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Shell, Nigeria, and the challenge for church investors

Tanker Niger Delta S Beer 2012

The Methodist Church has long sought to invest its money in line with Christian teaching.  On its behalf, the Central Finance Board (CFB) invests across a range of assets.  When investing in shares, the CFB looks for companies which meet its ethical criteria and have long term sustainable growth strategies.  Essentially, we are looking for the ‘best in class’ in each sector.  We encourage companies to do better and we seek to understand the challenges they face and how they are responding.  The challenge for church investors is to be responsible Christian stewards of investments.  Our challenge to companies is to do business well, in every sense.

Large multinational oil companies operating on a vast scale in many different countries are bound to face questions from socially responsible investors.  This is certainly the case with Royal Dutch Shell.  Shell’s operations in Nigeria come under particular scrutiny.  Last month I flew to the Niger Delta on behalf of the CFB to see the operations myself.  I was part of a group of socially responsible investors invited to Nigeria by Shell.  For the CFB, this represented the latest stage of our engagement on this issue and also our second visit to the area; in 2001 CFB chief executive Bill Seddon visited as a guest of a local NGO.

The main criticisms Shell has faced have been that its pipelines leak vast amounts of oil; that Shell does not clean up spills effectively, and that it ignores the needs of local communities.  Shell has also been criticised for flaring gas, which can add to environmental damage.  However, on closer inspection the situation is more complicated.

Shell is one of the largest companies in the world.  It has a market value of over £140 billion.  Last year it generated almost £300 billion in revenue and produced a net income of almost £20 billion.  In Nigeria, Shell extracts both oil and gas from across the Niger Delta in the south of the country.  It has been active there for decades. The Niger Delta area is composed of four of the thirty-seven states in Nigeria. Spanning 112,000 square kilometres, its 30 million people are from many different ethnic groups with hundreds of dialects.  Oil is produced by the Shell Petroleum Development Company (SPDC).  Despite its name, SPDC is a joint venture which is majority owned (55%) by the Nigerian state oil company.  Shell owns 30% and oil companies Total (10%) and ENI (5%) own the rest.  Shell is the operating company but its activities must be agreed – and funded by – all of SPDC’s shareholders.  Last year, SPDC produced a million barrels of oil a day.

Oil pipelines traverse much of the Niger Delta region.  There can be leaks, especially where pipelines are old.  Shell estimates that operational spills amounted to 3,595 barrels in 2011.  This is significant but almost 12,000 barrels were spilled due to sabotage of pipelines or facilities.  Criminals cut holes in pipelines and the oil company reduces the pressure in the pipe while it investigates.  While it does so, criminals often attach a valve further along the pipeline and connect their own pipe to it ready for the pressure to be restored.  It is estimated that around 15 million barrels a year are stolen from SPDC trunk lines.

The stolen – or ‘bunkered’ – oil is either illegally refined in makeshift refineries for local use or simply transported to the coast to awaiting oil tankers.  The crude oil is most likely mixed with legitimately acquired oil and finds its way to refineries in Europe and elsewhere.  It is possible our cars may contain petrol from stolen Nigerian oil.

Oil spills on can damage crops and have a profound effect on communities.  Where a spill comes directly from a SPDC pipeline, even if it was caused by criminal activity, SPDC is responsible for the clean up.  We saw an example of this in Ogoniland.  Until recently it had proved impossible for Shell to have access to the pipelines.  The breakdown in its relationship with the Ogoni people, exacerbated by a poor response from Shell to the execution of Ken Saro-Wiwa and others by military tribunal in 1995, appears to be slowly recovering after years of tension.  Shell is now cleaning spills in some locations with the agreement of local people.  Across the Niger Delta, Shell has initiated Global Memoranda of Understanding with communities.  However, more improvements need to be made to the auditing of oil clean-ups and community development.

Flying over the Delta in a helicopter I saw many oil slicks.  Some were centred around the illegal refining operations, which could be seen clearly from the air.  These were sometimes close to communities or oil and gas installations.  That they could function suggested that the law is not always enforced.  Perhaps the most startling observation was the still smoking wreck of an oil tanker which had travelled up the Delta to Okololunch in an attempt to collect oil stolen from the Trans Niger Pipeline.  A vast oil slick surrounded it.  Two weeks previously, an accident had occurred resulting in a fire, loss of life, and the destruction of the vessel.  The tanker is estimated to have had a capacity for 40,000 barrels of oil.  It was a clear example of the scale of the problems in the Niger Delta area.

The case of Shell in Nigeria is a good example of the issues responsible investors face.  Shell operates in a very difficult environment, which until recently has experienced armed insurgency, and in which criminal activity is prevalent.  The way it behaves can affect local communities profoundly, especially since it is the public face of the oil industry in the Niger Delta, but it does not have autonomy.  It must manage its relationships with government and local people who can have conflicting aims, especially regarding the distribution of oil revenues.  If Shell were not there, perhaps shareholders would face fewer ethical dilemmas, but many, including in the Niger Delta, would regard pulling out as irresponsible.  The better, more ethical but more difficult, route is to remain but to act well and work proactively for a better Niger Delta.  Shareholders have an important role in this, holding oil companies to account through regular engagement but also, with others such as the wider Methodist Church, pressing governments and NGOs to think and work afresh to find solutions while there is still time.

This article was first published in the Methodist Recorder on 9 November 2012.
Methodist Recorder, 9 November 2012, 16/11/2012

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