Shell: leaving Nigeria would have even greater repercussions for sustainability

Share |

11 April 2011, Oil, Gas

oilandgasobserver archive

Royal Dutch Shell, through its subsidiary the Shell Petroleum Development Company of Nigeria, is Nigeria's largest oil company and the main supplier of gas to domestic customers, accounting for 70% of the market. The firm is therefore hugely important to the country's economy, as hydrocarbons production makes up 95% of the nation's total export revenues.

However, as a result of growing concerns over its conduct in the country, especially relating to oil spills, Shell was dropped from the Dow Jones Sustainability Index (DJSI) after the company lost almost 14,000 tons of oil through spills in 2009, mainly as a result of sabotage. Launched in 1999, the DJSI was the first global index tracking the financial performance of the leading sustainability-driven companies worldwide.

Consequently, Shell has cancelled its executive bonus scheme relating to the sustainability index and will now identify its own performance indicators, leaving it open to greater levels of criticism.

The decision represents a significant blow to Shell's corporate social responsibility ambitions at a time when oil majors' sustainable development credentials are under increasing scrutiny. This therefore poses a threat to both image and revenue, as the company has exposed itself to pecuniary penalties for contravening environmental legislation as well as the danger of alienating environmentally minded investors.

However, Nigeria continues to represent a major conundrum for Shell. Pulling out of Nigeria for the sake of sustainability does make sense, because even with Shell's billions the country struggles to remain stable. Furthermore, if Shell were to leave Nigeria its place would simply be taken by another foreign oil company, most likely from China, which over the next two decades will aggressively pursue overseas oil and gas assets as it looks to feed its rapidly growing economy.

The problem here is that state-owned Chinese oil companies will hold less regard than Shell for UN human rights regulations due to their desire for global market share, especially in the energy industry. A major part of sustainable development is acting responsibly. Exiting Nigeria would be highly irresponsible and would have significant repercussions for the company's image and financial performance, not to mention the nation itself.

Source: Datamonitor

More Oil Commentary

More Gas Commentary

Recent commentary