The First of Peter’s Problems: Nigeria

When Peter Voser takes control at Shell next week from his predecessor Jeroen van der Veer, he will have a bursting in-tray that includes one persistent problem for Shell: Nigeria.

Here the oil giant faces a myriad of problems including continuing community unrest, militant attacks and what to do about gas flaring.

As if to reinforce the point, the main militant organisation in the Delta,  the Movement for the Emancipation of the Niger Delta or MEND said today it had attacked a “major” crude oil pipeline supplying Shell’s Bonny export terminal.

Fighters from MEND damaged the Bille- Krakrama pipeline overnight, the MEND spokesman Jomo Gbomo said.  MEND has increased its attacks in recent weeks since a military offensive against its positions began last month. Last Sunday, MEND claimed responsibility for attacks on three Shell installations, including the Afremo offshore oilfields.

Peter Voser may be pinning some of his hopes on the Nigerian President Umaru Yar’Adua’s proposed Amnesty plan, although MEND has apparently rejected the proposal already, as it doesn’t address its key demand for more local control of oil and gas resources.

Voser will also be reading the small–print of the deal signed by Yar’Adua and Russian President Dmitry Medvedev in the capital, Abuja, yesterday.

During the visit, the two countries signed a raft of agreements and Russian gas giant Gazprom unveiled plans to link Nigeria’s gas reserves to Europe via a Trans-Saharan pipeline.

Whether this project remains a pipe dream, pardon the pun, is anyone’s question. Costs will be vast, estimated at $10 billion for the 4,000 kilometre pipeline and $3 billion for gathering centres.

The pipeline can only undermine Shell’s main strategy to use Nigeria’s gas and reduce gas flaring, which is to export it as LNG. The new pipeline might significantly undermine the LNG export market, and undermine Shell’s multi-billion investment.

But any trans-Saharan pipeline will be fraught with difficulties, not least still in Nigeria.

“This is the fate that awaits the gas pipelines you plan to invest in (in) Nigeria if justice is not factored in the whole process,” MEND said in a statement addressed to Medvedev.

Also any pipeline crossing the Sahara could well be attacked by other militant groups in the region either in Niger or Algeria – who would be eager to get their hands on the spoils of the industry. Many groups would be politically opposed to the project too.

Whether the project makes sense for the EU is also open to question. The EU, which relies on Russia for about 40 percent of its gas and a third of its oil, has viewed the project as a way of diversifying its energy supplies.

Yet it would now be dependent on Gazprom in a different part of the world, so still reliant on the Russians.

As for Peter? The fact that the Russians have arrived in Nigeria – traditionally – Shell’s patch – is a headache he could do without. But it will be interesting to see what happens in the battle between Shell and Gazprom, as the Russians are saying that their project would end gas flaring, something Shell has failed to do in fifty years…