Between 2006 and 2009, attacks against oil companies in Nigeria resulted in a 28% production decline. Production ramped up again in 2009, as crime declined following a period of amnesty when the government disarmed fighters. However, during the last few months crime has risen again, threatening production in the Niger delta. Given that Nigeria is among the top 10 oil-producing countries in the world and accounts for 11% of the oil the U.S. imports, it's worth taking a closer look at this situation.
Nigeria and oil
Nigeria is Africa's largest oil producer and the continent's most populous country. It exported approximately 2,457,000 barrels per day in 2010, and the oil industry accounts for an astounding 95% of its export earnings and 80% of government revenue.
Despite these numbers, the country's people are poor. If you divide the total revenue from oil and gas production by Nigeria's population of more than 155 million, it amounts to less than $1 a day per person. Making matters worse, government corruption gets in the way of wealth distribution, and the Nigerian people have yet to realize proper benefits from oil and gas revenues. This leads to intense frustration and destructive criminal behavior.
Shell in Nigeria
In response to the corruption, Royal Dutch Shell
Shell-operated ventures produced 960,000 barrels of oil equivalent per day last year, good for 21% of Nigeria's total production. Operating 1,000 wells in 86 of Nigeria's 606 oil fields, Shell is the largest oil and gas player in the country. Thus, its operations are often choice targets for oil theft and sabotage.
At the end of August, Shell shut down production at its Imo field because of theft, resulting in a loss of production of 25,000 barrels per day. Since then, the company has reported 10 other incidents of theft in the Niger delta. Twenty-six Shell employees were kidnapped last year, down from 52 in 2009.
Shell is not the only oil company to recently experience threats of violence. Armed men attacked two of ExxonMobil's
Nor are these the only companies that need to be aware of the rising dangers in the region. Total SA
Danger's lasting effects
Shell claims that 70% of its oil spills between 2006 and 2010 were caused by theft and sabotage. In January, the company established a website that tracks oil spills and characterizes the cause of each spill as "operational" or "sabatoge/theft." The company's pipelines have spilled 500,000 gallons of oil this year.
Nigeria is the only OPEC country whose oil production fell in September, despite overall group production being the highest since 2008, and analysts point to criminal activity as the reason. Overall, Nigeria's quarterly production has slowly been declining since the fourth quarter of 2010. As mentioned before, because of Nigeria's dependence on big oil for revenue, a decline in production hurts both company and country.
The other side of the coin
Though the government depends mightily on Big Oil, the industry has destroyed Nigeria. After 50 years of oil production, the people of the Niger delta are still destitute, and the environment is essentially a wasteland. The United Nations published a report this summer revealing that the ground is saturated with hydrocarbons up to five meters below the surface. The groundwater is contaminated; in some areas, the levels of benzene in the drinking water are 900 times higher than World Health Organization guidelines. It has ruined farming, fishing, and livelihoods.
Across the region, there is evidence of oil from spills that happened more than five years ago that were never properly cleaned up. In the past, Shell has been ordered to pay $1.5 billion in damages to a Nigerian tribe, in addition to ending its gas flaring practice in another community. Nigerians claim the company has done neither. In the 1990s, Shell was also accused of colluding with Nigeria's military regime government in the execution of an anti-oil activist.
Alien Tort Statute
In October, a Nigerian king and four other tribal leaders filed a $1 billion lawsuit in Detroit's federal court. Claiming that Shell disregards the Nigerian judicial process, the group is suing under the Alien Tort Statute.
The Supreme Court has agreed to hear the Nigerian case against Shell to determine once and for all whether the 222-year-old law can be used to allow foreign citizens to sue corporations in American courts. The outcome of the case will mean one thing for Shell and another for corporations in general. Chevron, Cisco, and Bridgestone have all been in court recently because of this law.
The state of affairs in Nigeria is precarious, but it also forebodes a dangerous and litigious future if oil and gas companies don't clean up their acts abroad. New discoveries are made in the Gulf of Guinea on a regular basis, which means that companies like Total and Eni will very likely face the same situations Shell is seeing today. If the Supreme Court finds that the Alien Tort Statute is relevant today, all corporations will need to acknowledge a higher level of global responsibility.