Thursday, January 31, 2008

Analysis: Shell to shut again in Nigeria

Nigeria's oil production -- already well below capacity due to ongoing violence -- is set to take another hit totaling 225,000 barrels per day, according to a leading producer in the West African country.

Shell Nigeria Exploration and Production Co. announced earlier this week that it would shut down production at the Bonga offshore oil field in March for routine maintenance.

While the cutback is reportedly supposed to be temporary -- lasting 10 days, according to Shell officials, Nigeria's Vanguard newspaper reported -- there are lingering concerns that the Anglo-Dutch oil firm might keep the facility offline indefinitely due to the continuing militant attacks in the oil-rich Niger Delta.

While attending the recent World Economic Forum in Davos, Switzerland, Shell CEO Jeroan Van der Veer said, "We are prepared for whatever we face" regarding the numerous production setbacks the oil giant has faced in recent years in Nigeria.

"Conditions must improve for us to restart production," said Van de Veer, "and we're not there yet."

Shell is among the foreign energy firms hardest hit by the violence that has persisted in the delta since the end of 2005 when the leading militant group known as the Movement for the Emancipation of the Niger Delta began attacking oil and gas installations and taking foreigner workers hostage.

Attacks by MEND, other militant groups and armed gangs are blamed for decreasing Nigeria's once growing oil production by 20 percent to around 2 million barrels per day.

The Shell CEO said he wanted to speak with Nigerian President Umaru Yar'Adua about tackling the militant issue and funding for additional projects that would improve oil production in the country.

The scheduled shutdown at Bonga isn't the first time that Shell has cut back production in Nigeria citing the militancy issue.

Earlier this month Shell shut down operations at its Forcados terminal following pipeline attacks that threw its 100,000 barrel-per-day production offline.

The terminal had already been shut down once before because of violence and reopened in October 2007 after more than a year of halted production. Since its reopening, the facility, which can produce some 450,000 barrels per day, had been operating at a fraction of its capacity.

MEND and other militant groups have in recent weeks made good on promises to increase attacks on petroleum installations, raising fears that already hampered production would be stymied further.

The attacks came amid efforts by Yar'Adua to negotiate a peace settlement with the militants. For months, it appeared Yar'Adua's efforts would pay off as MEND said it would honor a cease-fire brokered while the president attempted to make good on promises to improve the lives of the residents of the impoverished delta.

Despite generating more than $300 billion worth of crude from the southern delta states over the last three decades, poverty and high unemployment persists. Environmental degradation due to oil and gas extraction, and a lack of basic resources such as fresh water and electricity, have angered some of the region's youth and incited them to take up arms.

Meanwhile, unrest in the delta is also causing a serious shortfall in oil for Nigeria's domestic needs.

Nigeria's refineries are reportedly only producing 20 percent of the oil needed for domestic use, forcing the country to import the rest at rising global prices on the international market, wrote Leonard Lawal for African Energy.

"Paralyzed refineries, unsustainable government price subsidies and far-reaching corruption all contribute to a disastrous situation where one of Africa's leading crude producers cannot meet domestic needs," said Lawal.

Though Yar'Adua has promised to tackle the domestic need issue, the growing concern over discontentment among oil firms like Shell should preoccupy his time for the coming months leaving the shortfall issue on the back burner until the militancy problem can be curtailed, if not controlled.

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