Staying true to your roots

Power & Energy talks to Shell’s Babs Omotowa about the challenges of working for a huge international company while keeping the interests of local communities at heart.

“We think climate change will define the future; the easy oils are gone, and there will be a lot more in the difficult terrains”
-Babs Omotowa

The Niger Delta is not any easy place for an international oil company to operate. A continued campaign of bomb attacks, kidnappings and illegal oil bunkering were most likely a factor in the recent decision by Shell Petroleum Development Company of Nigeria Limited, Total Exploration and Production Limited and Nigeria Agip Oil Company to jointly transfer a 45 percent stake in three production licences and related equipment in the Delta to a consortium led by two Nigerian companies.

Shell, in particular, has had a rough time in Nigeria. A court case arising from the execution of nine anti-oil campaigners in 1995 was settled out of court by the company only last summer. Shell agreed a US$15.5 million settlement, but denied any wrongdoing and called the payment part of a “process of reconciliation”. The case, brought by relatives of the executed campaigners, alleged that the company was complicit in murder, torture and other human rights abuses by Nigeria's former military government.

Some sources had reported an improving security situation in the wake of Movement for the Emancipation of the Niger Delta’s (MEND’s) 2009 ceasefire agreement with the federal government, but MEND recently suspended the ceasefire.

Given this troubled history and the current dangerous working environment, working in health and safety for an oil company in Nigeria must be quite challenging, to say the least. To gain some firsthand perspective on the issues involved, Power & Energy travelled to January’s Next Generation Oil & Gas Africa summit in Nairobi, where we caught up with Shell’s Regional Vice President of Health and Safety Infrastructure and Logistics, Babs Omotowa.

Omotowa, who is responsible for much of the company’s logistics activities, including moving people and equipment to locations on land and offshore, takes his responsibilities seriously. He points out that Shell has operated in Nigeria for more than 50 years and during that time has built up a strong community relations strategy, building schools and clinics, providing education as well as information on HIV programs and agriculture initiatives.

“Initially we were more about just building capacity into the community, but now we are looking at developing the communities to grow capacity so that they can provide support to the oil and gas industry, developing their skill sets, making sure that they can form companies and provide services that can be useful for the oil industry,” explains Omotowa.

“We’re making good progress on that as well. We have a number of excellent examples where we’ve been able to get communities to come together to replace traditional services that were provided by foreign companies and we’ve been able to get local communities doing that. The big challenge in the Delta is that a combination of solutions is required. Community support programs on their own alone are not enough; the big challenge is infrastructure development, and that’s a key area that we’ve been looking at, along with the government. We contribute a significant amount of money, and spent US$200 million dollars in the Delta in programs for the communities.”

Striking the right balance between international oil companies (IOCs) and government is key to ensuring long-term success in the region. Omotowa defines Shell’s current relationship with the Nigerian government as excellent, although he does compare it to that of husband and wife – not always easy, but one of longevity nonetheless. He gives the example of the visit of Peter Voser, Shell CEO, to Nigeria, and his meeting with the President, and how following successful interactions Shell remained a preferred partner there.

“In the last few years we’ve been going through the reform the government is working on,” Omotowa says. “This is to put a new industry build for the petroleum sector that is supposed to do a lot of things to create a national company that would be quite competitive, which is a good thing. Part of it includes looking at the involvement of the national oil companies in joint ventures, which has been a challenge for many years.

“These ventures are being looked at as opportunities, fiscally too, to bring transparency, to bring in indigenous companies also, and to be able to grow capacity. We support those strongly; the challenge remains how to make sure that the bill is well balanced in a way that the investments can still continue to flow into Nigeria.

“We’re working together on the environment especially,” he continues. “ We want to see how to improve on a lot of the challenges we face. The environment side faces the challenges of flaring and oil spills.”

Clean up and recovery of spills is done quickly, as well as continuing to work on the challenges of flaring. Shell has recently put in facilities for more than 60 percent of its flaring, and what is left is being worked on. Omotowa states that funding has been one of the biggest challenges: “The sort of money we’re looking at for the projects left in the region is about US$3 billion to US$4 billion. We’re working with the government to make sure we can get ourselves to those funds, and then to be able to get the access into the areas to be able to carry out the projects, because access is another problem which we’re working on with the government. There will be a new target date for flares, which we will also work on with the government on to make sure we can progress on that as well.”

Political instability

In order to overcome the challenges created by political instability in the country, Shell is working closely alongside the government to create a tighter structure of law and order. The government is installing a lot of policing and security forces to guide and protect the lines. But, as Omotowa explains, “With 6000 kilometres of pipeline there’s a limit of how much policing you can do.” This is the reasoning behind the company’s approach to integrating communities and local government. Community workers in teams of surveillance is one way the company is doing this, as well as looking at more creative ways in which to involve the communities.

“We are confident that this two-pronged approach of working with the communities and the local government to secure those lines and giving them some incentives to make sure they feel an ownership and a sense of belonging will help solve that. As well, we are working with the government to make sure that for criminal element aspects those are dealt with by the police,” he says.

Regardless of location, there are issues that are facing almost every company faces, including the global skills shortage, and Omotowa sees this in Nigeria as both a challenge and an opportunity. The country is home to 350 million people, allowing a lot of scope for developing local people into skilled workers. “We see the challenge in being able to attract good technical skills; we are very focused on this area and we have a lot of things we are also doing in terms of intervention,” he explains.

“We have a learning village source in Nigeria where we take very good graduates out of the universities and put them through technical training before we bring them into the organization. That has helped to improve on the ability of technical skills, which also made available for other companies; we don’t just train them for ourselves, we train them for much more and improve that across the country. “In terms of the impact of the political situation the big issues regard the equality of the universities and how the technical courses in the universities continue to teach from the right equipment, the right lecturers to be able to come out with higher quality graduates. That’s an area that the government continues to look at as well.”

The conversation turns to the topic on every industry executive’s lips: the expected increase in world energy demand. According to the US Energy Information Administration, world marketed energy consumption is projected to rise by 44 percent by 2030. Ensuring that demand is satisfied is the crux of company strategies being formulated the world over. As the people of China, India and even Africa increase their quality of life, supply will struggle to keep up, especially when the ‘easy onshore oil is gone. Many observers predict an increased use of natural gas to pacify this demand.

“Climate change is the key that plays into the gas issue,” says Omotowa. “I believe this will become defining to us in the future and will really define what we use. Obviously, natural gas is the cleanest of the fossil fuels and the beauty of it for us in Africa is that we haven’t even discovered all of the gas. Increasingly we’re starting to see more gas discoveries, huge ones.

“The challenge will obviously remain to balance the domestic gas requirements and the export opportunities. For many countries in Africa, the export opportunities and liquified natural gas opportunities are key for the revenue of the nation. When you look at some of the oil producing countries in Africa, oil represents more than 80 percent of their revenue. So you need to continue to grow that. But the key as well is to be able to have gas for domestic use, power generation, industrialisation and transportation.

“The key is knowing how to develop the right commercial framework, in terms of pricing, in terms of agreements and in terms of securitisation that will enable investors to come and develop these huge reserves and be able to put in the infrastructures that are required. You do need quite a lot of infrastructure if you are doing LNG, and the key is getting this infrastructure developed to be able to bring domestic gas and power to the people. That is the key thing for us in Africa because power becomes a key lever for developing any economy. And the more we can get that working in African countries, the more we’ll start to see the industrialisation that we require.”

Alternative energy

The issue of climate change is top of mind in almost every industry, oil and gas included, and the international community is carefully watching the developing world to see how it is responding. Gas is the cleaner approach, and is incorporated into Shell’s sustainable strategy. Omotowa explains how the company has been focusing on alternative energies. “We’re probably the most active of the oil companies in terms of looking for renewable solutions,” he says. “We have invested billions in R&D in terms of renewables and we have made huge progress in quite a lot of them.”

He explains how the company has made huge progress in its gas operations, specifically its
gas-to-liquid projects, and regards itself to be leading from the front. “It’s not unlikely that by 2025 we may be more of a gas company than an oil company. We’ve continued to do quite a lot in areas such as hydrogen and we continue to look at interests in that area, as well as how to make renewable energies such as solar and wind and how to make them commercially attractive.

“In today’s technology, it’s still a lot more expensive to get electricity from these sources. We’ve seen the growth of renewables and we’re confident that they will continue to grow over time. A lot of this still depends on the governments, because it comes down legislation, and you need quite a lot of support to research in these sorts of areas, and you need to know what fiscal regimes government put on some of these alternative sources.”

Omotowa depicts Shell’s strategy as comprising three hard truths: the first being supply and demand, with the other two looking into possible scenarios in the future, one being called scramble, the other blueprint. “In the scramble scenario, which is where countries are looking for energy sources because they require them to develop, we believe you might see countries even go as far as going for coal, which is the dirtiest energy. But in the blueprint scenario, you have much more government involvement looking at how to create the environment for CO2 friendly sources, and you see more renewables possibly more carbon capture, carbon storage and all those other things.

“At the recent Copenhagen climate change conference, quite a lot was expected. I’m not sure we saw as much as we thought should have come from there, and I think the government and the culture define how to move forward. That is where the difference will be made on alternative energies,” explains Omotowa.

The Nigerian government has shown its support for renewable energies. The Minister of Environment attended the Copenhagen summit, along with other senior officials, and the country’s national oil company has a whole department dedicated to green energy. Looking at its agricultural potential, Nigeria presents itself very much as a green country. However, Omotowa remains dubious not on the government’s commitment, but on how fast they will move on this strategy.

A further challenges to the oil and gas industry in Africa, for both IOCs and NOCs, is the emergence of China as a player on the African stage. For both, this means greater competition, but is it a serious threat? Omotowa maintains that it is not.

“We are very clear in Shell that we provide a superior value added for governments in Africa. We’ve been here for quite some time, we’ve provided significant revenue for countries where we have been. We have brought technologies into areas that I think are superior to what the Chinese can bring. We pride ourselves on being a leader in technology, particularly when you go to the difficult, unconventional, deep offshore. We also bring a lot in what we do on local content development. We’ve brought a lot of industries into the region and we’ll do more of that. And when you think of local people development as well, we’ve been quite superior in that.

“There is a short/long term situation here. The Chinese obviously haven’t invested anything significant in Africa for a long time. So it’s easy to come and make promises and try to entice nations, but we do not believe this is sustainable competition, irrespective of the amount of money they are promising. Until you see that on the ground, they’re still just promises. I also worry about  companies coming in and promising to build infrastructure and power stations, to build so many things that are government areas, then I worry what is their intention is to try to replace government in some shape or form.”

The entrance of China, the need to begin producing energy from renewable sources and the rising global energy demand are applying pressure to an industry already laden with the burden of security issues and offshore challenges. As Omotowa says, it would be unsurprising if in 20 years time Shell no longer explored oil but converted its strategy to 100 percent gas production.

“The future in oil is gone. We need to move more and more to deeper offshore, which requires a lot of technology and the investment costs are quite significant. Unconventionals would also be an area that we’ll start to look at more and more, so the future will be about getting the more difficult oil out using technology to increase the recovery from existing fields that we have. We think those will be key to the future.

“We believe the CO2  issue will also be very key and topical into the future and we are confident that that’s an area we are already making huge progress with our technology. We think climate change will define the future; the easy oils are gone, and there will be a lot more in the difficult terrains,” he concludes.

Babs Omotowa is Shell’s Regional Vice President of Health and Safety Infrastructure and Logistics.