Shell Calls Force Majeure in Nigeria; Over 1 mil. b/d Now Shut In

Another Force Majeure

Anglo-Dutch supermajor Shell has called another force majeure in Nigeria, which will see a further 130,000 b/d shut in. (A force majeure indemnifies a company from lawsuits for not meeting contractual obligations as a result of an event, such as sabotage to a pipeline, that is beyond its control.) Shipments were due to stop today because of leaks on the Nembe Creek pipeline, a trunk line that feeds crude to the Bonny terminal. The force majeure on crude exports from the Bonny terminal will last for the rest of February and March. Reuters quoted Caroline Wittgen, a spokeswoman for Shell in Nigeria, as saying that "The security situation in the area has seriously impacted the repairs and we will resume the work as soon as it is safe to do so".

This is the second force majeure Shell has been forced to call in the Niger Delta in 2008. At the start of January a force majeure was declared on all Shell's export contracts from its Forcados terminal in western Nigeria, after two pipelines connecting to the terminal were sabotaged. This force majeure will remain in place for the rest of February.

This latest action taken by Shell comes at a time when security concerns are top of the agenda in the region. On 3 February the militant group Movement for the Emancipation of the Niger Delta (MEND) staged an attack on the Tora manifold, an oil pipeline hub operated by Shell in the southern state of Bayelsa. The spokesman for MEND, Jomo Gbomo, contacted Global Insight and various news agencies to claim responsibility for the attack, saying it was "to commemorate the fifth month of the incarceration" of Henry Okah, who was arrested in Angola on 3 September last year. Okah is believed to be a gun-runner and financier of the militant group.

Outlook and Implications

The extra 130,000 b/d that will now be shut in is a further concern for Shell, and an embarrassment for the Nigerian government, which appears to have done little in the last few months to curb the violence in the country's oil-producing region. Last month it was announced that Shell's Bonga offshore oilfield, which produces 225,000 b/d, will be shut down briefly in March for maintenance, meaning that production will decrease even further. Shell has also been shutting in at least 477,000 b/d since February 2006. This announcement was followed by Minister for Energy (Oil) Odein Ajumogobia reporting that Nigeria was currently shutting in 1 million b/d of crude and that the country was only producing 2.23 million b/d. It is alarming that Nigeria's oil production is shutting in such a large amount of crude, particularly since, if full capacity could be reached, the country would be producing over 3 million b/d.

Nigeria's President Umaru Yar'Adua met with Shell chief executive Jeroen van der Veer last month at the World Economic Forum in Davos, Switzerland, and discussed the situation. There is no firm timetable for shut-in crude to return, however, and van der Veer made it clear to Yar'Adua that conditions in the country's oil-producing region need to improve before crude production can resume. One problem is that Shell has been unable to reach the pipelines due to the ongoing security situation in the Delta.

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