Financial Energy Review
……………by Ben Ndubuwa………
Nigeria may lose about $11.41 billion from oil theft this year going by the current global crude oil price of $125 per barrel. Before the Russia-Ukraine crisis, crude was selling between $96 and $97 per barrel. It shot up to $105 per barrel few days after the conflict started. It has since then been hovering between $110 and $125 per barrel since then.
According to the Nigeria National Petroleum Corporation (NNPC) the loss to the nation, in 2021 due to oil theft in total volume is put at 200,000 per day. With an average price of $55 per barrel, this loss will amount to $4 billion in one year.
For this year 2022, NNPC has said that between January and April alone, the volume of crude stolen so far stolen is about 250,000 barrels per day putting the total loss at about $1.5 billion. This four month financial loss to oil theft in Nigeria is indeed frightening and at this rate Nigeria may be losing an average of $4 billion every four months and at the end of this year there may be nothing to earn from crude oil export.
Nigeria, as an oil producing country, ought to be enjoying a windfall now with the sudden rise in the price of crude oil in the international market due to the Russia-Ukraine situation. On the contrary oil theft has become a financial drain to the nation’s purse. In his capacity as chair of the National Economic Council adhoc Committee on Oil theft, Governor Godwin Obaseki had disclosed some years that this malaise is part of the reasons many states are in serious financial crisis as the oil earnings dwindles. A United States-based Human Rights Watch also stated that the violence being witnessed in the Niger Delta region is not unconnected to the illegal business of oil theft and bunkering “Oil has become literally the fuel for the violence” the report said.
The recent illegal oil refinery explosion in Imo forest where hundreds of lives were lost the operators are said to have vowed to continue their illegal businesses. According to them there are over 150 oil bunkers in the Ohaji/Egbema area, especially at the boundary communities with Rivers state. New sites are being created every day at different locations in the forest. They said it is a daily business in these communities and that everybody in the community is involved. “Let me tell you, those who are involved in the illegal business apart from the operators themselves include landowners, security operatives and top community leaders. You can’t establish a bunkering site without their approval, it is like a chain business” one of the community leaders who does not want his name mentioned said.
He claimed that the unfortunate incident must have been a mistake by some people who came to buy fuel at the site and failed to observe some basic rules. “So I am suspecting something went wrong. If people think that it is as bad as they think, then we should be having oil explosions every day in the communities. But we’ve not been having these issues it was the first time an incident of that magnitude was happening in the area” he said.
From the above comments from the community leader it is obvious that many who are engaged in this oil theft and bunkering businesses are ignorant of the enormity of the danger their illegal acts have brought to the nation’s economic development.
Painting the gloomy picture of the danger of oil theft, the Group Managing Director of NNPC Mallam Mele Kyari said that it has got to a point where, if 239,000 barrels of crude oil is injected into either of the Trans-Niger Pipeline or the Nembe Creek Trunk Line (these are some of the major pipelines that convey crude oil to the terminals for export), only about 3,000 barrels are received. “It got to a point where it was no longer economically sustainable to pump crude into the lines and a force majeure was declared. In 2021, a similar trend was observed. In January of that year, out of about 239,000bpd pumped into the line, only 190,000bpd was recovered putting the loss at 19,000bpd” Kyari said.
The rate of oil theft kept increasing with as the price of crude oil was rising in the market until March 2022 when there was zero recovery from all the volumes that was pumped into the line.
According to NNPC a pattern in the trend of oil theft was also noticed. According to the national company this trend is more endemic with Joint Ventures assets and those that belong to the Independents than with Production Sharing Contracts assets. This is likely because of the nature of the JV assets which are mainly onshore or in swamp/shallow waters. This makes the evacuation pipelines more accessible than those of the PSCs which are offshore and in deepwaters. The GMD has described it as a national emergency on account of the proportion, dimension and sophistication it has taken in recent times.
NNPC further described another trend and pattern in the way the theft is carried out. It is said that this can be seen in the size of pipes inserted on the lines and the technology deployed in carrying out the insertion. In some cases, the pipes inserted to steal crude oil from the lines are small and fitted in an amateurish way. This is an indication that those involved are small time criminals, more likely artisanal refiners who operate the slew of illegal refineries that dot the creeks of the Niger Delta from Akwa Ibom to Rivers, and from Delta to Bayelsa.
Some of the pipes fitted into the lines to siphon crude oil are big. In some cases, they are of same size with the pipeline or of the size that is used at the terminal to pump crude into vessels. A close look at them would reveal that they are professionally fitted with the use of cutting-edge technology. There have been cases where there are riser pipes were used indicating that the criminal deployed cranes. These cases indicate that the persons involved are not the regular illegal refinery operators but sophisticated and very knowledgeable criminals with access to vessels through which they ship the stolen crude oil out of the country.
The involvement of this last group is said to accounts for the high volumes involved in the theft which has become an existential economic threat to the oil and gas industry and even Nigeria as a nation.
On the other hand, artisanal refiners and their illegal refineries have constituted a very grave danger to the environment and people of the host communities through the heavy pollution caused by their activities. This is beginning to cause soot in the atmosphere health challenges in some of those communities.
Another way to look at the virulent nature of the crime is to look at the rate at which the crude pipelines are breached with insertions. On a stretch of 20kilometers pipeline, there were 85 insertion points in three weeks! The Trans-Forcados Pipeline, which is about the most reliable of all the land lines, is not spared. It records about 19,000bpd loss day.
There are also case of sheer vandalism where the lines are just blown out with explosives resulting in spillages and environmental hazard. Yet another area where oil theft is affecting the economy is the area of investment. It has slowed down the gains the PIA is supposed to bring about in the area of investment. Potential investors now ask how they can recoup their investment when crude oil is stolen.
With the twin menace of oil theft and pipeline vandalism assuming epidemic proportion, the President is said to have given the marching orders to the Chief of Defense Staff to lead a war against the criminals and all the security agencies have been mobilized to flush out the criminal element and restore normalcy.
Prof Wunmi Iledare, a Professor of Petroleum Economic, former President of the International Association for Energy Economics (IAEE) and also Ghana National Petroleum Corporation Research Professor and Chair at the University of Cape Coast told Financial Energy that oil theft is like everything else in Nigeria. The ineffective implementation of the rules of political expediency. “The law against pipeline disruption or destruction and consequences are in the books. Implementing to the fullest extent possible. Economic crime against the federation is also punishable. Legalising criminality will not solve oil theft” Prof Iledare advised.
He said that policing officers of government agencies of integrity and compassion remains the way to curtail oil theft! “One can only continue to wish for the day of old with dedicated and diligence security officers with more focus in posterity than prosperity! Days when manpower development is based on merit know!” he said.
According to Iledare, sustainability and Security is key to upstream business. Insecurity of assets and human capital are easily perceptible with high costs of operation.
“Long term earnings optimisation drives E&P investments! Insecurity diminishes this long term aspiration and makes Nigeria no longer the destination of choice that it was before 1995. It was on this basis that the reform journey began in ernest. As I said, the aspiration to produce 4 Million per day was elusive because of oil theft and insecurity, majorly apart from prebendalisim!” he said.
On oil theft phenomenon and its impact on PIA. Iledare said it depends on implementation strategy adopted by PIA institutions.
He explained that first, the PIA empowers the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to ensure conducive business environments for impactful petroleum operations.
“Meaning no room to not evoking the Authority to prosecute to the fullness extent of the law on oil theft and the criminals. It is the responsibility of the commission to ensure that upstream assets are protected.
“The PIA has provisions for host community development. As a stakeholder, and for optimising mutuality of interests, community would need to step up the plate and use every means under the law to gouged oil theft perpetrators in their community” he said.
“Sustainability and Security is key to upstream business. Insecurity of assets and human capital are easily perceptible with high costs of operation. Long term earnings optimisation drives E&P investments! Insecurity diminishes this long term aspiration and makes Nigeria no longer tge destination of choice that it was before 1995. It was on this basis that the reform journey began in ernest. As I said, tge aspiration to produce 4 Million per day was elusive because of oil theft and insecurity, majorly apart from prebendalisim!” he said.
Meanwhile, NNPC said it will continue to work with relevant stakeholders to tackle oil theft and illegal refineries.
Top officials of NNPC made these assertion after on-the-spot-assessment visits to some pipelines impacted by activities of oil bunkers in Ibaa Community, EmeOha local government, and other communities in the Niger Delta region.
According to them there was a reinforced collaboration among security agencies, regulators, oil companies and host communities to end oil theft.
Timipre Sylva, minister of state for petroleum resources; Lucky Irabor, chief of defence staff; Gbenga Komolafe, chief executive officer, Nigeria Upstream Petroleum Regulatory Commission (NUPRC), were among government officials on the trip.
Kyari admitted that relevant agencies hadn’t done enough to curb the illegal activities but assured that the collaboration would spur a new approach to tackling the issues.
