Shell Oil Company Delta River

The next ten years in Nigeria will be the years of China's dominance in Nigeria's multi-billion dollar oil industry, analyst Mark Dominic predicted at the weekend.

Royal Dutch Shell PLC, Nigeria's biggest oil company no longer looks to its Nigerian operations to drive growth in its oil and gas output, said Chief Executive Peter Voser in comments posted on the company's website.

"Nigeria is still a heartland for Shell, but we no longer depend on it for our growth aspirations," said Voser. "This gives us more flexibility in deciding when and how to develop oil and gas resources in Nigeria."

Shell, which has been the dominant force in Nigeria's oil industry for decades, may be looking to dramatically reduce its presence in the country.

It is seeking buyers for 10 of its Nigerian onshore oil producing assets worth between $4 billion and $5 billion in total, people familiar with the matter told the Wall Street Journal last month.

Meanwhile, China National Petroleum Corp. (CNPC) has been reported as a possible buyer.

For crude oil that seemed to be from the beginning of the decade until mid 2004 when the Chinese oil demand shocked the industry, for it only to be whip-sawed by a recovery that took oil prices back to near $80 a barrel by the end of 2009.

Chinese economy's need for oil not only escalated but it became a central focus for both that government's economic planning efforts and the global media's attention.

As global oil consumption climbed during the decade, the world's ability to satisfy that growth was continually under pressure.

As in all free markets, the rationing mechanism of price is how we balanced demand and supply.

As the oil supply/demand balance tightened in the middle of the decade, and forecasts called for continued growth in demand, oil prices slowly started on an upward course that would eventually take them to an all-time peak of $147 per barrel in mid 2008 just before the collapse of global economies.

The subsequent fall to lows last seen before the emergence of Violence, kidnapping and sabotage attacks on infrastructure in Nigeria's oil producing areas have hampered Shell's operations for years.

Despite a recent amnesty and a continuing truce between government forces and Niger Delta militants, violence continues.

Four expatriate Shell contractors were kidnapped in the Niger Delta Tuesday after their bus was ambushed by gunmen. Two Nigerians were killed in the attack. A Chevron Corp. oil pipeline was shut down following sabotage over the weekend.

"Shell staff in Nigeria are doing a great job in this very difficult environment," Voser said. "During 2009 sabotage and attacks on installations of the Shell Petroleum Development Corporation of Nigeria have again reduced production levels," and delayed a scheme to reduce gas flaring, he said.

Voser said in October that Shell's Nigerian oil output was down to 120,000 barrels per day from 300,000 barrels per day before the violence started.

Following the amnesty, oil production levels did improve toward the end of the year and its liquefied natural gas business is performing well, Voser noted.

Shell's output growth in the coming years will be driven by more unconventional energy projects, notably large LNG and gas-to-liquids developments approaching completion in Qatar. Shell has new developments with a combined output of around one million barrels equivalent of oil and gas per day under construction, although much of this will offset natural output decline in other assets.

These technology driven projects require massive capital expenditure and Voser warned of a looming oil supply crunch if investment in the wider industry does not rebound from a big drop in 2009.

"We've seen a worldwide drop in upstream oil and gas investment of some 20%. And for alternative energies the drop is even steeper, around 40%," he said. "Governments and industry must work together to get back to higher investment levels. Otherwise, we run a risk of a supply-demand imbalance in a few years time."