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Nigeria, Shell Plan $1.6 Billion Gas Project In Volatile Delta Hit by Production Halts

THE WALL STREET JOURNAL

FEBRUARY 24, 2009, 10:46 P.M. ET

Nigeria and oil giant Royal Dutch Shell PLC announced a $1.6 billion gas-production project in the volatile Niger Delta.

It is the single largest deal Shell has reached with Nigeria in the past year, the company said. “It is a practical demonstration of commitment to the oil and gas industry in Nigeria,” said Mutiu Sunmonu, the head of Shell Petroleum Development Corp.

The agreement came even as Shell disclosed that it lost 1.6 million metric tons of liquefied natural gas since November because of “shut-ins,” or halts in production, caused by theft and sabotage, costing the government $180 million a month, a Shell official said Tuesday.

Because of theft and widespread environmental damage caused by pipeline leaks, the Soku natural-gas plant was closed in November and has cost the company and the Nigerian government millions of dollars, Ann Pickard, Shell’s executive vice president for Africa, said at an oil and gas conference in Abuja, the Nigerian capital.

“There were 100 bunkering boats out there [at Soku] at one point, stealing condensate,” Ms. Pickard said. “Bunkering” is the local term for the theft of crude oil and natural-gas condensate.

Ms. Pickard said Shell hoped output would resume within weeks.

Neither party gave any figures on the new gas plant’s capacity or expected start-up date. Mr. Sunmonu said that despite the state of security in the Niger Delta, Shell is prepared “to continue to work with government at all levels to make sure that we can indeed ensure the security of lives and property in the areas of our operation.”

“We believe that if all the stakeholders are committed to working together to solving the situation, there will be solution at the end of the day and that is why we have not chickened out,” Mr. Sunmonu said.

Nigeria says it has gas reserves of about 187 trillion cubic feet, ranking it No. 7 in the world. Attacks on oil installations and workers in the Delta have cut Nigeria’s oil production by about a quarter since 2006.

Shell paid Nigeria $10.4 billion in taxes in 2008, but without shut-ins, Shell would have paid an additional $10 billion.

WSJ ARTICLE

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