Analysis: Attacks clip Shell production

Once again, militant violence in the Niger Delta has prompted the region's largest foreign oil company to concede it cannot meet output expectations.

Two pipelines were reportedly bombed in Nigeria earlier this week by armed militants intent on disrupting production by the leading foreign oil producer in the volatile West African country.

Leading militant group the Movement for the Emancipation of the Niger Delta claimed responsibility for the attacks Monday.

The bombings prompted the Shell oil company to declare a force majeure on exports from those pipelines, though officials for the company said they were "working hard to repair the line and restore production."

This week's attack and subsequent shutdown came during a period of increased violence by militants in the delta. Shell also has been the target of militant violence earlier in the year, as well as numerous times in 2007.

At the beginning of this year, Shell shut down operations at its Forcados terminal following pipeline attacks that threw its 100,000 barrel-per-day production offline. The terminal had already been shut once before because of violence and reopened in October 2007 after more than a year of halted production. Since its reopening, the facility, which can produce some 450,000 barrels per day, had been operating at a fraction of its capacity.

In July 2007 a leading Nigerian activist group called on Shell to shut one of its pipelines, saying the company has done little to control the fires that burned for several weeks.

"I think this is yet another indicator why there is greater need for transparency in the oil sector," said Emira Woods, co-director of Foreign Policy in Focus at the Institute of Policy Studies, who also expressed skepticism about the validity of the report.

MEND and other militant groups have been blamed for hundreds of kidnappings. Increased violence against oil operations in the delta has caused significant drops in the country's oil output, according to the Nigerian government and independent accounts. Before militants and other armed groups stepped up hostilities in the Niger Delta beginning in late 2005, Nigeria produced about 2.5 million barrels per day. Since then, production reportedly has decreased by at least 20 percent, perhaps even by one-third, some analysts warn.

Since the 1970s, Nigeria, Africa's No. 1 oil producer, has pumped more than $300 billion worth of crude from the southern delta states, according to estimates. High unemployment in the delta, environmental degradation due to oil and gas extraction, and a lack of basic resources such as fresh water and electricity have angered the region's youth, who have taken up arms, many times supplied by political leaders, and formed militant groups and local gangs.

In what some characterized as a desperation move by the Nigerian government, the state-run Nigerian National Petroleum Corp. admitted last week to paying armed militant groups $12 million in protection money.

While the payoff to the militants was widely condemned in Nigerian political circles, it wasn't the first time armed gunmen in the delta have been offered cash by the government to end their armed assaults on the oil and gas industry.

In May, the Nigerian government announced it intends to employ the very same militants often blamed for attacks on oil installations in the Niger Delta to guard the region's oil pipelines.

In a surprising and certainly controversial move, defense officials said they would negotiate a possible protection agreement with militants.

"We will engage them to police oil pipelines, but they must first form themselves into limited liability companies for us to discuss with them," Nigerian Defense Minister Yayale Ahmed said at the time.

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(e-mail: energy@upi.com)