Shell in Nigeria: Oil, Gas, Development & Corporate Social Responsibility

Shell is a multinational corporation that for 50 years has been intimately involved in Nigeria's economy, politics and overall development. The company brings reliable lighting and electric power to people and small businesses who've never known it before, creating thousands of jobs and educating and training thousands in the process. The company has spent millions working with NGOs and community development organizations to strengthen education and health care, provide vocational training and establish protected nature reserves. Shell generates billions of dollars in export earnings while providing the federal government with half or more of its revenue.

Shell has also been implicated in government military actions that have resulted in the killing of non-violent community, human rights and environmental activists and local villagers, as well as the oppression of ethnic minorities. They've been seen as being complicit in widespread corruption and as a large contributor to the self-enrichment of government officials and powerful, local interests. They've also been viewed as a principal agent of widespread environmental degradation in what's recognized as one of the world's biodiversity hotspots.

How can we, living on another continent and largely dependent on fossil fuels to maintain our way of life, better understand and reconcile such glaring contradictions? Can genuine corporate social responsibility and stakeholder engagement initiatives succeed, not only in far-off developing countries such as this, but in our own? Read on... Preface

Operating in a country that has seen numerous changes in government, one that has shifted from a military dictatorship to the current representative democracy, Shell's 50-plus year experience in Nigeria is a work in progress, subject to shifting political, economic and popular currents. As is any business enterprise, in a sense it's a commercial and social experiment, one from which much can be learned. And it's one that affects not only the people of the Niger Delta, but people around the world. It's an experience that involves People, Planet and Profit.

The 'modern' story of multinationals' involvement in both developing and developed countries stretches far back in time, at least to that of the British East India Company. It's an historical current that, for better or worse, has reached its highest stage of development in our present era. There's much of both to be found in it.

Examining the topic in its past, as well as present, forms has and can continue to yield insights that benefit businesspeople, policy makers and the broadest public interest. It carries the possibility of averting potential tragedies and disasters along the way.

Shell first set up shop in Nigeria in 1937. Today's representatives of Royal Dutch Shell Nigeria have shown themselves willing and very able to take on this task. On July 21, they engaged in a one hour-plus online dialogue with journalists, bloggers, and other interested parties from around the world regarding the multinational oil and gas giant's numerous and varied activities in the west African nation, the continent's most populous.

Before offering a summary of this latest in the Shell Dialogues series, I need to recognize, and applaud Mutiu Sunmonu, managing director of the Shell Petroleum Development Company of Nigeria (SPDC), and members of Shell's staff who participated. They devoting a large amount of time and effort to organizing and hosting an online dialogue that served as evidence of a genuine commitment to fostering open and honest engagement on matters of local and international interest and importance. This dialogue, as well as the others in the series, also demonstrate an admirable commitment to corporate transparency and accountability.

Access to a wealth of readily accessible online materials was offered in advance, without which it would have been much more difficult, if not impossible, for a reporter to do his or her job in a factual, fair, accurate, even remotely comprehensive fashion. Those interested can follow the links in Reference section following the text of this article for additional information and insight.

The Niger Delta

Spanning some 112,000 square kilometers, the Niger Delta region is a wetland area made of several ecological zones, including sandy coastal ridge barriers, mangroves, permanent and seasonal freshwater swamp forests, and lowland rain forests. It is home to more than 3,000 communities and a growing population recently estimated at some 30 million, which the United Nations Development Program (UNDP) projects will increase to 46 million by 2020. Subsistence farming and fishing, or some combination thereof, are the principal mainstays of residents' livelihoods.

Urbanization, industrialization and deforestation are taking a heavy toll on the Delta region's soil, land, water and air. The country's forest area has been reduced by around half between 1990 and 2008, which is degrading the region's agricultural productivity and water resources. Local activists and residents, as well as local and foreign scientists and researchers, have decried the fouling of the Delta region's air, land and water, much of it attributed to pollution associated with oil and gas exploration and production.

Exploring for and producing oil and gas is a risky business. The benefits of plentiful fuel and power, and the jobs and incomes it provides are substantial. They also come with costs, ones that aren't necessarily seen or felt immediately or even during one person's lifetime. They are ultimately economic in nature, but are more completely viewed and appreciated in terms of costs to human and environmental health and safety, and their sustainability.

Shell in Nigeria

Nigeria was estimated to have 37.2 billion barrels of proven oil reserves as of January 2010, with a "nameplate" production capacity of around 2.9 million barrels per day (b/d), according to the US Energy Information Administration. That makes it the tenth-largest oil rich nation in the world, one that holds nearly 30% of the African continent's known proved reserves. All of that is located in the Niger Delta, where Shell Nigeria, with the Bonga deepwater project, is now moving its Nigerian oil and gas production efforts offshore.
Oil and gas revenue accounts for 40% or more of Nigeria's GDP, 65% of federal government revenue and 95% of its foreign exchange earnings. Nearly 40% of the country's oil exports wind up in the US.

Spread over 30,000 square kilometers, Shell has 90 oil fields, 1,000 producing wells, 72 flowstations, 10 gas plants and two major oil export terminals in Nigeria. Its network of flowlines and pipelines extends more than 6,000 km.

Shell's business in Nigeria is organized into three distinct subsidiaries, the principal and lead being the Shell Petroleum Development Company of Nigeria, or SPDC for short. It is a joint venture between Shell (30%), Agip's NAOC (5%), Total's TEPGN (10%) and Nigeria's national oil company, the Nigerian National Petroleum Co., which holds a 55% interest.

Shell Nigeria Gas Ltd. is the only international oil and gas company supplying natural gas to industry locally. Shell Nigeria Exploration and Production Co. Ltd. (SNEPCo), operates the Bonga, Nigeria's first deepwater offshore oil and gas discovery, one with the capacity to produce more than 200,000 barrels per day of oil and 150 million standard cubic feet of gas (SCF) per day. In addition to its oil and gas operations within Nigeria, Shell also refines large quantities of Nigeria's oil exports at refineries outside the country.

Nigeria is the only country in Africa where Shell is producing oil and natural gas, or has oil and gas reserves, according to its 2010 annual report. Proved oil and gas reserves totaled 406 million barrels, and proved natural gas reserves totaled 1,092 million SCF for a total 594 million barrels of oil equivalent (BOE). Proved undeveloped reserves totaled 344 million barrels and 1,897 million SCF, respectively, a total 671 million BOE.

SPDC was the first and remains the only international oil and gas company to supply natural gas within Nigeria, a country, ironically, that experiences almost chronic shortages of electrical power. SPDC produces about 70% of the country's natural gas, the primary fuel for electrical power generation.

Shell Nigeria: Oil & Gas Production, Revenue & Profit

Shell more than doubled production of natural gas in Nigeria in 2010, while crude oil and natural gas liquids (NGL) production rose 31% year-over-year. Increases were attributed to less civil tension, oil theft and sabotage, along with increased production from the Bonga deepwater oil and gas field, among other factors. Early this year, SPDC's Gbaran-Ubie field achieved peak gas production of 1 billion SCF/day.

Shell produced 302,000 b/d of crude oil and natural gas liquids (NGL) and 587 million SCF of natural gas in Nigeria in 2010. Oil production has reached some 50,000 b/d and is expected to peak at around 70,000. Average production cost in dollars per barrel of oil equivalent for Shell in Africa was down nearly 19% at $7.09 as compared to $9.71 in 2009.

Average selling prices of $79.63 per barrel for oil and natural gas liquids and $1.96 per thousand SCF of natural gas for Shell in Africa, as stated in its 2010 annual report, puts Shell's daily revenue from Nigerian fossil fuel production for last year at an estimated $25.2 million, or $9.2 billion per year. 2010 average production cost for Shell in Africa of $7.09 for its BOE 2010 production total of 403.1 million gives an estimated production cost for the year of $1.04 billion, which in turn yields an estimate of Shell Nigeria's annual gross operating income in 2010 of some $8.15 billion.

Shell's Economic Contribution

Fully 95% of SPDC's revenue after cost, an estimated $7.34 billion in 2010, flows through to the government via NNPC and SPDC. The remainder is shared between Shell and the other SPDC partners. In addition, news reports this year stated that SPDC paid some $31 billion in taxes to the Nigerian government between 2006 and 2010, while its offshore subsidiary SNEPCo paid roughly $3.8 billion in federal taxes during the same period.

As international relations manager Alice Ajeh explained, "Shell contributes to the Nigerian economy by generating revenues for government as well as paying taxes and royalties. In addition to this, Shell companies in Nigeria pay a statutory contribution to a regional developmental agency- the Niger Delta Development Commission (NDDC)- to develop the Niger Delta.

"In addition to this, Shell companies in Nigeria employ 6,000 direct employees and contractors (90% Nigerian). Many of the projects of the companies help create tens of thousands more jobs. Many of these programs are in partnership with government and other development agencies."

Nick Wood, vice president of CX Upstream International, elaborated, saying that "SPDC has a community contracting department that has helped create business opportunities worth tens of millions of dollars for local companies."

Shell & Corporate Social Responsibility in Nigeria

Putting aside the conventionally calculated economic costs and benefits of oil and gas production in Nigeria for a moment, anyone would, or should, be hard put to say that Shell hasn't done much good in Nigeria.

In a region and country where publicly provided infrastructure and services are badly lacking, SPDC has often stepped in and acted in lieu of government. "We have a strong focus on community development," SPDC MD Mutiu Sunmonu stated.

SPDC's community development focus has shifted in recent years, he continued. "In the past we were heavily involved in the provision of infrastructure in the communities. We were building roads, schools, clinics and providing portable water. Though these are typical areas for government intervention, we stepped into the gap to help in improving the standard of living of local communities.

"We are now involving more and more development partners to help in addressing community needs. Specific community development programs include our micro credit scheme and health scheme. We have about 27 clinics in the delta. we are a major supporter of education of young children, with over 17,000 children on Shell scholarship at any point in time."

- As of year-end 2010, Shell companies in Nigeria had trained some 1,900 service providers in general contracting, developed eight local dredging companies, awarded 10 UK scholarships and trained more than 3,000 people in entrepreneurship, scaffolding, project management, welding, catering, and other vocations.
- In 2010 SPDC and SNEPCo provided more than $22.85 million of a total $71 million to local community projects.

"We are encouraging the community to own and drive development themselves while we provide financial assistance to them and technical assistance through development NGOs. We have established operating procedures and guidelines to help make the process accountable and transparent. We still carry out major infrastructure in partnership with government, and other local and international partners," social development specialist Gloria Udoh added.

Nevertheless, as one dialogue participant said, although Shell has 'widely circulated publications and policies regarding your developmental activities in the host communities, the perception in such communities about your CSR approach remains unsavory.'

"A lot of work has been done in the last couple of years to enhance alignment and learning across the various countries that we operate," Udoh responded. "In 2010, a new global social investment strategy was approved by Shell and the process of embedding this is ongoing. The perception in our host communities are monitored annually through an independent reputation tracker, and we glad to report that the 2010 results showed improvements."

In 2006, SPDC introduced a new means of involving communities directly in their own development. The Global Memorandum of Understanding program (GMoU) entails communities proposing development projects and SPDC, on behalf of its JV partners, providing secure funding for five years. SPDC also provides community project leaders with access to development experts and NGOs that can assist them realize their aims.

Twenty-four GMoUs had been been established as year-end 2010, with over 400 projects completed by "clusters" with the SPDC joint venture investing $65 million in them. Six of the clusters have gone on to become registered community development foundations.

Environmental Pollution & Degradation & Remediation

Shell has been harshly criticized for the effects its exploration and production have had, and continue to have, in a region of tremendous biodiversity and critical natural habitat, an ecosystem that continues to provide the basic necessities of life for millions in the Delta region.

Seventy-five percent of oil spill incidents have been caused by third-party interference: sabotage and oil theft, however; a large majority are the result of oil theft and piracy, according to Shell. "The bulk of the spills in the Delta are due to criminal acts," MD Sunmonu said.

"However we are committed to cleaning up the spill related to our facilities regardless of the cause. The quality of clean up is very high, and it is in accordance with very strict government regulations and Shell standards, which are comparable to other places in Europe and America. We have always achieved our goal of restoring impacted sites to their natural state in the fastest possible way and by so doing we are able to minimize impact on local livelihoods."

When an incident occurs, "First we recover as much oil as possible - then residual oil is cleaned up," regional communication manager for West Africa Jonathan Barnden explained. "This is followed by remediation of the site where needed, and finally this is signed off by the regulatory authorities. I don't think I can get into the technicalities of remediation processes here, but SPDC uses recognized methods which are suitable for the tropical climate in which it operates."

SPDC intends to publish its monitoring data for the public to see, added CX Upstream International's Nick Wood. "It shows compliance with international standards most of the time."

Eliminating Natural Gas flaring

Most of the oil deposits in the Niger Delta are "capped" by large volumes of natural gas, termed "associated gas" in the industry. Much lighter than petroleum, it was, and to varying degrees remains common industry practice to burn off, or flare, this gas into the atmosphere in order to get to the underlying oil. When Shell first started producing oil in Nigeria in the 1950s, there was no market for natural gas. It's estimated that some 95% of Nigerian natural gas was burned off during this period.

Times have changed. Not only are local and regional markets for natural gas, billions of dollars are being invested in developing liquefied natural gas (LNG) facilities and an international market.
In addition, there is now an economic impetus and incentive to capture natural gas associated with oil reserves, as well as government and internationally accepted regulations aimed at improving air quality and mitigating climate change. These, along with lawsuits, add to the economic cost of continuing the practice.

Shell Nigeria is committed to eliminating natural gas flaring, according to panel members. In 2000, SPDC launched an initiative to accomplish this by 2008. Delayed at various times by lack of funding from its government-owned majority partner, NNPC, and civil unrest in the Delta, to date, SPDC has reduced flaring more than 50%, said Alice Ajeh, international relations manager for Shell Nigeria.

SPDC is also using computer modeling to analyze and better understand the impact of flaring. This specifically covers possible impacts farther from the flaring itself, CVX Upstream's Wood added.

"Despite delays due to security, safety and other factors in the Niger Delta, between 2000 and 2009 a lot of work was done which covered 60% of SPDC production potential," Ajeh continued. "However, with improved security in 2010, many of the delayed projects have resumed."

When completed, the program will cover 90% of SPDC production potential at an estimated cost of some $6 billion.

Environmental Conservation

Shell has also become active in environmental conservation in the Delta. In recognition of the importance of the Niger Delta's rich biodiversity, SPDC in 2006 joined with the government, forest communities and NGOs to develop Biodiversity Action Plans (BAPs) for two forest reserves: Gele-Gele and Urhonigbe in Nigeria's Edo State.

"These are International Union for Conservation of Nature (IUCN) designated category I-IV protected areas," Ajeh explained.

In 2007, SPDC and NGO partners "contributed to the passing of a biodiversity law by the Edo State government, one of the first such laws by a state government," she added.

Democracy & Human Rights

The harshest international criticism of Shell in Nigeria has been related to human rights. In 2009, Shell settled a decades-long case brought against it by the Wiwa family for complicity in the false arrest and hanging of internationally acclaimed author, social/environmental activist and Goldman Environmental Prize winner Ken Saro-Wiwa and eight others, all of whom were Ogoni, a Delta ethnic minority, and members of MOSOP, the Movement for the Survival of the Ogoni People.

More broadly speaking, Shell's experience in Nigeria has served as a poster child for what's come to be known as "The Resource Curse," or "Paradox of Plenty." Despite being richly endowed with oil, natural gas and numerous other natural resources, it's estimated that 70% or more of Nigerians live in poverty.

Asked why this remains the case, vice president of Policy & External Relations Andrew Vickers replied, "I was in Nigeria in December and it was clear that the problems faced by many have complex roots.
High rates of unemployment and few opportunities are clearly two key reasons. Lack of power to fuel development doesn't help.

"Corruption too plays a role. Shell companies in Nigeria play a key role in lifting people from poverty through their contribution to society e.g. capacity building, training, micro credit facilities and education."

A nation prone to violent, politically and economically related conflict, with a government viewed as ineffectual if not corrupt in the extreme, as well as one prone to the use of military force to quell domestic dissent and unrest, the mere fact that Shell does business in Nigeria with the government as its partner is enough to condemn it.

That view is simply unfair and unjustified, Shell says. "In the more than 50 years that Shell has operated in Nigeria there have been many governments and regimes," regional communications manager Jonathan Barnden countered.

"The latest elections in Nigeria were generally accepted as being the best yet - positive moves towards a more mature democratic system, and anyone familiar with the Nigerian media will have seen that it is a very effective and independent voice.

"I do not recognize your description of war and repression of minority voices in the Delta as being typical of Nigeria. Organizations such as MOSOP are free to express their opinions, which are widely and freely reported," he responded to one dialogue participant's question.

Poverty Amidst Plenty

Given Shell's longstanding partnership with Nigeria's various governments and its outsized role in Nigeria's economy and society, the company and the government have come to be seen as different sides of one coin. That's not necessarily an accurate point of view, according to Barnden.

"How much influence any single company has is a matter of conjecture - but is frequently overestimated," he commented. "SPDC has been outspoken on matters such as governance, poverty, corruption etc., and will continue to make its views known both publicly and privately."

Shell panel members were asked how the company could expect to enhance its credibility and reputation in a country that, despite being democratic in name, is seen in fact as more of an autocratic kleptocracy.

"A leading question. I understood it was a democracy and the last elections were widely seen to be successful. Shell companies in Nigeria operate responsibly in the country, follow our global business principles and observe human rights helping create wealth and development for ordinary people. I think that is a credible position to be in," CX Upstream's Wood replied.

Kudos to Shell

The Shell Dialogue in Nigeria provided valuable, all too rare, insight into the activities, and mindset, of a major multinational oil and gas company in a volatile west African country still struggling to create a stable, prosperous and equitable society. For that alone, Shell should be recognized and applauded.

It also served to highlight the complications, tensions and potential for conflict inherent in natural resource development. What kind of future a nation of millions will have hangs in the balance as its political leaders, business interests, local and other stakeholders collide, collude and cooperate in attempts to further their own self-interest, as well as perhaps make an honest, sustained attempt to find a balance that values social equity, social justice, and a healthy, thriving natural environment equal to that of dollars and cents.

Efforts such as this Shell Dialogue should serve to help address failings, increase public knowledge and awareness, and provide a stronger base from which all stakeholders stand to make more sound, better informed decisions.

"Shell in Nigeria" References:

- 2010 Shell Sustainability Report
- At a Glance: Shell in Nigeria
- Shell's Economic Contribution
- The Operating Environment
- Improving Lives in the Niger Delta
- Nigerian Content
- Oil Spills
- Gas Flaring
- Biodiversity