Head First

With over 6,000 kilometers of flow lines and pipelines and about 700 producing wells, the Shell Group is the pioneer and leader of the petroleum industry in Nigeria. How do you see Nigeria’s production capability changing in the future?

Nigeria is truly blessed with tremendous resources. There are not that many countries around the world with an oil and gas resource base that is as impressive as that of Nigeria. So the foremost challenge for Nigeria is not really technical in my view. It is mostly about having a conducive business and operating environment. There are and there always will be opportunities here. What the industry and the regulators need to do is to unlock these opportunities. Nigeria is a challenging place to operate, but it certainly has a resource base that allows some optimism for the future.

What opportunities and challenges are there specifically?

Nigeria is an expensive place to do business because of the security issues we face. Operating in the Niger Delta, both onshore and offshore, requires special precautions and measures that cost a lot of money. Because of that, the costs are higher compared to other places around the world. Another challenge is fiscal stability. What investors need is a sense of certainty. This is a business where investments don’t generally provide a return in 12-18 months. Very often it takes up to 10 or even up to 20 years, so investors need predictability in terms of the fiscal environment. Broadly, I would say the economic environment we operate within is crucial in terms of having the confidence to continue to invest. If Nigeria can provide that, there is a lot of opportunity to be had.

What is the strategic importance and potential of liquefied natural gas (LNG) resources for the Shell Group and Nigeria as a whole?

It’s very important. Nigeria LNG is one of the largest single LNG plants in the world. It is important for its shareholders, which include Shell, Total, ENI, and the Nigerian National Petroleum Corporation (NNPC), which is actually the largest single shareholder in the venture. Today, the facility accounts for 8% of the global LNG market, and that’s a very significant amount. Of course, the rest of the world is growing fast in terms of LNG capacity, for example Mozambique, but elsewhere, too. The world is looking for gas. It’s a clean source of energy relative to some of the alternatives and tremendous growth is projected. There are currently six trains in operation at Nigerian LNG, and they want to potentially work on train seven. This could be a significant expansion as trains built today are larger than the ones built 10 or 15 years ago, meaning that Nigeria LNG may move from 22 million tons per annum to around 30 million tons if the conditions for investment are sound.

How are Shell companies in Nigeria coping with local challenges, noticeably oil theft and pipeline sabotage?

The biggest concern that comes with oil theft is the spillage and the pollution that it brings, and if we find a leaking theft point on our facilities, that is the main trigger for us to shut down our systems. We then fix the theft points, repair the leaking holes, and when we are sure it is safe, we get back to operations. We lose some production because people are stealing oil and, then, on the other hand, we leave a lot of oil in the ground because we have to shut down our facilities and wells while we repair the damage that has been done. That adds to the economic impact, both for us as operators but also for the government because of the money it would otherwise make through taxes and royalties and its share in the SPDC joint venture (SPDC JV), a joint venture in which the government holds 55%. The Shell Petroleum Development Company of Nigeria Ltd (SPDC) holds a 30% share and is the operator of the SPDC JV.

How do you see this joint venture going in the future?

The SPDC JV is an unincorporated joint venture that SPDC has been in and operated for more than 50 years. SPDC as operator of the SPDC JV is a very important company in the Shell Group portfolio and is here to stay. SPDC is looking to continue to deliver value to Nigeria and to our shareholders while managing the business environment the best we can, and that’s how we intend to take things forward.

Despite the oil in Nigeria being of the highest quality and relatively easy to drill, many among the largest IOCs are currently retreating from the region and selling their Niger Delta oil fields. How can you explain this trend?

I can only speak for Shell companies in Nigeria, and for us it is part of normal portfolio rationalization. What we are doing in Nigeria with some of the oil blocks that we’ve put up for sale is simply a consequence of having looked at our portfolio and made a decision that this is an area where other companies can also play. Some can perhaps add more value to it than we can. As with any other business, when that’s the case, then that’s when you consider divestment, so that’s what we’re doing. It’s not a retreat. If you look at how much money the Shell Group is investing in Nigeria yearly, it’s still at a very high level. We’ve got large projects like Gbaran-Ubie Phase II going ahead. We’re looking to push forward on the deepwater, which has tremendous opportunity. We have a number of exciting deepwater projects, as well as some promising shallow-water projects that we may develop if conditions are right. As I already said, there are tremendous opportunities in Nigeria. We’re concentrating on where we believe we can add the most value.

How is the Shell Group assuring that its best global practices in corporate governance and social responsibility are always fully applied?

The Shell Group doesn’t differentiate from one country to the other in terms of the policies that are applied, although the legal requirements may differ and this is one reason why things may not always look the same. For Shell, the policies that are applied in Nigeria are what you would see in the UK or in the Netherlands, or anywhere else. We have a set of business principles that all Shell companies have to abide by, and we drive those very hard. This consistency of approach also helps make our business more efficient.

Nigeria is currently striving to adopt an economic growth model that is less reliant on oil- and gas-related activities. How do you see this strategy affecting the Shell Group’s future in the country?

Shell companies in Nigeria are an important part of this change. What the country needs, probably more than anything else at the moment, is power. That’s a huge multiplier because, if you have affordable electricity, you have affordable businesses that can then grow and multiply. Obviously, while power generation is not our core business, we are an important part of the chain that provides the gas that provides the power. So, from my perspective, I’m looking at domestic gas as something we want to be a part of. We’ve done a lot in the past in this regard. We have supplied domestic gas for a long period of time and we have built a power station near Port Harcourt that produces up to 650 MW a day, which is about 15% of the nation’s current power generation. When it comes to domestic gas, we represent up to 20%-36% of the nation’s supply. This is a great example of how an IOC like Shell can make a difference in Nigeria.

© The Business Year – June 2014