Dealing with growing menace of crude oil theft

In the first four months of this year, data from the Nigerian National Petroleum Company Limited showed that Nigeria was losing about 250, 000 barrels per day of crude oil to theft. This did not only bring the total loss to about $1.5 billion but has become the possible biggest threat to national development and the environment. KINGSLEY JEREMIAH writes on the menace and possible leeway.

Nigeria’s economy has been struggling and is currently faced with a yearly widening budget deficit which stands at N7 trillion for the 2022 fiscal year, a rising inflation rate which has worsened prices of food items and other products, a high foreign exchange challenge, and unemployment rate standing at 33.3 per cent, about N4 trillion subsidy payment and shrinking purchasing power. Also faced with a debt burden, president Muhammadu Buhari has already approached the National Assembly to borrow N965.42 billion from the domestic market to fund the deficit in the 2022 budget.

The oil and gas sector remains Nigeria’s basic revenue earner. While the sector accounts for about nine per cent of Gross Domestic Product, it contributes about 65 per cent of the nation’s revenue and about 90 per cent of Nigeria’s foreign exchange earnings. With this development, activities in the oil and gas sector have crucial implications for Nigeria, especially the fact that the economy is import-dependent, requiring the oil and gas sector to provide foreign exchange for the survival of other sectors of the economy, including manufacturing.

Sadly, it is not the best time for the oil and gas sector in the country. While oil prices crumbled to negative at the peak of Covid-19, measures by the Organisation of Petroleum Exporting Countries (OPEC) and its allies to ensure price recovery led to the delivery of limited supplies of crude oil to the market. This development, though pegged output from countries like Nigeria, helped prices to rebalance to over $100 per barrel this year. Recall that the oil benchmark in the 2022 budget stands at $62 per barrel and production is expected at 1.8 million barrels per day.

Although the geopolitical tension between Russia and Ukraine has increased oil prices, Nigeria’s inability to meet up with production despite the increased production quota by OPEC now remains the basic nightmare for the Nigerian economy. Rising theft and vandalism heightened concerns for stakeholders in the oil and gas sector.

Coming at a time that Nigeria should be enjoying a windfall from the rise in the price of crude oil due to the Russia-Ukraine situation, theft, already grown into a huge monster threatening the Nigerian economy has been described by the Group Managing Director of NNPC, Mele Kyari as a national emergency on account of the proportion, dimension and sophistication it has taken in recent times.

Recall that before the Russia-Ukraine crisis, crude oil was selling between $96 and $97 per barrel. It shot up to $105 per barrel the following day after the conflict began. It has since then been hovering between $110 and $125 per barrel but Nigeria is not reaping from this gain.

According to NNPC, crude oil production has dropped to an all-time low of 1.29million barrels per day (without condensate). The addition of condensate brings Nigeria’s current production to 1.49mbpd.

Explaining the situation recently, Kyari stated that it got to a point where, if producers inject 239,000 barrels of crude oil into either the Trans-Niger Pipeline or the Nembe Creek Trunk Line, one would only receive 3,000 barrels. Making it uneconomically sustainable to pump crude into the lines and a force majeure was declared.

The reality in 2020, which was the Covid-19 peak year, was different. Crude oil production in Nigeria did not only average 1.7 million barrels per day, the country recorded the highest production level of 2.49mbpd on 17th April 2020.

Kyari had noted then that the country needed no magic but has the capacity to keep output at 2.49mbpd.

However, as normalcy began to return and the price of oil began to experience a steady rise, the oil thieves began to step up their game and upstream operators began to experience production losses which have been growing since in almost direct proportion to the rise in crude oil price in the international market.

In 2021, a similar trend was observed. In January of that year, out of about 239,000bpd pumped into the Trans-Niger Pipeline line, only 190,000bpd was recovered, putting the loss at 19,000bpd. The rate of oil theft kept increasing as the price of crude oil rose in the market until March 2022 when there were zero recoveries from all the volumes that were pumped into the line.

A possible reason why most international oil companies operating in the country are opting to divest, another noticeable pattern in the trend of oil theft is that it is more endemic with Joint Venture 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 deep waters.

To most stakeholders, the sophistication and technology deployed in siphoning the crude from pipelines remained an indication that the business of crude oil theft has become an organised and highly skilled crime. It equally showed the involvement of a large group, which may have been responsible for the stealing of such high volumes of crude.

With a recent explosion of an illegal refinery in Imo where over 110 people were killed, the artisanal refiners and their illegal refineries have equally 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 and health challenges in some of those communities.

Statistics obtained from the NNPC showed that in 2021, the total volume of crude oil stolen is put at 200,000 per day. In 2022, between January and April alone, the volume of crude stolen has risen to about 250,000 barrels per day putting the total loss at about $1.5bn (at the rate of $100 per barrel).

Similarly, on a stretch of 20 kilometres pipeline, there were 85 insertion points in three weeks. The Trans-Forcados Pipeline, which is about the most reliable of all the landlines, is not spared. It records about 19,000bpd loss daily. There are also cases of sheer vandalism where the lines are just blown out with explosives resulting in spillages and environmental hazards.

Citing the trend as a disservice to investment, most stakeholders noted that theft has already slowed down the gains of the Petroleum Industry Act as potential investors now ask how they would recoup their investment when crude oil is stolen.

Earlier, Buhari ordered the Chief of Defense Staff to commence a war against the criminals, leading security agencies to mobilize “to flush out the criminal element and restore normalcy.”

NNPC has also deployed community-based security to monitor the pipelines while it is working on deploying technological tools for more effective surveillance and monitoring of the lines and facilities. There are also indications that the Economic and Financial Crimes Commission (EFCC) and Nigerian Financial Intelligence Unit (NFIU) are tracking the movement of funds relating to the criminality

While awaiting results from the measures that have been deployed, stakeholders are calling for a holistic approach that would bring all hands on deck to jointly tackle the oil theft and pipeline vandalism because apart from the host communities that are directly affected by the environmental degradation, every citizen suffers the loss of national revenue when the government does not have enough to provide social amenities and infrastructure to improve the quality of life in the country.

In seeking leeway, Managing Director of WalterSmith, Chikezie Nwosu had noted thumb printing of crude could be a great option as pipelines could also be buried far beyond the surface level to make it very difficult to find their ways even as communities must urgently be separated from the theft to deescalate the situation.

He emphasised the need for metering accuracy, engaging the communities, and application of pipeline technology as well as technology for the crude.

Nwosu noted that advance cargo declaration could also be a feasible option as well as fingerprinting of the crude so that the country could combine the solutions together and determine who is stealing the crude.

“With advance cargo declaration, it means that anybody internationally that takes on crude that is not signed off as legally produced but exporting crude in Nigeria is a criminal, and the company can be held liable. There are myriads of solutions that can be done. People talk about burying pipelines and rerouting the pipelines, let’s see what actually works. We need to take action,” Nwosu said.

Energy expert, Michael Faniran, disclosed that one of the greatest challenges facing oil production and distribution and indeed, the oil and gas industry in the country has been the nefarious activities of oil thieves and vandals.

“This issue poses a huge threat to the economy of the country. Nigeria’s growth and development are linked to petroleum resources. Currently, crude oil exports account for 90 per cent of foreign exchange earnings and make up about 85 per cent of government revenue.

“Beyond the socio-economic impact of the theft, this also leads to a threat to regional peace and security and also a proliferation of arms, among other issues,” Faniran said.

Chairman and Chief Executive Officer of NUPRC, Gbenga Komolafe had noted the need for the implementation of the host community fragment of the bill, saying it could be a critical point to douse tension in the oil region.

He also believes that installation of LACT units, installation of check meters with flow rate and pressure measuring capabilities, engagement of professional and competent entities for pipeline surveillance, pipeline integrity assessment, deployment of available technologies, improved pipeline security and surveillance and effective collaboration with Government security agencies are some key steps that are being taken.