas production. Despite the difficulties, we aim to stay and to help the government expand the energy sector. We support its efforts to bring peace and development in the Niger Delta.

SUPPORTING ECONOMIC DEVELOPMENT

Our operations are an important source of employment and of government income. The government and the national oil company together receive about 95% of the revenues after costs from the oil and gas that the SPDC-operated joint venture produces onshore in the Delta. In total, we paid $4.1 billion (Shell share) in royalties and taxes to the Nigerian government in 2008.

In 2008, Shell-operated companies awarded more than 90% of their contracts by number^[A] in Nigeria (worth more than $900 million) to Nigerian companies.

We continue to work closely with the Niger Delta Development Commission, the government body charged with coordinating development efforts in the Delta. In 2008, ventures we run contributed $158.2 million ($56.8 million Shell share) to the Commission, as required by law.

In addition, the SPDC-operated joint venture spent $84 million ($25.2 million Shell share) on its own community development programmes. In 2006, it introduced Global Memoranda of Understanding (GMOUs), to improve its engagement with communities and the effectiveness of these programmes. With GMOUs, the SPDC-operated joint venture provides communities with secure multi-years funding for development projects and access to experts. The communities, grouped together into clusters, decide how to spend the money. By the end of 2008, the joint venture had funded a total of 80 projects using the GMOU model. For example, in March 2008, one cluster used the GMOU process to set up a micro-financing and business training scheme targeted mainly at women working in the local markets. By the end of 2008, more than 150 women had already received support from the scheme with loans totalling around $130,000.

SECURITY CHALLENGES

The security situation in the Niger Delta remained tense. It improved in the western Delta, where we re-started production at 26 sites that had previously been shut down because of violence. But in the eastern Delta and offshore conditions got worse. The Shell-operated floating production storage and offloading (FPSO) vessel at the Bonga field was attacked in June 2008; the first time militants reached offshore operations in deep-water. In November, SPDC temporarily shut down the Soku gas plant to repair damage from fires and spills caused by criminal gangs stealing condensate from its pipelines. Soku supplies 40% of all the gas used by the Nigeria Liquefied Natural Gas Company (NLNG). Security conditions meant average oil and natural gas production levels onshore in 2008 were lower than in 2007, and about half the levels in 2005, before the current unrest began.

FUNDING AND FLARING

Since 2000, the SPDC-operated joint venture has spent approximately $3 billion on projects to gather and use associated natural gas (gas that is extracted along with the oil during production). Between 2002 and 2008, these projects had reduced associated gas flaring by more than 30%. Including the impact of reduced production due to the security situation, the joint venture’s flaring was down approximately 60%.

Projects costing a further $3 billion or more will be needed to meet our commitment to end all remaining continuous flaring in Nigeria. In 2008, work continued on those projects where funding and safe access were available.

Some progress was made on securing short-term funding for the joint venture’s operations. Partners fund the joint venture based on their ownership share. Since the government-owned NNPC owns 55%, the joint venture’s funding critically depends on the government’s ability to provide this share. In 2008, and early 2009, Shell and the other international partners in the joint venture agreed to provide substantial loans (in the form of bridging loans and Modified Carry Agreements) to NNPC. The money is to be used to complete important projects the joint venture has under way, to do critical repairs to equipment and to continue some of the gas-gathering and supply projects needed to complete the joint venture’s “flares out” programme. A longer-term solution to the funding problem is still needed.

SPDC reduced staff levels in 2008 in response to its lower levels of production and the shortfall in partner funding.

CLEANING UP SPILLS

Despite the security situation, SPDC’s programme to clean up old (pre-2005) oil spills moved ahead. In 2008, it completed the clean up and remediation of seven more sites. By year-end, 68 of the 74 remaining old spill sites had been completed. Between 2003 and the end of 2005, SPDC had dramatically reduced its operational spills thanks to better pipeline monitoring and maintenance. Unfortunately progress then stalled as the security and funding problems took their toll. In 2008, some operational improvements were made, despite the security situation. Operational spills in areas where the joint venture had access (and so where reliable information was available) were lower than in the previous two years. Wherever SPDC has been forced to withdraw because of the current security situation, it has fully shut down the production facilities to limit spill damage if those sites are vandalised. Unfortunately spills caused by sabotage remained a serious problem, with their volumes rising again in 2008 for the fourth consecutive year (see Preventing oil spills).

[A] The first printed edition of this report gave an incorrect figure of '90% by value'. 
      We have corrected this and apologise for the error.