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Oil Sector In Nigeria Thrown Into Turmoil Amid Shell’s Onshore Asset Sale

Shell’s exit from Nigeria’s onshore oil sector has thrown Africa’s biggest oil exporter into turmoil but is also raising hopes local farms could help reverse the output decline.

Reuters reported that Shell, which pioneered Nigeria’s oil industry, has left the Niger Delta due to  pollution, oil theft, and pipeline vandalism, which have limited investment and have hurt production and government finances.

Shell announced the move earlier this month and is selling its subsidiary to five mostly local firms, continuing an ongoing trend of Western Oil giants divesting from onshore Nigerian oil fields.

A decade ago, Shell’s operations were producing as much as 300,000 barrels of oil equivalent per day (boed) ; however, by 2022, production had fallen to 131,000 boed.

Other oil companies who have left the region in recent years include Exxon, Italy’s Eni, Norway’s Equinor and China-based Addax.

“Nigeria has had well-established problems in policy in the oil sector, and the FX policy concerns have put constraints on investments. That’s probably partially why you have seen the majors pulling out and disinvesting to some extent,” Goldman Sachs senior economist Andrew Matheny told Reuters.

Nigerian President Bola Tinubu, who took office last May, pledged to remove obstacles impacting oil producers, including ending crude theft and pipeline vandalism. However, it may have been too late by then, as many of the asset sales were already underway when Tinubu took office.

According to Statista, oil was discovered in Nigeria in 1956, and production started in the late 1950s. In the following decade, oil exploration was open to foreign companies, and the oil industry grew constantly to become a global giant. Today, the Nigerian petroleum industry accounts for about 9% of Nigeria’s GDP and for almost 90% of all export value.

“The majors reduced investments in the onshore for many years,” Roger Brown, chief executive of Nigeria’s Seplat Energy, told Reuters.

According to Brown, a combination of local issues and the fact that major oil companies must compete for cash with their assets in other regions, such as Guyana, that can often look more attractive has also contributed to the decline in Nigeria.

Things are not all bad, however. As Western petroleum companies leave the region, locals are attempting to pick up the slack. 

Earlier this month, Africa’s richest man, Aliko Dangote, announced he had opened one of the world’s biggest oil refineries in Nigeria to reduce Nigeria’s dependence on other countries for its oil imports. The $19 billion project began production earlier this month.

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