How Shell’s exit from Nigeria’s onshore oil will impact the economy and the environment
Shell, the British energy giant, has announced that it will sell its Nigerian onshore oil and gas subsidiary, the Shell Petroleum Development Company of Nigeria Limited (SPDC), to a consortium of five mostly local companies for up to $2.4 billion. The deal, which is expected to complete in the second half of 2024, will end Shell’s nearly a century-long presence in Nigeria’s troubled onshore oil and gas sector, where it has faced environmental and social challenges, as well as security risks.
Shell’s exit from Nigeria’s onshore oil and gas will have significant implications for the country’s economy and the environment. Nigeria is Africa’s largest oil producer and the world’s ninth-largest exporter of crude oil, with oil accounting for about 88% of its foreign exchange earnings and 9% of its gross domestic product (GDP). Shell is Nigeria’s largest oil operator, accounting for 39% of the country’s total oil output.
On the one hand, Shell’s divestment could have some positive effects for Nigeria. It could reduce the environmental and social costs of oil production, which have been a source of conflict and litigation for decades. Shell has been accused of causing hundreds of oil spills, flaring gas, polluting water and land, violating human rights, and failing to compensate or clean up affected communities in the Niger Delta region, where most of the onshore oil is located. Shell has also faced security threats from militant groups, who have attacked its pipelines and facilities, demanding a greater share of oil revenues and more local development.
By selling its onshore assets to a consortium of mostly local companies, Shell could transfer the responsibility and liability for dealing with these issues to the new owners, who may have more incentives and capabilities to operate more sustainably and responsibly. The new owners, collectively known as Renaissance, comprise ND Western, Aradel Energy, First E&P, Waltersmith, all local oil exploration and production companies, and Petrolin, a Swiss-based trading and investment company. These companies may have more local knowledge, expertise, and connections, as well as more access to financing and technology, to improve the efficiency and safety of the onshore operations. They may also have more stake and interest in the welfare and development of the local communities, and may be more responsive to their needs and demands.
Additionally, Shell’s exit could create more opportunities for local participation and ownership in the oil and gas sector, which has been dominated by foreign companies for decades. This could enhance the capacity and competitiveness of the local industry, as well as increase the government’s revenue and control over the sector. The government, through the Nigerian National Petroleum Corporation (NNPC), holds a 55% stake in the SPDC joint venture, while the other partners are TotalEnergies, with 10%, and Italy’s Eni, with 5%. The government could benefit from the increased profitability and transparency of the onshore operations, as well as from the potential taxes and royalties from the new owners.
On the other hand, Shell’s exit could also have some negative effects for Nigeria. It could reduce the country’s oil production and exports, which could affect its economic growth and stability. Shell’s SPDC operates and has a 30% stake in the SPDC joint venture that holds 18 onshore and shallow water mining leases. Shell’s resources in SPDC reached around 458 million barrels of oil equivalent by the end of 2022. The onshore oil and gas accounts for about half of Nigeria’s total oil production, which averaged 1.7 million barrels per day (bpd) in 2023. Shell’s exit could reduce Nigeria’s output by up to 15%, depending on the performance and capacity of the new owners.
Moreover, Shell’s exit could affect the country’s reputation and attractiveness as an investment destination for the oil and gas sector. Shell’s exit is part of a broader trend of western energy companies divesting from Nigeria and other African countries, as they face pressure from investors and activists to reduce their carbon footprint and align with the Paris climate agreement. Exxon Mobil, Italy’s Eni and Norway’s Equinor have struck deals to sell assets in the country in recent years. Shell will still remain active in Nigeria’s more profitable and less problematic offshore sector, where it operates several fields and a liquefied natural gas plant1. However, Shell’s departure from the onshore sector could signal a lack of confidence and commitment in the country’s oil and gas potential, which could deter other foreign investors from entering or expanding in the sector.
In conclusion, Shell’s exit from Nigeria’s onshore oil and gas will have mixed effects for the country’s economy and the environment. It could bring some benefits, such as reducing the environmental and social impacts of oil production, increasing local participation and ownership in the sector, and enhancing the government’s revenue and control. However, it could also bring some costs, such as reducing the country’s oil production and exports, affecting its economic growth and stability, and damaging its reputation and attractiveness as an investment destination for the sector. The net outcome of Shell’s exit will depend largely on the performance and behavior of the new owners, as well as on the policies and regulations of the government, to ensure that the onshore oil and gas operations are managed in a sustainable and responsible manner.
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