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Government dilly-dallies as oil theft flourishes

By Kingsley Jeremiah
17 April 2022   |   2:48 am
The unprecedented rate of oil theft recorded in recent times in the country, and the harrowing effect that it has had on government revenue and accretion to reserves is perhaps

Oil bunkerers at work

The unprecedented rate of oil theft recorded in recent times in the country, and the harrowing effect that it has had on government revenue and accretion to reserves is perhaps the highest level of economic sabotage that the country has witnessed of late. 

KINGSLEY JEREMIAH writes on the many questions yet to be answered by President Muhammadu Buhari, the Nigerian National Petroleum Company Limited, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), independent/international oil companies, as well as the security apparatus and other key players.

When the international community gathered in Abuja, in February this year to mark the Nigerian International Energy Summit, one of the major issues that the Chairman of Independent Petroleum Producers Group (IPPG), Abdurazaq Isa, raised in an interview with The Guardian was crude oil theft. The IPPG comprises mainly Nigerian companies that are operating in the upstream segment of the nation’s oil and gas industry.
  
“The situation we find ourselves in is fast becoming unsustainable and a major threat to our businesses. The sheer level of theft is unprecedented. In 2021 alone, producers in certain parts of the Niger Delta suffered losses between 15 per cent to as high as 90 per cent,” Isa said.
  
Shortly after that event, on March 14, 2022, Shell Plc., and Eni, the parent company of Nigerian Agip Oil Company (NAOC) declared force majeure following pipeline vandalism, which affected crude oil export from Bonny and Brass crude cargoes. Reportedly, the Ogoda/Brass 24 oil line at Okparatubo in Nembe Local Council of Bayelsa was tempered.
  
Before this period, Nigeria struggled to meet up with the Organisation of Petroleum Exporting Countries (OPEC) quota. While the quota stands at above 1.7 million barrels per day (bpd), the country was pumping below 1.5 million barrels into the market at a time when she would have enjoyed a price windfall.
 

 
Shortly after the Abuja Summit, the Minister of State for Petroleum Resources, Timipre Sylva, while speaking to the global community at CERA Week, in Houston United States, on March 8, blamed lack of investment for Nigeria’s inability to meet up with OPEC quota, only to return home and align with the NNPC and other operators that crude oil theft was the primary reason that forced down production. 
  
Before this period also, Buhari had asked security agencies to go seriously against crude oil pipeline vandals. 
  
The Governor of Rivers State, Nyesom Wike, who was concerned about the endless black soot in Port Harcourt, personally led the war in search of an end to the scourge. On his emergence from the forest, he revealed how strong vandals have built networks, developed capacity, and how key personnel of the security forces that should have protected the country from the menace helped themselves to steal crude, which they refine in illegal refineries. 

Crude Oil Theft, Pipeline Vandalism Flourish Despite Huge Spending
THE NNPC reportedly spends around N103.4b yearly to secure oil pipelines and other assets. In 2018, a well-known award of a surveillance contract to an indigenous firm for the protection of the strategic 87-kilometre Trans Forcados Pipeline (TFP) alone was valued at about $18.4 m (about N7b). 
  
Despite the award of multi-million dollar pipeline surveillance contracts to private security companies, crude oil theft has been on the ascendency in the country, just as the government’s efforts to protect the pipeline have remained largely unsuccessful. 
  
The country recorded a loss of 22 million barrels of crude oil between January and June 2019. The NNPC figure shows that between January 2015 and June 2019, the Federal Government spent over N556b on oil pipeline repairs and maintenance across the country. 

  
Within the same period, pipelines have vandalised a total of 8,353 times.
  
In October last year, the current Group Managing Director of NNPC, Mele Kyari, at the 17th All Nigeria Editors Conference 2021, organised by the Nigerian Guild of Editors (NGE), in Abuja, said that a few Nigerians, which he described as “elite” were the ones that were stealing the country’s crude.
   
“Who steals crude oil? It is not the ordinary man in the village. It’s the elite of society, and it needs all of us to fight them. When we fight them, it is for the survival of all of us,” the NNPC boss said.
  
Since the statement was made, no elite has been arrested, questioned, or prosecuted. Instead, crude oil theft has persisted.  

Between Transition And Theft 
COMING at a time when the oil and gas sector is under pressure from climate change (as oil companies are aggressively dumping fossil fuel investment), last year’s assent to the Petroleum Industry Act reasonably threw the sector off balance. To date, most government officials are not certain of their places in the scheme of things.  
  
At the same time, international oil companies are also divesting their assets. And these changes leave the sector in a dilemma. To some insiders, the development is enough to trigger the stealing of crude in the guise of theft, as operators fight to recoup investment and help themselves against the unknown. 
  
It would be recalled that the regulator was not also left out in these changes. It took the intervention of Minister Sylva to visit most of the oil agencies, where he assured employers of their job. Even while Sylva assured them of their jobs, most of the staff still feared the loss of their portfolio.
  
The transition in the sector also threw the equation in host communities off balance. Specifically, the meager host community benefit in the PIA, which caused turmoil, up till now has not been implemented.

Illicit Financial Flows Increase Steadily As Theft Soars
NIGERIA appears notorious for Illicit financial flows, which even President Muhammadu Buhari agrees with. While the country’s cumulative budget from 2004 to 2018 stands at about N60t, more than N103t has been stolen in illicit transfers within that period.
 
President Buhari at the 74th United Nations General Assembly (UNGA), told his audience that Nigeria lost $157.5b to illicit financial flows between 2003 and 2012. But stakeholders at different interactions with The Guardian, insisted that the IFFs have steadily increased to date.
  
Analysis from the Nigeria Extractive Industries Transparency Initiative (NEITI), NEITI and the Partnership for African Social and Governance Research (PASGR), shows that in 2004, about $1.680b was stolen from Nigeria. The figure rose sharply to $17.8b in 2005, stood at $19.6b in 2006, and was $19.3b in 2007. The sum of $24.1b was stolen in 2008; it jumped to $26.3b in 2009 and fell to $19.3b in 2010.
  
The leaked resources stood at $$18.3b in 2011; $4.9b in 2012, and $26.7b in 2013. From 2014 to 2018, the figure hovered between $18b to $20b, bringing the average loss to $17,804b. 

  
The total IFFs in 15 years is $271b. If calculated based on the current exchange rate, the losses stand at about N112.6t.
  
When compared with the national budget, in 2004, the country’s budget was N1.19t; in 2005, it was N1.6t, moved to N1.88t in 2006, N2.39t in 2007, and it moved to N2.74t in 2008, N3.05t in 2009, and N4.4t in 2010. It was N4.7t, N4.9t, N4.9t, N4.96t, N4.4t in 2011, 2012, 2013, 2014, and 2015 respectively before rising to N6.06t in 2016. In 2017, it was N7.4t, and in 2018, it stood at N8.6tn. This brought the total budget to N63.22t.

The  NEITI, the PASGR and other stakeholders directly linked these IFFs to the oil and gas sector, especially theft and mis-invoicing.

Correcting Misconception
NIGERIA is not recording 90 per cent crude oil theft. While the upstream segment of the petroleum industry takes place onshore and offshore, the current losses occur at the onshore fields, especially land, and less than 500 metres of water depth. Onshore is done on land and not deep water.

 
Offshore is a remote location over water. Oil and gas operators drill below the earth’s seabed as deep as 12,000 feet. More than 50 per cent of the country’s production is offshore, ranging from shallow water to deep water.
 
For a long time, most international oil companies have been divesting from their onshore assets and focusing mainly on their deepwater assets. The likes of Chevron, Shell, Total, and ExxonMobil now operate more on shallow and deep water. However, the production that takes place onshore is larger, while production from the deepwater stands at about 38 per cent. While production from the onshore should be over 60 per cent, it is largely impacted by theft.
 
The pipeline network in the country is owned by NNPC and Shell. There are three main crude oil export pipelines built by Shell. And the most notoriously vandalised ones are the Nembe Creek Trunk Line (NCTL) and Trans-National Pipeline (TNP). These lines take crude from onshore fields in the eastern part of the Niger Delta to the Bonny Terminal, which is like the crude oil export hub on the Atlantic Ocean. Most oil-producing companies pump their crude into these lines.
 
The strategic pipelines are protected by a joint security task force comprising the navy and the army. And as earlier pointed out, the NNPC also has pipeline protection contracts running into billions of dollars all with the sole aim of safeguarding the facilities.

Engaging Contentious, Confounding Issues 
THE country produces only high-value, low-sulfur, light crude oil. The country’s oil blends are distinct from others in the world, and they include Antan, Forcados, Brass, and Odudu blends, Escravos Light, Bonny Light, Pennington Light, Qua-Iboe Light, Bonny Medium, Ima, and Ukpokiti. 
 
Without the deployment of technology for advance cargo declaration or fingerprinting of crude, it is easy to identify Nigerian blends of crude oil anywhere in the world.
 
However, statistics released by the NUPRC reveal that nothing less than $3.27b worth of crude oil has been stolen from the country by vandals between January 2021 and February 2022. It is also estimated that the country is losing over 300, 000 bpd to oil theft, vandalism, and other related criminal activities in the country. 
 
A report released by NEITI in 2020 indicated that the country loses about $4.19b to crude oil and product theft yearly leading to an acute revenue drop at all levels of government, with the bulk of the theft occurring around onshore fields. 

 
While it is difficult to load vessels or ships that lift around 300, 000 barrels of crude in shallow waters, most stakeholders doubt if illegal refiners consume 300, 000 barrels of crude daily. When operational, all refineries in the country only take 445, 000 barrels of crude per day.
 
Loading a large quantity of crude is never an easy task as facilities that require huge investments would be required. Even if the facilities were to be in place, (depending on vessel or cargo), it may take more than a day to load 300, 000 barrels of crude oil. 
 
Some analysts project that loading 31, 000 barrels of crude into a VLCC (supertanker) may take at least one hour. If vandals or the criminals’ networks succeed in loading their cargoes or in transporting the crude to sites where they have their refining facilities, some experts conclude that the regulator, the Nigerian Maritime Administration and Safety Agency (NIMASA), the Nigerian Navy, and other key bodies that operate in the sector must have been compromised hence their decision to look away.
 
The experts further posit that the country has the right to drag offenders, especially foreign cargoes and collaborators before the International Tribunal for the Law of the Sea (ITLOS), but the fact that these activities still go on without records of prosecution and conviction raises serious dust and appears to align with the thought of some industry observers who believe that most oil companies operating in the country, senior government officials and the security agencies play major roles in the theft of the country’s crude.
  
Apart from a criminal case instituted by the Federal Government against Switzerland over alleged oil theft in the Niger Delta region, through a Swiss-flagged oil tanker and its crew in 2019, not much has been done by the government to deter the criminals. Not much has been heard about the case involving the Swiss-flagged oil tanker. 
 
But in one of those rare cases, in 2020, David Otuohi (Nigerian); Mohammed Ejaz and Nasser Khan (Pakistanis); Oleksandr Nazarenko and Oleksandr Kashernvi (Ukrainians); Romeo Annang (Ghanaian) and Fredrik Omenu (Indonesian), who was caught by the navy on a vessel carrying crude oil off the Niger Delta on November 21, 2017, were sentenced to seven years imprisonment. This notwithstanding, the alarming rate of crude oil theft far outweighs arrests and convictions of perpetrators.

Weak Regulator, Poor Metering As Enablers 
JUST as electricity consumers require metering devices that would engender and enforce accuracy in billing, effective use of metering devices to ensure transparency and to determine the accuracy of crude oil production has remained a mirage decades after oil exploration commenced in the country. In the absence of these measurement tools, the regulator has to rely on the information from operators to determine the crude quantity. This involvement of the human element instead of technology as obtained in other climes, most stakeholders say, facilitates the introduction of corrupt practices into the process, as well as engenders poor regulatory oversight.

 
Reportedly, oil and gas metering, a phase along the hydrocarbon supply value chain where exploration and production (E&P) efforts turn into profits for operators, investors, and other relevant stakeholders is carried out using specialised and high-precision equipment to ensure accuracy. 
 
While this is obtainable in most serious oil-producing countries, its absence in the country leaves room for operators to resort to guesswork.
 
Already, as different groups and individuals continue to bandy diverse figures regarding the amount of crude stolen from the country, the Chairman of the NUPRC, Gbenga Komolafe, has admitted that the upstream operator cannot truly ascertain the amount of crude oil theft in Nigeria. 
 
Despite being a leading crude oil-producing country, the government only last month announced the setting up of “a team of experts to carry out thorough auditing of the activities of operators in the upstream petroleum industry in the last two years, to ascertain the actual volume of crude oil stolen by vandals and saboteurs against recent allegations by some industry operators regarding the volume of crude stolen daily from their operations.”

By implication, from the aforestated, the regulator has not only indicted itself, but also indicated that the NNPC, the likes of Shell, Chevron, Eni, Total and other indigenous players have given false information on their production and level of crude oil theft, and that staff members of the regulatory bodies across those oil fields simply decided to look away.

To further show the regulator’s disbelief in the amount of crude stolen, as well as the fact that it gathers information about its core responsibilities from the pages of the newspaper, Komolafe had, in a reactionary statement said: “The Commission thus considers worrisome, the crude loss figures recently being quoted in the media by some operators, given actions taken so far on the issue. To ascertain the veracity of these claims, the Commission has activated all the necessary mechanisms to get to the root of the matter and establish the actual volume of crude stolen as against the volumes claimed.”

A situation where the country’s oil regulator has limited capacity, sometimes requiring assistance from operators to carry out its activities, as well as operate with men strategically planted by the power that be, calls to question, the issue of crude oil theft in the country.
  
Energy expert, Dr. Sunday Kenshio, who has been advocating for the deployment of metering devices and for adequate measurement in the oil and gas sector, described the volume of crude oil loss as baseless.

  
He called for a change in laws that stipulate measurement at the field level, noting that a lot of alterations are done afterwards, which require that extant regulations are amended to meet prevailing realities.
  
“You will find out that at field level, the measurements are not good. They use very old equipment; some of them depend on tank dips to quantify crude oil. So, I will say that measurement at the field level, which is very critical for royalty, is poorly done.
  
“But at the export terminal, there is a lot of involvement of the authorities. So, perhaps the measurement at the export terminal is a little bit better compared to the field level. The theft that is being declared is not consistent. I doubt those numbers for several reasons and one of the reasons is that those numbers are not credible,” he said.

Between Rising Crude Theft And Soaring Cost Of Production
AS operators record losses, and the cost of producing a barrel of crude oil in the country has continued to increase. The cost currently stands at about $32 per barrel according to some industry experts. This makes the country one of the countries with the highest costs of crude oil production in the world.

This is coming about two years after a much-trumpeted move by the Ministry of Petroleum Resources, headed by President Buhari, to reduce the cost of oil production per barrel to about $10.

The Chairman of Independent Petroleum Producers Group (IPPG), Abdurazaq Isa, who had told The Guardian that the huge cost incurred on security was also adversely affecting Unit Operating Cost (UOC) targets of $10 per barrel, noted that in December 2021, some operators lost 91 per cent of the crude that they put in the line. The figure went down to 75 per cent in January this year and stood at 82 per cent last month.

The Managing Director of Walter Smith, Chikezie Nwosu had said: “Supposing my cost of production per barrel is $20 and I’m expecting that barrel to get to the terminal and all that gets to the terminal from that barrel is not one barrel, 91 per cent of the barrel is gone and I am left with 0.9 per cent. That multiplies my unit cost of production exorbitantly, and it just goes through the roof. So, my unit cost of production is significantly higher than the oil price overall because the effort I take to produce that barrel remains the same whether or not.”

An energy expert, Henry Adigun, who also acknowledged the high cost of production cost per barrel, noted that the growing cases of insecurity in the oil-producing region are not only affecting the unit cost of production but would continue to lead to deferred production.

An operator and former Chairman, Petroleum Technology Association of Nigeria (PETAN), Bank-Anthony Okoroafor, described the prevailing situation as “a monumental disaster.”

“If you produce 100 bbl, but end up seeing only 10 bbls in the terminal, your cost per barrel is huge. There is also a massive loss of revenue that should accrue to the Federal Government,” Okoroafor said.

Nation Drifts Towards Bankruptcy As Environmental Issues Worsen
KNOWING too well that the oil sector accounts for over 80 per cent of the country’s revenue, crude oil theft erodes revenue in taxes and royalty, as well as the share of crude due to the federation.

This development alone has already pushed the country into borrowing, which now hovers around N50t. Further worsening the scenario, is the continuous importation of petroleum products that has also forced the country to devalue its currency, as citizens grapple with the high cost of living and increasing poverty rate. 

The Chairman of the Nigerian Governors’ Forum (NGF) and Governor of Ekiti State, Dr. Kayode Fayemi, had earlier fumed at the profitability status of the NNPC Limited, as it contributed nothing to the Federation Accounts Allocation Committee, (FAAC) in February this year. 

Calling for a revamp of the oil sector, Fayemi said: “For us as states that are beneficiaries of the goose that lays the golden egg, the oil and gas industry, we also are very desirous that this industry is sustained over the long term. We see areas of concern, particularly in terms of revitalising the industry around transparency, accountability, and governance of the sector.”
 
His Ondo State counterpart, Rotimi Akeredolu speaking through his Commissioner for Energy, Razaq Obe, at an event in Abuja said that the president was “running a country that is bankrupt.”

Possible Way Forward
THE total independent auditing of crude oil production in the country is highly required. Since oil companies, security agencies and even the regulator are being indicted in crude oil theft, it would be reasonable to put in place, an audit structure that will exclude oil players in the country. 

There is also an urgent need to strengthen the NUPRC, ensure technology, especially adequate, and a well-calibrated metering system is installed across needed points on oil facilities in the country. 

In countries like Saudi Arabia, where the Federal Government sent a delegation to understudy how the monitoring system facility operates in 2019, the regulator oversees the entire national oil facility from control and can determine where there are breaches on the spot. It is high time Nigeria implemented such a process.

An overhaul of the security architecture is equally urgently needed, even as the Federal Government must engage countries that are currently buying her crude to join forces in fighting the soaring crude theft.
 
The host community component of the PIA must be implemented fully to douse tension and agitation in the Niger Delta region, while the government must ensure continuous dialogue with key stakeholders in the region.