After nearly a century of operations, Royal Dutch Shell Plc has decided to sell its onshore oil and gas business in Nigeria for up to $2.4 billion. However, this does not mean that Shell is leaving Nigeria altogether.
The company has clarified that it will still maintain its presence in Africa’s largest market, despite the challenges and risks it faces in the Niger Delta. The sale of the onshore assets is not a complete withdrawal, but a strategic realignment that marks a significant change in their long and troubled relationship.
But what does this deal mean for Nigeria’s energy sector, which depends heavily on oil revenues and foreign investment? Is it a boon or a bane for the country’s future?
Shell’s exit from Nigeria’s onshore oil is not surprising, given the numerous challenges and risks that the company has faced over the years. Operating in the Niger Delta, a volatile region plagued by violence, poverty, and corruption, Shell has been a target of various armed groups which demand a greater share of oil revenues, better living conditions, and environmental justice. Shell has also faced allegations of complicity in human rights abuses, such as the execution of activist Ken Saro-Wiwa and eight others in 1995.
Moreover, Shell’s onshore operations have caused severe environmental damage in the Niger Delta, where oil spills have polluted the land, water, and air. The company has been sued by several communities and individuals for compensation and remediation. In 2015, Shell agreed to pay $83.5 million to the Bodo community for two massive oil spills in 2008 and 2009. Also, in 2021, a Dutch court ordered Shell to pay compensation to four Nigerian farmers for oil pollution.
In addition, Shell’s onshore operations have been subject to complex and uncertain regulatory frameworks which have increased the company’s costs and risks. The company has faced delays, disputes, and fines over taxes, royalties, permits, contracts, and environmental compliance issues. For instance, in 2020, Shell was ordered to pay $479 million by a Nigerian court for underpaying royalties on its oil production between 2013 and 2015.
Shell’s decision to exit Nigeria’s onshore oil reflects its broader divestment strategy, which aims to reduce its exposure to low-margin, high-risk, and carbon-intensive assets. The company is shifting its focus to higher-margin deep-sea and liquefied natural gas (LNG) projects, which offer more growth potential and lower emissions. Shell is also investing in renewable energy, hydrogen, and electric vehicles, as part of its ambition to become a net-zero emissions company by 2050.
Shell’s exit from Nigeria’s onshore oil has mixed implications for the country’s energy sector, which relies on oil for about 90 per cent of its export earnings and 60 per cent of its government revenues.
On one hand, the deal could create opportunities for local players, such as the consortium led by Renaissance Oil, to acquire and operate the onshore assets. This could enhance the capacity, competitiveness, and participation of Nigerian companies in the oil and gas industry, which foreign majors have dominated. The deal could also diversify the sector, as Shell plans to retain and expand its offshore and gas projects in Nigeria, which could attract more investment and innovation. It could improve governance, as the new owners of the onshore assets would have to comply with the Nigerian Petroleum Industry Act passed in 2021 to reform the sector and address its longstanding issues.
On the other hand, the deal could also pose challenges for Nigeria’s energy sector, which depends heavily on oil revenues and foreign investment. It could affect the country’s oil production, which has been declining due to OPEC quotas, security disruptions, and underinvestment. The deal could also affect the country’s oil revenue, which has been volatile due to global oil price fluctuations, exchange rate movements, and fiscal uncertainties. It could affect the country’s security, as the onshore assets could become more vulnerable to attacks, theft, and sabotage by disgruntled groups, who may not recognize or respect the new owners.
For Shell, the deal represents a strategic realignment, a financial boost, and a reputational relief.
For Nigeria, the deal represents a structural change, a potential opportunity, and a looming challenge.
The outcome of the deal will depend on how the new owners of the onshore assets manage the operational, security, environmental, and regulatory issues that Shell faced. It will also depend on how the Nigerian government and society respond to the changing dynamics of the energy sector.