Shell declares force majeure in Nigeria

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Aug. 19 -- Royal Dutch Shell PLC, following attacks on its oil pipelines in the south of the country, declared force majeure on its August and September exports of Nigeria’s benchmark Bonny Light crude.

“The crude deferment followed attacks on and crude oil theft from our Cawthorne Channel in Eastern Nigeria,” a company spokesperson said. The force majeure declaration has an effective date of Aug. 16.

Nigeria’s oil thieves typically focus on pipelines in the Cawthorne Channel leading to the export terminal at Bonny in Rivers State. The thieves drill holes or cut into the lines to siphon oil, and take it to illegal refineries. Shell did not disclose any figures concerning losses.

The announcement of force majeure followed reports by Shell over the past weekend that sabotage of pipelines by oil thieves in southern Nigeria was on the increase, causing production halts.

During Aug. 1-12, Shell recorded three separate sabotage incidents on its Cawthorne Channel pipelines where thieves drilled holes or made hacksaw cuts to siphon oil, the company said.

“Each time there's an oil spill, we shut down production to repair the line,” said a Shell spokesperson. “We’ve had three attacks—two have been repaired and production has been restored. On the third one we are about to commence repairs.”

In addition to the lost oil, Shell must contend with spillage created by the thieves—a cost that one company official called “unacceptable.”

“The environmental and social cost of widespread sabotage is simply unacceptable,” said Shell Vice-Pres. Babs Omotowa. “Last year, 98% of the oil spilled from (Shell's Nigeria) operations was caused by sabotage.”

Oil thieves differ from the militants who earlier attacked Shell facilities for political reasons. Their attacks led to a production decline of 1 million b/d, but an amnesty extended to militants last year has reduced the number of incidents.

According to the most recent report of the International Energy Agency, production has since increased in Nigeria as a result of the amnesty program, reaching 2 million b/d. Shell produced an average 629,000 b/d in 2009 compared with 850,000 b/d in 2008.

The report of force majeure follows an announcement by Shell last month it is producing oil and gas from the Gbaran-Ubie project in the Niger Delta, providing a new source of supplies for export and domestic markets.

When fully operational next year, the Gbaran-Ubie project will be capable of producing 1 bscfd of gas and 70,000 b/d of oil. The project’s gas processing plant is now producing 200 MMscfd from the first two wells out of a planned total of 33.

Most of the gas from the project, which incorporates five oil and gas fields spread over a 650 sq km area of Bayelsa and Rivers states, will go to the Nigeria Liquefied Natural Gas plant in Bonny to support existing export contracts.

Contact Eric Watkins at [email protected].