The project looks to assess the level of oil theft/ sabotage in Nigeria and how such has impacted on investment in the sector and the attractiveness of future investments, especially in a period of lower global oil & gas prices. Through a case study approach, the research finds that theft/ sabotage represent the main share of oil spills in Nigeria, potentially costing the industry $8Billion per year. Alongside this, international oil producers have recently been divesting a large amount of onshore assets to local producers, near $12Billion of assets, more than a confidence and signaling falling interest in onshore development which goes alongside with a rise in theft and sabotage. Shell has been one of the largest asset disposers in the group, at a time when the business puts its individual cost of oil theft at $1Billion per year. While local producers may be able to win support with local communities, risks remain, while a lack of technology and financing from the smaller producers may stop a number of larger onshore assets from reaching the production stage, in turn reducing the attractiveness of investment within the country.
Chapter 1 – Introduction
Every year Nigeria reports hundreds of oil spills within the Niger Delta region, causing damage on both an environmental and financial scale (Matthew 2014). Oil spills can be seen as the unexpected release of oil into the environment from pipelines. However, the main difference in Nigeria has been that rather than accidents, a number of these spills have been intentional, raising questions about the motives behind these spills and the impact it is having on the local environment and the oil & gas industry. A recent report issued by Amnesty International 2013 raised questions over the major causes of oil spills in Nigeria, focusing on the scale of theft and sabotage within the country (Amnesty International 2015), questions that have since been considered by the Nigerian government and the companies operating the pipelines themselves. After global oil prices fell in 2014/2015 and are projected to remain low in the long-term future, the issue of investment into the Nigerian oil & gas sector arises, particularly given the perceived risks of investment (Cocks 2014). Oil spills ultimately cost the operator money in terms of repairs and lost production as well as the costs related to environmental damage, putting pressure and uncertainty on investments that are long-term and can cost $billions. For example the Nigerian state-owned compay NNPC had originally proposed a $13.5billion budget for 2015 investments into the oil & gas sector, but it was recently cut to $8.1billion, citing lower prices impacting on the returns of investment into the sector (Bowles 2015). Recently, sabotage and theft have been noted extensively in Nigeria (EIA, 2015); providing operators with risks that they cannot control. Oil pipelines run throughout communities in the Niger Delta to provide oil to domestic and international markets. However, while local communities have seen the oil industry affect their local environment, they have seen little in terms of financial gains from development, causing anger towards the government and oil companies themselves. Anger among local communities has resulted in an increase of violence towards the oil industry, complaining over the lack of financial support they receive from the government and the $Billions in oil revenue that Nigeria receives each year (Sloley 2015).
Apart from the political aspect, oil spills in the Niger Delta pose a direct threat to local communities and environment, and have a direct impact on the businesses which operate in the industry, for example environmental impacts from oil spills can cause issues with agricultural land and fishing stocks (Anifowose et al. 2012). Previous research has pointed out the impact that the Royal Dutch Shell oil spill of 2008 had on the environment in the Niger Delta, ultimately leading to Shell agreeing to paying $80Million in compensation (Coker 2015).
Given the importance of the oil & gas industry to Nigeria in terms of exports and government income, an update in research is needed on the impact of oil/theft/ sabotage on Nigeria in terms of oil spills and so investment into the Nigerian oil & gas industry. This area has been subject to outside interest since the recent fall in oil prices, which has put pressure on high-cost, high-risk production areas; with international companies their capital expenditure over the coming years (OPEC, 2015). The question arises how oil theft and sabotage in Nigeria is affecting the business environment and production costs. Furthermore, given the lost oil/ revenue for producers, does Nigeria still represent an attractive market for future investment, especially when domestic and international demand for both oil & gas will continue to grow along with economic growth and urbanisation (BMI, 2015). It could be said that intentional oil spills are seen as a major risk and uncertainty when it comes to forecasting future income. Unlike spills relating to machinery failure or natural causes (e.g. weather-related) issues which could be resolved, intentional spills from theft and sabotage could be viewed by the business as risks and deterrents to investment, especially when they don’t experience the same problems in other producing areas such as the U.S or the North Sea etc. These issues are ultimately risks for the business, and given that many oil & gas companies have global assets to consider, developments in Nigeria could potentially be sacrificed for projects in more stable environments.
By focusing on the number of oil spills due to theft/ sabotage in Nigeria; research will be able to gain an understanding of the current . By then focusing research on the main international oil producers in Nigeria, namely Shell, Chevron, Total , Eni and Petrobras, the research can then identify how operators in Nigeria are currently dealing with the issue and conclude on the impact.
The aim of the research is to analyse the scale of oil spills due to theft and sabotage in the Niger Delta region of Nigeria, and calculate the extent of the adverse effects this has on future investments in Nigeria’s oil & gas sector in a period of low oil and gas prices.
Given a prolonged period of lower oil prices, oil & gas majors are looking to cut their capital expenditure over the coming years, putting investment projects at risk Patel, 2015). Given the rise of intentional oil spills within Nigeria, the question arises over how this has affected the risks associated with the country to oil & gas majors, and so how this would impact on future investment projects. Leading on from this is the potential financial impact that could be seen from a fall in investment.
The main objectives are:
Assess the scale of oil spills in the Niger Delta caused by oil theft and sabotage.
Assess the impact that sabotage and theft are having on the business environment and attractiveness of Nigeria’s oil & gas industry for future investment.
Identify how operators within the Niger Delta are currently dealing with oil theft and sabotage.
Conclude on the impact that sabotage and theft is having on investment into the industry.
The research will set out to answer the following research questions:
What have been the main causes of past oil spills within the Niger Delta
How have these oil spills impacted on the business environment within Nigeria’s oil & gas sector
Will this impact on the future ‘attractiveness’ of the oil & gas sector in an era of lower oil & gas prices
The aim of this study is to provide a critical analysis of oil spills within Nigeria, and look at how this has impacted on future investment proposals within the country. This will be done through a case study focusing on a number of international oil producers operating in Nigeria. The oil & gas sector accounts for around 35% of the country’s GDP and over 90% on the country’s export revenue (OPEC 2015). Additionally, The Economist (2015) notes that the Nigerian government relies on the income from oil & gas operations for 75% of its government revenue, suggesting that any fall in prices and production will negatively impact the finances of the government (The Economist 2015). This would be of interest to both researchers in the area as well as business officials and the Nigerian government as they look to improve the attractiveness of investing in the Nigerian oil & gas industry at a time of lower commodity prices. The research will highlight the source of losses within Nigerian oil & gas production along with the scale of impact this is having on investment within the sector, investment which is needed by the sector and the country to support government income and further economic development/ employment.
Value of the Research
Nigeria remains one of the world’s largest oil & gas producers, currently the sixth largest in the world and largest in Africa (EIA, 2015). However, the oil & gas industry remains of importance to the wider Nigerian economy, responsible for investment, jobs and a large proportion of export earnings and government revenue. Also, Nigeria has remained shrouded by risks associated with pipeline sabotage and crude oil theft, affecting both producers in terms of lost oil revenue and also in terms of maintenance costs and outages on important infrastructure (BMI, 2015). However, to some extent the high price of oil at the time allowed for major international producers to warrant the risks and move forward with investment into Nigeria.
On the other hand, oil prices have recently collapsed by near 50% (OPEC, 2015), putting pressure on the potential returns of oil & gas investments and the potential risks that international producers can warrant. The level of risk now associated with issues such as oil spills/ crude oil theft and sabotage now comes into question and the importance it will have on investment into the domestic oil & gas sector, a sector that has just been mentioned as highly important to the Nigerian economy. The value of the research will then come from the update that it will provide on how investment is now being impacted by oil spills in Nigeria in a time of lower oil prices.
Chapter 2 – Literature Review
This chapter aims to investigate the global oil & gas industry, Nigeria’s standing within this global industry and a current assessment of its status. The focus will then move to an investigation of the impact of oil spills globally, as well as a review of prior research into the topic.
Global Oil Production
The international fuel markets are in a constant state of flux. As globalisation continues, the demand for oil and gas continues to rise, pushing major producers to consider non-conventional developments as well as those in frontier markets. Non-conventional sources are those that new technology have unlocked; for example U.S shale production from fracking, which allows the U.S to increase domestic oil production by over 4 million barrels per day since 2009 (EIA 2015). At the same time, producers are also considering new frontier markets for oil production, from deepwater reserves in Angola to Artic exploration activities. Given the need for oil in many day-to-day activities, demand is expected to continue increasing in the long-term, putting pressure on oil majors to not only production, but increase production levels. Price though will remain low as global production remains higher than demand (OPEC, 2015).
Nigeria is a member of the Organisation of Petroleum Exporting Countries (hereafter OPEC), a group which represents a number of producers and around 30 million barrels of production per day. Given the latest data, Nigeria production stands at around 1.75 million barrels per day, which is a fall from 1.96 million barrels pumped in January (OPEC 2015). The main issue for Nigeria has been that demand from its traditional U.S market has weakened as domestic U.S production has increased, reducing the need for imports. Furthermore, more Canadian crude has moved into the U.S, again displacing traditional imports from Nigeria. With the Asian markets also well supplied from the Middle East, and European demand still lacklustre given a weak economic recovery, Nigerian producers have been forced to aggressively cut prices (Monnier 2015). Furthermore, with the Nigerian domestic market relatively underdeveloped (demand is only 385,000 barrels per day); the main reliance is on exports. Additionally, the rig count, which is largely a reflection of the level of exploration and development activity (the number of drilling rigs operating per month) in the sector dropped to 32 in Nigeria in March 2015 from 36 in February and 38 in January; suggesting that future investment is expected to fall (Baker Hughes 2015).
These falling prices, caused by surging U.S domestic production and a reluctance by OPEC to reduce their production levels, prompting worries over potential oversupply within the market. However, OPEC remain confident that growing demand from the emerging world will soon reduce this level of oversupply, pushing prices back up; however even long-term forecasts expect prices not to recover to the once $100/ barrel level (OPEC 2015). This is shown in the graph below, showing how the boom in shale oil production creating a discount of WTI crude to Brent before the substantial fall in prices caused by global oversupply (WTI Crude is the benchmark crude price in the U.S, while Brent is seen as the global benchmark and is traded in London):
Figure 1 – Data obtained from Bloomberg on 8th July 2015
With this, international oil businesses have been quick to respond with cuts to their planned capital expenditures as they seek to reduce development costs and protect profitability. The main cuts have come to so-called frontier markets, which can carry much higher costs and risks than traditional markets (Adedamola 2015). To some, Nigeria has remained a frontier market given its status as an emerging economy as well as the risks that are involved with investment, such as poor government regulation and the threats of sabotage/ theft. This ‘frontier’ status could be noted in the risk scores that are given to Nigeria by The Economist Intelligence Unit compared with the U.S who records A’s in all:
Figure 2 – Obtained from The Economist Intelligence Unit – (Walker 2015)
Given that weaker oil prices will mean less income for producers as well as smaller margins on production, there is an expectation that projects in Nigeria would now be deemed too risky for investment, especially since oil majors can now consider investments into other area’s such as the U.S. Globally, oil businesses will now move into a period of cash preservation, thereby reduce capital expenditures until prices rise to a level that warrant major projects (OPEC, 2015). While global oil production is still expected to rise, the majority of these rises may come from safer markets such as the U.S, Canada and Mexico as well as countries with a large state-owned presence such as Iraq, Saudi Arabia and Iran; where the government has the financial ability to fund major developments themselves (OGJ, 2015). This production will then be exported onto the emerging economies, which are demanding more.
OPEC and Nigeria
The table below shows the latest production figures from OPEC including Nigeria, showing steady, but erratic output from Nigeria (OPEC, 2015). Given the erratic nature of oil production from the country, sometimes moving by 50,000 barrels per month; one plausible explanation could be that a level of maintenance or outages would play a role. In terms of outages, pipeline damage could also be considered, which would come from sabotage or theft (EIA,. 2015).
Figure 3 – OPEC Monthly Oil Production (barrels per day) – Obtained from OPEC (2015:60).
The Nigerian Oil Industry – Already seeing effects from years of uncertainty/ theft/ sabotage as well as recent low prices
The Nigerian Department of Petroleum Resources (DPR) disclosed that the country’s crude oil reserves declined by 2 billion barrels to 35 billion barrels in 2013, a 5.4% decline from its initial level of 37 billion. This decline of reserves and the overall stagnant reserves since 2008-2009 is indicative of the strong slowdown in exploration activity, notably onshore (given recent violence in the Niger Delta and Chad Basin), in particular since the rise of violence from militant groups starting in 2005. Little significant investment has gone towards oil exploration in the past five years (BMI, 2015), and the number of wells drilled has strongly declined since 2006 (BMI, 2015). This can also be demonstrated below in the table showing falling proved reserves (reserves which are recorded as obtainable for producers) of oil as well as the expectation for further falls to come:
Proved Oil Reserves (Billion barrels)37.237.23535.13534.8
Oil wells completed in Nigeria, which include development and exploration of oil and gas wells, dropped from 140 in 2009 to 114 in 2013, according to the OPEC 2014 statistical bulletin.
This slowdown in exploration activity and the level of production is now seeing reserves become stagnant, a trend which is likely to continue in the short-to-medium term at the minimum (shown above) due to the factors discussed above and fluxes within the international oil markets. Rising security problems related to oil theft and pipeline vandalism has deterred companies according to the EIA (2015), with the agency stating “The instability in the Niger Delta has resulted in significant amounts of shut-in production at onshore and shallow offshore fields, forcing companies to frequently declare force majeure on oil shipments” EIA (2015: 1) . Disruptions in the country’s midstream throughout 2012, 2013 and 2014 due to repeated oil thefts and pipeline attacks have indeed contributed to a worsening outlook from investors, suggested by reports from BMI (2015) and the EIA (2015) as well as through that data that will be presented later in the research. Some companies prefer to refocus their investments from the uncertain and unreliable Nigerian market, towards assets, which are capable of generating more stable returns in other countries. Others will prefer to wait and see how the overall situation evolves before committing finances for exploration in the aim of developing new projects in the country to the longer-term.
In addition, the physical security situation has slowed exploration, notably in the northeast of the country, with the Boko Haram terrorist group continuing violent actions, with some attacks against international workers. For example, NNPC managing director Andrew Yakubu said in March 2014 that the insurgency in the north has negatively affected oil exploration in the region, specifically in the Chad Basin, which was expected to be an upcoming oil area in the North of Nigeria (Vanguard 2014).
In light of current exploration activity, an expected continuation of the unstable business and security environment at least in the short-to-medium term, and increasing Nigerian production over the medium-term, the consensus on forecasts is that Nigerian oil reserves will stagnate over the coming years (OPEC 2015). The expanse of onshore pipeline infrastructure and the magnitude of crude oil theft will make it difficult to control and eradicate this problem, especially the current disconnection with local communities in the Niger Delta (Omeje, 2005). Ultimately, the government and oil companies need to connect the local community with the oil & gas industry, showing local communities the benefits that could be had by developments in the area and how they may mitigate against the potential issues on the environment etc (Watts, 2004). Concerted efforts by the Government and communities would be necessary to address violence in the Niger Delta.
Several factors militate against the success of Nigeria’s future hydrocarbon potential, including: crude theft, pipeline vandalism, a deteriorating business environment, regulatory uncertainty surrounding the PIB and the strong decline in crude oil prices since the second half of 2014. The issues of theft, outages and force majeure (such as Shell’s force majeure on Nigeria’s Forcados crude exports after leaks were detected on onshore pipelines) have had direct consequences on total Nigerian production, resulting in Nigerian production weakness since 2011. This issue, cited by analysts such as BusinessMonitor (2015) have downgraded their expectations on future production growth by near 5%. While Nigeria will still remain the largest producer in Africa, it could soon fall behind production from other frontier markets such as Brazil. While production should grow in 2016/2017 due to a number of major offshore projects coming online (E.g. Egina Oil Field coming online in 2016), long-term growth will be hindered by the lack of new exploration as mentioned beforehand (BMI, 2015).
Furthermore, outages to operations will continue, albeit the Nigerian navy hopes it at a lesser level than the past two years given the increased maritime security apparatus put in place by the government (Hipple, 2013). However, crude theft will not be entirely eliminated; given the large size of onshore pipeline infrastructure and the magnitude of crude oil theft will make it difficult to control this development.
The Impacts of Oil Spills
There is a large body of research on the impacts that oil spills have; both on the producers/ companies which operate the infrastructure and on as the markets and local communities.
Research into the impacts of oil spills have centred on the impact on the environment. (Incardona et al. 2011), Mendelssohn et al. (2012), and Lin (2012) are just some of the recent reports released on the environmental degradation that is caused from oil spills. Bringing into context Nigeria, research from Obi (2010) noted the impact that oil spills in the Niger Delta have had on fishing stocks within the area, in turn causing a large loss of habitat, life and livelihood for the local communities that rely on the fishing industry. This argument is also supported by Udo-Inyang (2013) who again notes that recent oil spills have had a major impact on the local ecosystem, impacting on the health of the local environment, natural habitats and fish stocks etc. Given the impact that this would have on the communities that rely on the fishing industry, Doerffer (2013) notes that the recent anger towards oil and gas producers is justifiable. Oil spills have also caused large areas of inland damage, affecting land, which would potentially have been used for agricultural development and production. Hassan (2015) noted that due to a lack of accountability within Nigeria, there has been a lack of clean-up response from the oil & gas companies themselves; meaning that they are reluctant to in some cases even pay for the basic clean-up operations (Fingas 2012). While this point may be contested by the oil majors themselves, seen in the likes of CSR reports from Shell (2015) and BP (2015); who may say they remain committed to environmental protection and sustainability, consensus from researchers does appear in research suggesting a weakness in accountability within Nigeria (Anifowose et al. 2012;Frynas 2012). Ultimately, this lack of accountability only exaggerates the impact of the oil spill given the time lapse between the spill and the response.
A recent example which could be considered here is the difference in response between the 2012 Shell oil spill in Nigeria and the recent deepwater explosion in the Gulf of Mexico from a BP-owned operation. This showed a much slower response from Shell and lack of accountability in the process, whereas BP was quick to accept responsibility and solve the problem (Frynas 2012). In regards to Shell, reports after the spill noted a lack in ‘urgency’ from the response (Vidal 2012), a factor which research by Jolly (2013) and Pegg (2013) suggested only increasing the impact on the local environment. Fitzpatrick (2015) noted reluctance from Shell after the spill to acknowledge full responsibility for the spill and its impacts, meaning that a compensation package for local communities took years to go through, only recently finalised. Given this, the impact of the Nigerian spill on the local environment and also on the local community could have been worsened by the time taken to resolve the issue. On the other hand, while the BP deepwater explosion caused uproar given the oil spill and environmental damage which followed; the company was ‘praised’ in some research due to the scale and urgency of its response, both in terms of support the stopping the spill and rehabilitating the environment to providing financial support and compensation to the local communities affected.
Global Oil Spills
Oil spills are not just confined to Nigeria, but happen in most major oil producing countries. Recently, attention has focused on the Deepwater Horizon Explosion off the Gulf Coast of the U.S, while Alaska and California have also seen their share of oil spills caused by pipelines. Spills have also been cited in India, Angola and Libya; as well as major producers in Iraq and Yemen (Fingas, 2012).
However, in the examples cited above, there is a notable difference in the reported cause of spill. The main examples cited in the U.S were all down to safety and mechanical failures, ultimately leading to a pipeline failure/ explosion, causing the oil spill into the local environment (Walker et al. 2015). The spills were usually followed by efforts from the company and the local government to stop the spill, with a major clean-up effort to restore the local environment. In the long-term, such spills have resulted in changes within the business to ensure that another spill is not repeated. In regards to the Horizon explosion (noted above), BP followed by spending $43 billion to stop and clean-up the spill, spending more in the long-term on compensation and changes to the business to improve safety (BP 2015). In terms of the spills noted in the emerging world, a large proportion are brought about deliberately; with theft and sabotage the main culprits.
In Iraq, recent oil spills have been caused by violence in the region, with local militia looking to disrupt the oil industry by destroying its pipeline infrastructure; an issue also in Libya given current unrest (Llanos 2013). Due to the perception of a link between oil and extreme wealth, the industry is usually targeted during unrest to cut off government income. This has certainly been the case in Libya as well as Yemen, where militia have sought to weaken the government by cutting off their oil revenue (Sanaa 2014). In other countries, sabotage has been cause to pipeline infrastructure in a bid to steal oil. This will be noted extensively in Nigeria later in the research; however it is also a major issue in India as well as other African producers such as Angola (Ambituuni et al. 2015).
Oil theft seems to arise when there is inequality and shortages within an economy (Wallis et al. 2012). This is particularly true with Nigeria and other African economies, where domestic oil producers tend to focus their production into the international market rather than the domestic given the higher prices that can be obtained. Furthermore, Nigeria also has a domestic shortage in the power industry, causing many communities and business to generate their own power through diesel-fired generators, a costly process (Ambituuni et al. 2015). For those that cannot afford to buy the fuel needed to improve their living standards, theft has become a method of gaining access. In particular, Nigeria has seen a surge in crude theft as more people and businesses turn to diesel-fuelled generators to generate their own electricity (Onuoha 2012).
Sabotage and Theft – Growing Issues in Emerging Economies
As touched upon above, emerging economies have seen a surge in oil theft and sabotage, driven by political and economic factors. Research from Anifowose et al. (2012) considered the explanations behind oil spills in Nigeria, noting that well-equipped professionals and ‘opportunistic’ local residents were behind a large proportion of oil spills, caused deliberately by oil theft. Anifowose et. al. noted that the attacks where driven by a complex web of stakeholders and ‘claims’ from individuals; with locals seen as staking their claim on the oil that is produced from local lands. Given the perceived benefits that oil has provided to the few wealthy in Nigeria, anger has developed in local communities who have seen little monetary benefit from the oil industry while at the same time have witnessed environmental degradation, impacting on their traditional livelihoods (Anifowose et al. 2012). This claim has also been made in research from Kadafa (2012) and Zabbey (2014) who highlighted the decline in fishing and agriculture industries within the Niger Delta brought about by developments in the oil and gas industry. Given the reliance of many local communities on such primary industries for food and income, there appears to be a link between oil spills and the destruction of traditional livelihoods in the Niger Delta (Hassan 2015). As these local communities have seen little monetary benefit at the same time or little in terms of employment from the highly skilled oil & gas industries, anger has been directed upon the producers and their infrastructure (Pegg 2013).
Other research has considered the rise in oil sabotage as a weapon against the government. Poutain (2013) considered the role oil has played in developing political power in the Middle East, noting the reliance the governments have on oil for revenue and bargaining power. Given this, the industry is seen as a target for those opposed to government rule. Again, research paid attention to this level of expectation and complex web of stakeholders for violence, with those who don’t see any benefit from the oil industry against it (Smith 2014). It could be noted that commentary from the oil industry in the Middle East shows that a minority have become extremely wealthy from development in the industry, while others have seen little benefit. This is also noted from Nigeria, suggesting that some of the oil sabotage could be politically motivated against the political elite who have profited from the country’s oil wealth.
Recent media reports from India have focused on the issue of oil theft as economic development in the country raises the living standards and so the need for oil; while inequality means that a large percentage of the population cannot afford to buy oil (Nwajiaku-Dahou 2012). Again, research into Nigeria has also considered this link with inequality within the population. Focus on Nigeria has also added in power shortages in the country, pushing individuals to use diesel power generators to maintain a reliable source of power for both home and business. Given the need for diesel to run such generators, research such as Idemudia (2014) has noted of oil theft as being done to support this demand from communities that are unable to afford the diesel needed; with thief’s targeting one of the main refined products pipelines that run between oil fields and the refiners owned by major international companies.
With this, oil producers in Nigeria have come under pressure from many small-scale intentional leaks, leading some researchers to mention that oil producers in the country have lost control of their operations, given violence and potential theft of oil which seems uncontrollable (Nwajiaku-Dahou 2012). According to data from Amnesty International, Shell and Eni reported 204 and 349 spills in Nigeria respectively (Amnesty International 2015), leading to major falls in daily production levels. This issue is certainty growing in the country, with these smaller spills often harder to locate and control, especially when individuals seeking to damage operations or steal production cause them (Idemudia, 2014). Many of the major producers in Nigeria have previously cited these issues in prior investor reports/ presentations (Sloley, 2015), noting the impact that they do have on the current production and future potential of operations within the country, as show below from Nigeria’s top international oil producer Shell (2013).
Figure 4 – Obtained from Shell (2013)
Existing Research Focused on The Niger Delta
Research into Nigeria has focused on the Niger Delta, seen as the centre of the Nigerian oil & gas industry. Development in the Niger Delta has included both onshore and offshore reserves, supporting the development of major refineries and pipeline routes to transport the production into the domestic market and into international markets through export terminals. Given increasing demand for oil from the domestic market, large-scale pipelines can be seen throughout the Niger Delta, becoming part of many local communities (Obi 2014). Researchers such as Obi (2014) have noted, given the importance of the oil & gas industry to the countries development and to the government’s income, the supportive stance the government have had for development. In the light of this, Watts (2004), Idemudia (2014) and Wilson (2014) paid attention to the proximity of such infrastructure to local communities which rely on farming/ fishing, and so the environment for their livelihoods. Kadafa (2012) noted the disruption that many developments had plagued on local communities, with pipelines in a number of cases running directly through villages and through people’s homes. Given this, (Pegg 2013) agreed with the anger that has since erupted in the area, noting that while local communities have adapted to live with pipelines/ and developments from the industry, they have seen little benefit in terms of their standard of living, financial situation or employment prospects. Figure 2 below shows an image of a Nigerian community in the Niger Delta, showing the proximity of new pipelines onto a community, which may offer little benefit to people’s lives
Figure 5 – Image Obtained from http://www.circleofblue.org/waternews/2009/world/war-on-water/
The disconnection between the oil & gas industry and local communities, unrest has increased in the Niger Delta, with reasons such as anger towards the government, perception of no benefit to the local community already noted in the review above. There has been a consensus among researchers and industry professionals that the increase in oil spills throughout the Niger Delta has been a result of rising tensions with local communities, leading to sabotage and theft (Ite et al. 2013).
Ultimately, there have been a number of studies into the Niger Delta; while methodologies between them have differed from interviews to case-studies, all have come to a common conclusion that there is in fact a level of disconnection between the oil & gas industry and the local communities around. With this, locals see little benefit from the industry, while suffer at the same time from environmental damage, affecting fish stocks and agricultural land. With this, there is the prior assumption that such discontent from the local communities could impact on further development.
Impacting on Development
Essentially, the majority of this is down to the uncertainty that these ‘intentional’ spills have on the production and profit of their operators. Felix (2014) noted that oil developments have become tainted in Nigeria recently as oil majors find it difficult to manage their relationships between stakeholders. Ultimately, majors such as Shell, BP and Chevron have come under major pressure from shareholders who seek higher efficiency and profits, while at the same time coming under pressure to make financial return from the Nigerian government and local communities, thus reducing potential returns on investments (Felix 2014). Nnadi et al (2014) also noted current issues with safety in Nigeria, a potential risk and ‘uncertainty’ to oil & gas businesses which seek to make billions of dollars of investments in the hope of making a return on investment; with Idemudia (2014) also noting the pressure that oil & gas companies are experiencing as they seek to be peace makers in the local area (for example spending money on local communities) while also generate a profit themselves.
Previous research into the Nigerian oil and gas sector cites a number of potential risks to investment, mainly focusing on uncertainty concerning government regulation, issues with local communities and the need for around $113 billion in investment within the oil industry to maintain production levels in the long-term (Wallace 2014). However, the main reason this impacts on investments into oil and gas is that to some extent it is seen as uncontrollable and uncertain for the producer, and so assumes a level of risk to the forecasted income for the project.
Ultimately, with lower oil prices affecting the potential return on projects, risks associated with uncertainties such as theft and sabotage could potentially see oil & gas majors delay or cancel planned developments, either to reduce their planned expenditures or to direct more expenditure to safer projects; such as those located in Europe or the U.S (Sloley, 2015).
The literature review has showed a wide-range of previous studies on Nigerian oil spills and the impact they have both on the environment and financially on the companies operating them. Given the discussion, there appears to be a link whereby oil spills have in the past caused environmental damage in the Niger Delta, affecting the traditional livelihoods of the local communities, namely into agricultural and fishing. While oil developments continued in the region, putting more pressure on local communities with the construction of refineries and pipeline infrastructure (as pictured above), little benefit was seen by these local communities. The industry created almost no jobs in the local community; mainly due to the low-skill set of locals compared with the highly skilled jobs on offer; while also providing little financial support to local community developments according to research undertaken by Uwakonye et al (2010), developments which may have reduced their dependence on industries such as fishing/ agriculture that in turn where coming under pressure from increased development in the oil & gas sector. More education in local communities would potentially increase the skill set of the local population, allowing for other industries to develop in the region (e.g. manufacturing) and provide local employment, alleviating poverty. As this disconnection between the benefits from the oil & gas development and the local communities that played host to them widened, anger developed, towards both the oil & gas companies present in the region as well as the government. Oil sabotage followed, along with theft of oil from such infrastructure, as local groups felt exploited by the industry.
However, up to now the Nigerian oil & gas sector has continued to receive attention and investment from international producers. Given its role as Africa’s largest oil & gas producer, as well as a large emerging economy, the nation has remained a key destination from the likes of Shell, Chevron, Total and Eni etc (BMI, 2015). Furthermore, given Nigeria’s development as a major global LNG exporter; investment has also come into its gas reserves given the income that can be earned through exporting LNG into Europe and Asia (EIA, 2015). However, recently oil prices have fallen by near 50%, putting pressure on such investments. Suddenly, risks within Nigeria, such as risks associated with oil theft and sabotage have come into question regarding the viability of investments, most notably onshore investments.
Chapter 3 – Methodology
The research will present a case-study into the history of Nigerian oil spills, allowing for comparisons to be drawn on the scale, impact and cause. The case-study approach allows the research to be focused on Nigeria as opposed to a global study, using secondary data given the time issues which may become apparent if primary data had to be collected. The case study will examine pipelines spill within Nigeria (taking into account those spills which are cited as being caused through theft or sabotage) before then considering how individual companies have reacted, focusing the research on the largest international companies in Nigeria seen in Figure 3. Ultimately, it is expected that an increase in oil spills caused by intentional actions, an so theft/ sabotage will impact negatively on investment within the sector given the risks to oil & gas companies.
The organisations included in the case study are the main international producers, namely Royal Dutch Shell, Total, Chevron and ExxonMobil. These companies represent a large proportion of total production (shown in Figure 3 below) in Nigeria. By focusing on their individual cases, the research can develop a picture of the overall Nigerian industry.
While some researchers have argued that case-studies lack the variability and generality of findings, as they have only a limited number of responses when considered with say questionnaires (Buchanan, 2009), it has also been commented that the ‘intense’ exposure of a case study will essentially mitigate this issue and allow for a deeper understanding of the topic to be developed, which in turn should support the strength of the final conclusion (Yin, 2012). While this thesis could have included primarily data, questions would have been raised over the validity of information given by respondents unless the researcher was able to gain access to high ranking government officials and CEO’s of the largest oil producers in the country. Furthermore, given the time constraints of the project, it was felt that there was too little time to carry out primary research properly, so affecting the overall quality of the data and subsequent conclusions (Yin, 2013). Ultimately, the case study approach will seek to generalise from specific events; in this case, will seek analysis of specific producers in Nigeria will lead to general remarks about the overall market. The case study approach was chosen as it gives the researcher the ability to test the hypothesis that the current level of oil theft/ sabotage (oil spills) within Nigeria is adversely impacting the potential for future investment from international oil companies.
A questionnaire/ interview approach was also considered for the methodology. While this method would have provided the research with primary and recent data (qualitative/ quantitative) the main issue identified by the researcher was obtaining respondents who could add reliable information to the study (Maxwell, 2012). For example, given the complexity of the research as well as the ‘niche’ in terms of the knowledge, it wouldn’t be acceptable to interview a random sample of the population. To add, it was also considered that given the data is freely available from the Nigerian Oil Spill Monitor, it could be assumed that the respondents may just quote the same data. Rather than spending time on completing the interviews, the researcher instead could designate more time to the analysis of the data.
Research Strategy and Design
The study will require the collection of secondary data to develop an understanding of the current situation in the Nigerian oil & gas sector, as well as the current level of oil spills reported. A number of reliable sources have already been identified where the information can be sourced from, such as data from OPEC, the NNPC, Shell, Nigerian Oil Spill Monitor, as well as new agency such as the Financial Times, Bloomberg and CNBC. The producers themselves (e.g. Shell, Eni and Chevron) have information available within their annual reports and investor presentations, while the Nigerian Oil Monitor can be used to see the level of oil spills in the country, along with information over their size, location and cause. The researcher is somewhat confident in the information presented by the major oil companies, given its inclusion in the annual reports and presentation to investors, however recognising that many businesses will select the information that presents the company and its operations in the best way. To combat this, other sources could be included, such as financial analysts to support or reject claims.
The Nigerian Oil Monitor is a tool which tracks oil spills throughout the country; oil spills, which are located by government officials or by businesses/ local people who can report a spill (Nigerian Oil Monitor, 2015). Given this, the tool appears to be the most reliable and comprehensive database from the country on oil spills. Furthermore, the tool also requires that government officials study the spills and verify information before the status of the spill is classed as ‘confirmed’. To ensure a level of reliability in the work, the researcher will only use the information from spills that have been classed as ‘confirmed’ – omitting spills that still remain under investigation. A number of analyst reports will also be considered when the research can gain access, such as reports from PWC, World Bank, SNL, BusinessMonitor, OPEC and the IMF among others. These views are third-party and not associated with the Nigerian government directly.
While some researchers have commented that a case study approach could face a limitation based on its focus of just a small proportion of subjects, others have commented that the intense nature of study with this approach allows the researcher to develop a great understanding of the topic in question (Yin 2013). Furthermore, the case study in this instance will focus on the main oil & gas producers in Nigeria, producers which account for the majority of operations and investment within the country’s oil & gas sector. The producers will be Shell, Total, and Chevron and ExxonMobil given that collectively they represent the vast majority of current production and investment within Nigeria by international producers, as shown below. The study will include details over the number of spills recorded and confirmed within Nigeria as well as the level of investment that is being seen from the companies mentioned above.
Figure 6 – Obtained from (EcoBank 2013)
Another pitfall in the proposed methodology could be that the researcher falls into is being distracted by the large amounts of interesting data that are superfluous to the research question (Yin 2013). However, given the focus of the research questions as well as the case-study focused on a number of specific international producers in Nigeria, it is expected that this risks could be avoided.
Ultimately, case study research is more than simply conducting research on a single individual or situation. It enables the researcher to answer “how” and “why” type questions, while taking into consideration how a phenomenon is influenced by the context within which it is situated (Stake 2013). Leading on from the literature review, the study will enable the researcher to present recent data to the topic, both in terms of the number of oil spills and well as the level of investment to understand whether the themes noted in previous literature are still present in Nigeria, and more importantly, whether they are negatively impacting on the level of investment seen in the Nigerian oil & gas sector.
The data will come from a number of pre-determined sources that are trusted and reliable. This can be ensured by checking copyright (ensuring the information is created by them), checking the date of publication/ update, the credentials of the author (peer reviewed/ respected). This can be shown within the hierarchy of evidence, essentially a framework for distinguishing the best form of evidence to use. The pyramid shape is a symbol of the level of information that is available, showing that there is a larger amount of editorials out there than reviewed journals etc:
Obtained from Reuben (2013: 1)
For the literature review, peer reviewed journals are considered along with books from recognised publishers, sources which can be searched for within the library or online through the websites of individual journals. Moving onto the case study, the collection of secondary data will mostly come from the company’s themselves in the form of their annual reports and corporate releases; as well as reports from industry analysts (e.g. PWC, E&Y, and BusinessMonitor) and Nigerian agencies such as the Nigerian Oil Spill Monitor. To ensure the case study is balanced, a wide variety of sources will be considered, from the Nigerian government to Western institutions and academic researchers to financial analysts.
The data collected from the Nigerian oil monitor will consist of confirmed spills over the past 5 years. This will give a clear picture of the scale of oil spills over the past 5 years along with the causes. This will either support or reject the assertions made in the literature review from other researchers and businesses; however it is expected that there would be agreement given the underlying theory towards developments and the expectation of the writer given their prior understanding of the Nigerian oil & gas sector. From there, the study can bring in case studies into business investment into Nigeria over the past 5 years, allowing for a comparison to develop whereby seeing whether an increase in ‘intentional’ oil spills has impacted on the level of investment.
Chapter 4 – Case Study
The study will begin with an overall introduction into the Nigerian oil & gas sector, providing the reader with a broad understanding of the history and current risks. From there, the study will provide quantitative data from the Nigerian Oil Monitor to assess the level of oil spills, focusing on those spills designated as caused by sabotage or theft. With this, the study will then focus on international oil producers to determine their response to such in terms of the level of future investment within the Nigerian sector, paying close attention to the brake down between offshore and onshore investment.
Worrying Factors for Nigerian Potential
Several negative factors can be pointed out for Nigeria’s future hydrocarbon potential, including: crude theft and pipeline vandalism, noted both by the EIA (2015) and BMI (2015).
Figure 8 – Data Obtained from Bloomberg (2015)
Oil theft and pipeline sabotage are seen as two of the major reasons behind oil spills within the Niger Delta given the consensus from the literature review. Royal Dutch Shell and Eni have been victims of these attacks, with Shell reporting that 2013 average daily volumes for sale from Nigeria were 89,000b/d compared to 136,000b/d in 2012 given illegal bunkering and sabotage in the Delta. Shell’s 150,000b/d Nembe Creek Pipeline was particularly affected by oil theft. Despite being replaced in 2010 at a cost of $1.1Billion, it has been repeatedly affected by sabotage and crude oil theft. As a result, the company sold the pipeline in March 2015 (Reuters, 2015). The Trans Niger Pipeline (TNP) has also been significantly affected by crude theft in 2012 and 2013 and has seen several shutdowns owing to numerous leaks from crude oil theft connections.
Oil theft and subsequent pipeline shutdowns have important repercussions for Nigeria as a whole: in October 2013, the Nigerian Federal Ministry of Finance stated that the theft of crude oil was costing Nigeria 350,000b/d, so costing businesses in terms of lost revenue and the Nigerian government in terms of lost royalty payments (Wilson, 2014), which equates to about $1Billion a month in lost revenues at $100/bbl (Wallis et al. 2002). Pipeline attacks and outages continue in 2014: the Forcados Export Terminal was also shut for about two months in March-April 2014 to enable Shell to repair a sabotaged undersea pipeline. However, reports from the Nigerian Navy (World Maritime News, 2014) highlights that crude oil theft has declined in 2014 (in terms of total barrels of oil lost), with intensified and more coordinated efforts between the NNPC and the Nigerian navy to fight pipeline vandalism along the coast. However, given that the information is from the Nigerian Navy a level of scepticism could be considered on whether specific figures are selected to show a decrease, as opposed to an increase which many researchers cite, including Akpomera (2015). Although, in its latest report, Shell (2014) stated:
“Theft and sabotage were the cause of 75% of spills from the SPDC JV pipelines in 2014. There were 139 spills as a result of recorded theft and sabotage incidents over the year, compared with 157 in 2013. However, there has been a 42% reduction in theft related production shutdowns, in part reflecting improvements to SPDC’s response procedures, such as removing multiple theft points during a single response operation.” Shell (2014: 38)
A History of Nigerian Oil Spills – Nigeria Oil Monitor Data
The source for collection of spill data is the Nigerian Oil Spill Monitor, an agency which collects information on all spills reported within Nigeria; taking into account the time/ location/ size and severity of the spill. Incidents are reported to the monitor from the local community, government and producers themselves, meaning that the monitor is viewed by many as the most comprehensive source of data. Considering the data that is available publically, a number of key points can be made:
From 2010 (1st January) until 20th June 2015, 6176 spills were reported to the Nigerian Spill Monitor. The map below shows the location of these spills, noting that the majority were seen within the Niger Delta region which was noted in the literature review as being the centre of oil production, as well as theft/ sabotage within Nigeria:
Figure 9 – Obtained from the Nigeria Oil Spill Monitor – Available at https://oilspillmonitor.ng/
Of the total, 4567 of the spills were classed as caused by sabotage, with a further 1022 either classed as theft or unknown, backing up claims that the majority of spills are intentionally caused, supported by the prior views in the literature review and the prior expectation of the researcher.
Sabotage was noted on oil spills by all major producers, with the database noting sabotage on Shell, Chevron and Total’s assets, mentioned along with state-owned NNPC, suggesting that anger from local communities within the region are not only targeting the international oil companies in the region but also the government owned infrastructure.
The data presented can be further broke down into the table below, building on the data that has already been mentioned above and concerning the period 1st January 2010 – 31st December 2014:
Total SpillsFrom SabotageFrom Theft
Table 1 – Oil Spill Data broken down into years – Available at https://oilspillmonitor.ng/
Given the data, the number of spills has increased over the 5 year period, from both sabotage and theft, suggesting that operators and the government have not managed to gain control and protect infrastructure, although on the other hand it could also be considered that such had happened given that the detection rate has improved. Furthermore, the data also shows the prevalence of sabotage and theft in terms of total oil spills, accounting for around 90% of all spills in the years assessed. In terms of the total cost of such spills, figures vary by source, however Shell recently calculated that it lost nearly $1Billion through theft and various disruptions to its Nigerian operations in 2013 and said that rampant oil theft is costing the country even more (Lawler, 2014). According to Sun (2013) the cost to the entire industry could be $8Billion per year, with producers losing 100,000 barrels per day (hereafter bpd) as well as producing 400,000bpd less than capacity given damage to infrastructure, a number which is also cited by The Economist (2013), EIA (2015), and BMI (2015), showing industry wide acceptance.
Producers Response – Divest and Pull Investments
Illustrative of worsening investor sentiment towards Nigeria, several international oil companies are divesting onshore and shallow water oil assets, reducing their exposure to onshore production (BMI, 2015). While this could also be representative of falling oil prices, it must be noted that the vast majority of these announcements to divest where seen before oil prices began to fall as illustrated in Figure 3. According to Nigerian Petroleum Minister Diezani Alison-Madueke in May 2014, IOCs operating in Nigeria may divest more than $11.5Billion worth of oil blocks by the end of 2015. IOCs have either sold off or are in the process of selling up to 28 oil blocks since 2010 (Knight, 2014). The table below provides a number of examples for recent divestments out of Nigeria.
CompanyDate AnnouncedAnnounced Sells
Royal Dutch ShellJuly 2013OML 13 and 16 onshore Ogoniland region in Niger
Delta – Shallow water OMLs 71 and 72 – Previous to July 2013, the company sold 8 Niger Delta licenses
Royal Dutch ShellOctober 2013Shallow water OMLs 18, 24, 25 and 29
Royal Dutch ShellNovember 201397 kilometres Nembe Creek pipeline
PetrobrasMarch 2013Selling stakes in Agbani and Akpo blocks
ChevronJune 2013Selling shallow water stakes in OMLs 52, 53, 55,
83 and 85
However, while high-profile onshore divestments by international oil companies (IOCs) are illustrative of the difficulties in Nigerian onshore production, it does not seem that this will set a precedent for a wider wave of IOC divestments or disinterest in the country as a whole, mainly supported by offshore investments (Faucon 2014).Instead of representing an exit from the country, many IOCs actually seem to be re-balancing their asset portfolio towards offshore Nigeria, which accounts for a majority of Nigerian oil production and has seen continued interest by IOCs. The Nigerian offshore offers a high resource potential for companies when compared to depleting onshore reserves in older onshore fields, and enables the reduction of company exposure to onshore security problems. A large IOC presence (Shell, Chevron, ExxonMobil and Total amongst others) in the offshore signals continued interest in the country’s oil sector despite operational and regulatory difficulties (Faucon, 2014). By moving to offshore assets, these IOC’s remove themselves from thefts associated onshore, especially when a large proportion of production is moved into the export market. These producers can now move their crude production directly onto floating export terminals or directly into port facilities from undersea pipeline networks, proving such infrastructure with more security and reducing the ability for locals to steal oil or damage them.
In addition, it is noted that strong interest by local or smaller companies for divested onshore assets highlight continued investor interest, even in the difficult onshore security environment (Eni, 2014). According to a report by Ecobank (2013), local Nigerian companies now own more than 100 blocks across the Delta region, and over 30 marginal fields. Nigerian and local companies which have benefited from IOC divestments include: Oando Energy, Seplat Petroleum Development, Waltersmith Petroman, Shoreline Natural Resources, Afren, First Hydrocarbon, Nestoil, Elland Petroleum and Starcrest (Yusuf, 2014).
Given the table presented above, the Table below provides more detail on the information known on divestments. As you can see, all divestments have come from international players, with a valuation of $12,016Million. What must be noted from the table is that all of the divestments noted (Apart from Brass LNG) are onshore assets, with the vast majority noted as being sold onto local Nigerian businesses. Given the apparent correlation between these factors, it becomes much more than a coincidence and provides support to the views highlighted in the review from the EIA (2015) and BMI (2015). The relationship between this investment and oil theft/ sabotage comes from the fact that many international oil majors continue investments in Nigeria’s offshore industry given projected growth in domestic demand, however divest from onshore assets; suggesting that rather than industry wide risks such as low prices affecting the decisions, there must be a risk onshore that is mitigated as assets move offshore. Given the consensus from research by Idemudia (2014) Nnadi et al (2014) as well as reports from the EIA (2015) and Sloley (2015), oil theft/ sabotage of onshore assets appears to a valid conclusion.
CompanyBlocksEquity (%)Production (Crude Oil)AcquirerValuations
ChevronOML 5240N/A (Gas Block)Eland Oil etc.
OML 53403,500BpdNetwork E&P etc.
OML 55403,310BpdShoreline Natural Resources$1.5Billion
OML 8345Not Currently ProducingSogenal
OML 8545Not Currently Producing
ShellOML 1330Local Players$1.5Billion
OML 163080,000BpdLocal Players
OML 7130Local Players
OML 7230Local Players
ShellOML 304535,000BpdShoreline Natural Resources$850Million
OML 344515,000BpdND Western$588Million
OML 40452,500BpdElcrest Nigeria Limited$154Million
OML 4Seplat Petroleum
OML 384550,000BpdSeplat Petroleum$386Million
OML 41Seplat Petroleum
OML 424512,000BpdNeconde Consortium$600Million
Conoco PhillipsOML 13195$1.79Billion
OML 6020Onado Energy Resources
OML 6120Onado Energy Resources
OML 6220Onado Energy Resources
OML 6320Onado Energy Resources
TotalOML 13820100,000BpdChinal Petroleum Corp$2.5Billion
Local and smaller firm participation could have positive repercussions for production:
The development of smaller fields deemed ‘marginal’ by larger oil companies: there are hundreds of smaller discoveries onshore Nigeria which have not been developed by larger IOCs (Faucon 2014);
Local companies could be better equipped to communicate and negotiate with affected local populations, perhaps winning local support more easily than large international companies. This could allow for more of the Niger Delta to be opened up to oil exploration and production.
The Petroleum Industry Bill (PIB) proposed terms to boost the participation of Nigerian companies in the industry and provides attractive economics for small and marginal field which many local companies operate or could be brought to operate (EIA 2015). Its adoption would provide further incentives for local companies to develop marginal fields, boosting overall production and also supporting further exploration of onshore lands.
While the transfer of assets from international to domestic operators could be a potential solution to violence, this would depend on the level of interaction between these local business and communities as well as the level of local employment, a factor which could be hampered if the local community do not possess the skills and education. It would be hoped that local businesses may be more involved with local communities through charity, employment etc., reducing this anger from local communities that they see little benefit from large-scale oil developments in the region. However, it could be mentioned here that international companies have tried in the past to gain acceptance from local communities.
Given its presence in the region, Shell has attempted in the past to develop a relationship with the local communities. For example, Shell (2014) noted a number of community projects underway in the Niger Delta to develop basic sanitation, economic diversification and education to the local population. To add, the company also cites $3Billion in Nigerian taxes/ royalties, $93.6Million in development aid, $34.3Million in social projects and $1.5illion of contracts with Nigerian businesses as reasoning behind its local engagement and support (Shell, 2014). Chevron (2015) also cites similar in its reports, noting $121Million in local regeneration, $2.2Million on healthcare for locals and more into local education and reasoning behind their engagement with the local communities, however once again this appears to have done little to prevent the oil theft/ sabotage noted above. This brings into consideration the thought that rather than being against just international producers, the local community could be opposed to oil & gas development altogether (Idemudia, 2014), putting projects from the local producers at risk from the same issues and potentially dampening production onshore, no matter who owns the assets.
As such, while the onshore situation is clearly deteriorating in terms of international investment, the outlook could be moderated given the introduction of more local players into onshore production (BMI, 2015). However, without the technology and financing of the larger IOC’s, onshore production could fall further as existing fields age. This can be seen in the table below, showing a preference for offshore production, a preference that is expected to have continued given the divestments.
Figure 10 – Obtained from EcoBank (2013)
The same can also be noted for gas production and developments within the country. Natural gas production is affected by the same security problems as experiences by the oil industry. For example, the Soku gas gathering and condensate plant which provides about 50% of the gas feed to LNG exports was repeatedly closed in recent years following attacks on pipelines and gas theft. Its closure led to a large decrease in production and exports in 2008 and 2009.
Ultimately, the data presented does show that the majority of oil spills in Nigeria have been due to oil theft/ sabotage after investigation. While this does go against the commentary from the Nigerian Navy, it does support consensus from analysts at EIA (2015) and BMI (2015) as well as research from Idemudia (2014) and Sloley (2015). In terms of the impact of investment, a link can be seen between the theft/ sabotage and the desires of international producers to divest from onshore assets while remaining their offshore assets. Given these producers are retaining their presence in Nigeria, driven by the forecast for higher domestic demand, the move offshore signals a desire to decrease the risk of theft and sabotage, risks which have been cited extensively by Shell (2014) and Chevron (2015). Given divestments have focused solely on onshore assets, it seems more than a coincidence given the expected losses of oil theft which is seen at $8Billion per year to the industry (EIA, 2015) and $1Billion to Shell alone (Shell, 2014).
Many of these divested assets have been purchased by domestic producers looking to develop their operations in Nigeria; however problems over access to technology and financing could reduce the potential for production and so negatively impact on the future attractiveness of the industry. Coupled with lower oil & gas prices, investment into the sector globally is expected to fall as companies find it hard to justify the capital expenditure needed when the export market remains in oversupply (OPEC, 2015). Furthermore, even with the transfer of ownership from international to domestic producer, oil sabotage and theft may continue to affect the industry given a disconnection between the benefits of development within the oil & gas industry and the impacts on the local communities, which in turn have seen their traditional way of life impacted through environmental impacts on fish stocks and agricultural land (Omeje, 2005).
Chapter 5 – Conclusion
The conclusion chapter will now summarise the findings of the research to answer the research questions set forth at the beginning of the project. It will then end with recommendations on how the Nigerian government can overcome the issues faced to rebuild security and trust within investing into the oil & gas sector.
What have been the main causes of past oil spills within the Niger Delta?
The first question focused on the causes of oil spills in Nigeria. Study of previous literature noted a focus on intentional spills, and so theft and sabotage as opposed to accidental spills which could be caused from unexpected events, weather-related issues or mechanical failure. A number of prior studies, including Lin (2012) and Hassan (2015) noted the issue of oil theft and infrastructure sabotage within the Nigerian oil & gas sector, most prominent in the Niger Delta. Reasons for this included a disconnection between oil & gas development in the country and the local communities around it. Essentially, while the local communities of the Niger Delta had seen huge development by the oil & gas sector, impacting on their lives and the local environment around them, they had seen little in terms of the benefits. Hassan (2015) noted that many local communities had become affected by environmental issues from oil and gas developments, which had degraded farmland and impacted negatively on fishing stocks; ultimately destroying traditional industries that many had relied on for income and to survive. Furthermore, Anifowose et al. (2012) and Kadafa (2012) discussed the lack of financial benefits seen in the region, with complaints from local communities over the lack of income received from the industry or the lack of local jobs created in the development. This created anger towards the oil companies and their operations as well as to the government; with local communities seeing their traditional way of life negatively impacted by oil developments, with politicians benefitted in the major hub of Lagos (Idemudia, 2014).
This case study supported this with figures from the Nigerian Oil Monitor showing that out of 6176 spills recorded between 1st January 2010 and 20th June 2015, 4567, of 74% of the spills were concluded as sabotage, while a further 1022, or 16% were theft. Ultimately, this backs up the consensus from the literature review, showing that the vast majority (90%) of oil spills are from ‘intentional’ actions, and so those that pose a significant risk to the operations and earnings of major oil businesses. Furthermore, Figure 9 displayed the vast majority of activity happening around the Niger Delta region, with the monitor noting Shell, Total, Chevron and ExxonMobil as all being affected by such spills. Data from the oil monitor could also.
Ultimately, this research has shown that the main causes over the past 5 years has been sabotage and theft, heightening risks for producers at a time when oil prices are falling and profits are being hit. Table 1 clearly shows an increase in spills throughout the period covered as well as an increase in sabotage and theft. Given this, the research recommends that the government needs to mobilise more forces to monitor and protect infrastructure throughout the Niger Delta.
How have these oil spills impacted on the business environment within Nigeria’s oil & gas sector?
Theft and sabotage could be said to have a negative impact on the business environment, given the uncertainty it creates to current operations as well as prospects for future projects. For example, (Bala-Gbogbo, 2013) states:
“Due to the increased level of oil theft and disruptions, a number of oil companies have started selling blocks in the troubled areas and moving to deep water offshore blocks,” (2013:1)
This statement is also supported by actions from the likes of Shell and Chevron which can be seen in the case-study, with both announcing divestments into the onshore, shallow water assets while retaining their offshore assets. Ultimately, the Nigerian oil & gas domestic demand will somewhat remain buoyed by forecasts for future growth in domestic demand, with the Nigerian economy remaining upbeat on urbanisation and growth in consumer incomes; development which will also be mimicked by a number of other African countries (BMI, 2015).
Given the research undertaken by this project, more than $12Billion of future investment has been divestment by the international majors. While some projects have been purchased by local oil producers, it is still to be seen whether they have the financing, technology and local influence to move these projects forward without the same risks of theft and sabotage. Ultimately this loss of over $12Billion in investment would be expected to cost Nigeria in terms of future production levels and so the government in terms of government revenue.
Will this impact on the future ‘attractiveness’ of the oil & gas sector in an era of lower oil & gas prices?
It appears that issues with oil theft and sabotage are already impacting on the attractiveness of the oil and gas industry, with a number of onshore divestments showing a level of unwillingness for international oil and gas businesses to participate in these onshore investments. While local Nigerian businesses have up to now been interested in buying these onshore assets to expand their own operations, questions arise over their ability to fund such developments which could run into the $Billions. Furthermore, concerns over oil theft/ sabotage remain in the area, with the latest data from the Nigerian Oil Monitor still showing daily occurrences of disruption caused by intentional oil spills. Given this, how do these local oil businesses expect to discourage or stop such from happening?
While major international investment will remain in the offshore industry, it could be concluded that the recent fall in oil and gas prices will impact on the attractiveness of undertaking large-scale investments, especially with a global oil oversupply (OPEC, 2015)and weakness in the export market for Nigerian LNG (EIA, 2015). Given lower global oil & gas prices, mainly international major are undertaken cuts to investment, with Shell cutting $15Billion from its global budget, cuts which are expected to impact on Nigerian investment.
What becomes more worrying from this is the reliance of the Nigerian government and so the Nigerian economy on oil revenues. With lower prices expected to persist for a number of years, government revenue is expected to be hit as well as the domestic currency, which is set for further depreciation. Given this, consumers may find their living standards hit as the costs of imports increase, while the government may also come under pressure on its spending promises given less income from oil exports, putting a number of social improvements at risk. With this, issues in the Niger Delta targeting the oil & gas industry may increase, as local communities find less financial support from the government and so increase their anger towards the oil & gas industry.
The research highlights the growing impact of sabotage and theft on the business environment and attractiveness of investment in the Oil & Gas sector. There is no doubt that oil demand will continue to grow, with Africa a potential growth story as the continent continues to urbanise and consumer incomes continue to increase. However, the Nigerian government need to focus their attention on improving the the attractiveness of investment into the domestic oil & gas sector, with a show of force from the military vital to improve security and protect vital infrastructure.
Given the concluding remarks, it now becomes important to understand the impact of the oil & gas industry from the point of the local community, with the potential for future research to focus on the collection of primary data from the local communities themselves into their thoughts on why sabotage/ oil theft is increasing. While it has been shown that the oil & gas industry is of significant importance to the economy, to exports and to government finances, little is understood over how the local communities view it. While the research has noted a level of anger amongst local communities given environmental degrade and land use etc., ultimately leading to this theft/ sabotage, it would be of interest to pry deeper and understand what local communities expect from the oil & gas business which operate side-by-side, potentially creating a mutually beneficial relationship.
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 A frontier market is one that is designated as emerging by the industry – so, given that African market as seen as largely underexplored, undeveloped and more risky than traditional markets such as Saudi Arabia, the U.S. etc., they are designated as ‘frontier markets’.
 Midstream refers to the transport/ storage of crude oil, so pipelines; upstream refers to production assets and downstream refers to refining/ marketing.
 PIB stands for the Petroleum Industry Bill
 Force Majeure is when production is damaged by an unavoidable occurrence, in turn meaning that the business cannot meet its supply contracts.
 CSR reports are Corporate Social Responsibility reports where the business looks to show off its sustainability measures which it users to reduce its impact on the environment and society.
 Bunkering is where oil is stolen from pipelines to be illegally refined, where it can then be sold into the domestic or international markets for income. This has developed on the need domestically for diesel to power electricity generators.
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