Tag Archives: Royal Dutch Shell

Assigning Responsibility for Oil Leaks: Shell’s Deep Pockets

Royal Dutch Shell’s  Nigerian subsidiary has been ordered on January 29, 2021 by a Dutch court to pay compensation for oil spills in two villages in Nigeria…The case was first lodged in 2008 by four Nigerian farmers and Friends of the Earth Netherlands. They had accused Shell and its Nigerian subsidiary of polluting fields and fish ponds through pipe leaks in the villages of Oruma and Goi.

The Court of Appeal in the Hague, where Shell has its headquarters, also ordered the company to install equipment to safeguard against future pipeline leaks. The amount of compensation payable related to the leaks, which occurred between 2004 and 2007, is yet to be determined by the court.  The case establishes a duty of care for the parent company to play a role in the pollution abroad, in this case by having the duty to make sure there is a leak-detection system…

Shell argued that the leaks were caused by sabotage…

In recent years there have been several cases in U.K. courts related to whether claimants can take matters to a parent company’s jurisdiction. In 2019, the U.K. Supreme Court ruled that a case concerning pollution brought by a Zambian community against Vedanta, an Indian copper-mining company previously listed in the U.K., could be heard by English courts. “It established that a parent company can be liable for the actions of the subsidiary depending on the facts,” said Martyn Day, partner at law firm Leigh Day, which represented the Zambians.

The January 2021 case isn’t the first legal action Shell has faced related to pollution in Nigeria. In 2014, the company settled a case with over 15,000 Nigerians involved in the fishing industry who said they were affected by two oil spills, after claims were made to the U.K. High Court. Four months before the case was due to go to trial Shell, which has its primary stock-exchange listing in the U.K., agreed to pay 55 million British pounds, equivalent to $76 million…  

The January 2021  verdict tells oil majors that “when things go wrong they will be held to account and very likely held to account where their parent company is based,” said Mr. Day, adding that the ruling could spark more such actions.

Excerpts from Sarah McFarlane, Shell Ordered to Pay Compensation Over Nigerian Oil Spills, WSJ, Jan. 29, 2021

Lawsuits Against Shell, Nigeria

A Dutch appeals court ruled on December 18, 2015 that Royal Dutch Shell can be held liable for oil spills at its subsidiary in Nigeria, potentially opening the way for other compensation claims against the multinational. Judges in The Hague ordered Shell to make available to the court documents that might shed light on the cause of the oil spills and whether leading managers were aware of them.  This ruling overturned a 2013 finding by a lower Dutch court that Shell’s Dutch-based parent company could not be held liable for spills at its Nigerian subsidiary.

The legal dispute dates back to 2008, when four Nigerian farmers and the campaign group Friends of the Earth filed a suit against the oil company in the Netherlands, where its global headquarters is based.  “Shell can be taken to court in the Netherlands for the effects of the oil spills,” the court ruling stated on Friday. “Shell is also ordered to provide access to documents that could shed more light on the cause of the leaks.”  The case will continue to be heard in March 2016.  Judge Hans van der Klooster said the court had found that it “has jurisdiction in the case against Shell and its subsidiary in Nigeria”….

“There are 6,000km of Shell pipelines and thousands of people living along them in the Niger Delta,” he said. “Other people in Nigeria can bring cases and that could be tens of billions of euros in damages.”  In a separate case, Shell agreed in January to pay out £55m ($82 million) in out-of-court compensation for two oil spills in Nigeria in 2008, after agreeing a settlement with the affected community in the Delta.

Excerpt from Dutch appeals court says Shell may be held liable for oil spills in Nigeria, Guardian, Dec. 18, 2015.

 

Collusion in the Oil Market

The European Commission declared that it feared oil companies had “colluded” to distort benchmark prices for crude, oil products and biofuels. Royal Dutch Shell, BP, Norway’s Statoil and Italy’s ENI  all said that they were co-operating with the commission. The competition authorities also called on the London offices of Platts, a subsidiary of McGraw Hill, an American publisher and business-information firm, which sets reference prices for these commodities.

The volumes of oil and products linked to these benchmark prices are vast. Futures and derivatives markets are also built on the price of the underlying physical commodity. At least 200 billion barrels a year, worth in the order of $20 trillion, are priced off the Brent benchmark, the world’s biggest, according to Liz Bossley, chief executive of Consilience, an energy-markets consultancy. The commission has said that even small price distortions could have a “huge impact” on energy prices. Statoil has said that the commission’s interest goes all the way back to 2002. If it is right, then the sums involved could be huge, too.

The authorities are tight-lipped about their focus, but they seem to be examining the integrity of benchmark prices. Each day Platts’s reporters establish a reference price by following the value of public bids and offers during a half-hour “window” before a set time—4:30pm in London, for example. This “Market-on-Close” (MOC) method is based on the idea that using published, verifiable deals to set the price is more reliable than having reporters ring around their pals, who might be tempted to talk their own books.  Platts keenly defends the MOC method. It points out that it ignores bids, offers and deals that are anomalous or suspicious. “We are not aware of any evidence that our price assessments are not reflective of market value,” it says, before declaring that it stands behind its method.

Yet such price-setting mechanisms have come in for criticism. The International Organisation of Securities Commissions (IOSCO), a grouping of financial regulators, said last year that the potential for false reporting “is not mere conjecture.” Total, a French oil giant…told IOSCO that benchmark prices were out of line with the underlying market “several times a year”.

Nobody knows what, if anything, the present investigation will find. The authorities should be scouring firms’ books for trades within the half-hour window that are offset in the futures markets. Perhaps they will find deals used in Platts’s assessment that are quietly unwound by the oil companies in private. They should also check shipping registers to see that cargoes have actually changed hands, or whether deals are fictitious. If any of these tricks could distort the benchmark by even a few cents, it might create a handy profit on contracts that are priced off it.

Oil consumers have been quick to rage at news of this week’s raids. The belief that oil companies rip off consumers is as unshakable as the idea that Rockefeller was good with money. “Our members…will be incandescent if what many have long suspected—that is price fixing—proves to be true,” said Robert Downes, of the Forum of Private Business, a British group that backs small firms. In fact, if there have indeed been price distortions, then these could as well have nudged prices down as forced them up—because oil traders make money on price movements, not just rises.

It is a complicated picture and the EU’s competition authorities are likely to take months or years before deciding whether they suspect any oil companies of having committed a crime. Meanwhile, a reform of the oil markets is unlikely to come anytime soon. Despite IOSCO’s fears of price distortion, it backed away from recommending changes—after fierce lobbying from the industry.

Trading in oil: Libor in a barrel, Economist,, May 18, 2013, at 77