Feature

Oil theft: Why Nigeria can’t gain from boom –Experts

• Economy heading to total distress, says PENGASSEN

 

Nigeria has been unable to meet its 1.8 million barrel per day production quota assigned to it by oil cartel, OPEC, partly because of oil theft. The country allegedly lost a whopping sum of $1 billion in Q1 2022 to the illegality. PAUL OGBUOKIRI reports that the situation portends danger for the country as the economy bleeds

 

An oil economy in danger According to the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Nigeria’s oil economy would get into a deeper mess if nothing is done to stem the tide of the crude oil stealing menace. President of PENGASSAN, Festus Osifo, in a statement said that crude oil theft made Nigeria lose out on accruing more revenue from the current high price of crude oil in the international market.

 

He disclosed that Nigeria lost $3.27 billion to oil thieves in the 14 months leading to February 2022. Osifo said in a depressed economy whose efficiency and effectiveness are restricted by poor infrastructure, the loss is a lot of money.

He added that going by the National Bureau Statistics (NBS) 2021 report which indicated that Nigeria imported petrol worth N3.97 trillion, gas oil worth N568.5 billion, and lubricating oil for N272.3 billion in 2021, aside food imports paid for in foreign exchange, the economy is heading to total distress since thieves have seized the country’s main source of forex revenue.

Osifo said all these paint Nigeria’s oil economy in an ironic moment; the paradox enhanced by the Russia-Ukraine war that has caused a price upsurge in the global energy market.

 

Instead of profiting from this, as other oil producers are doing, Nigeria is falling headlong into an economic quagmire as oil prices soar above $100 per barrel, exceeding Nigeria’s $62pb 2022 budget benchmark. The twin menace of oil theft and importation of refined petroleum products is the primary cause.

In contrast, Norway, Western Europe’s largest oil producer, is making an extra income of $5,680 every second, and is projected to rake in $170 billion extra revenue because of the war, say analysts at Nordea Bank, the largest financial group in the Nordic countries.

 

Cost of crude oil theft to Nigeria

The Minister of Environment, Mohammad Abubakar, recently disclosed that Nigeria recorded 4,919 oil spills between 2015 to March 2021 and lost 4.5 trillion barrels of oil to theft in four years. He said that several statistics have described Nigeria as the most notorious country in the world for oil spills, losing roughly 400,000 barrels per day.

“The second country is Mexico that has reported only 5,000 to 10,000 barrel only per day, thus a difference of about 3, 900 per cent.” According to him, attacks on oil facilities have become the innovation that replaced agitations in the Niger Delta region against perceived poor governance and neglect of the area.

 

“The impacts of vandalism of oil facilities have not only caused pollution of the environment but had consequences on the local people, the national economy and security,’’ Abubakar said.

 

Economy bleeds

A combination of huge oil pipeline repairs cost and a high-level crude oil theft are bleeding the Nigerian economy, with  losses amounting to at least $29 billion in the last six years, spanning 2015 to 2021.

Group Managing Director of Nigerian National Petroleum Corporation (NNPC) Limited, Mele Kyari, in a statement disclosed that the country has continued to record huge losses to oil theft, saying in terms of the financial loss to the nation, in 2021 the total volume of crude oil stolen is 200,000 per day.

At an average price of $55 per barrel, the total loss was about $3.2 billion (from January to December 2021). He disclosed that between January and April of this year alone, the volume of crude stolen has risen to about 250,000 barrels per day, putting the total loss at about $1.5 billion (at the rate of $100 per barrel).

According to him, this has forced the country’s crude oil production to go way below quotas by the Organisation of Petroleum Exporting Countries (OPEC) and benchmark in the 2022 budget.

“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 20 kilometers 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.

“There is also the case of sheer vandalism where the lines are just blown out with explosives resulting in spillages and environmental hazard,” he said. Meanwhile, Head, Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe, has said that of the 141 million barrels of crude oil Nigeria produced in the first quarter of 2022, only about 132 million barrels were received at export terminals.

“This indicates that over nine million barrels of oil was lost to crude oil theft … this amounts to a loss in government revenue of about $1 billion … in just one quarter,” Komolafe said in a statement. Analysts say this trend poses an existential threat to the oil and gas sector and by extension, the Nigerian economy if not curbed.

This came on the heels of a survey conducted by Reuters for April crude oil production by members of OPEC. It stated that under-production in Nigeria has led to a much lower increase in OPEC production for the month of April than was called for by the cartel’s supply agreement. Kyari described it as a national emergency on account of the proportion, dimension, and sophistication it has taken in recent times.

On the environment

 

Kyari disclosed that the activities of the crude oil thieves have led to serious environmental degradation, pollution, and air pollution in the Niger Delta, saying over 100 people were recently burnt alive while in the process of scooping crude oil in Imo State. “Some of the arable lands and waters in the vicinity of the areas where crude oil theft has taken place are almost permanently unusable for either farming or fishing. The vegetation in those areas has turned yellow,” he said.

 

Losing out in oil windfall

 

In its latest audit report made public in July 2021, the Nigeria Extractive Industries Transparency Initiative (NEITI) indicated that 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. It disclosed that before the Russia-Ukraine crisis, crude 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 since then. Nigeria is not reaping as much as it should from this because it is not able to meet its OPEC production quota”. NEITI stated that 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. It added that production figures from 2020 till date shows how much of a monster the menace of crude oil theft has become. The average production in 2020 was at 1.77mbpd. It would be recalled that 2020 was the year COVID-19 almost brought the world to a halt with virtually every country on lockdown.

This saw the price of crude oil crashing to sub-zero levels with an unprecedented demand dip. This development resulted in zero crude oil theft in Nigeria, obviously because there was no market for the thieves to sell their stolen crude. This saw the country recording its highest production level of 2.49mbpd on 17th April 2020.

According to Mele Kyari, what that development showed was that Nigeria has the capacity to produce that figure (2.49mbpd) on any normal day because there was no special intervention of any kind that led to  that peak production on that day.

 

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.

Explaining the situation recently, the NNPC boss said it got to a point where, if you inject 239,000 barrels of crude oil 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), you will only receive 3,000 barrels.

 

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.

 

“The rate of oil theft kept increasing as the price of crude oil was rising in the market until March 2022 when there were zero recoveries from all the volumes that were pumped into the line,” Kyari said.

Divestment

Yet, another area where oil theft is affecting the economy is the area of investment. Analysts say that it has slowed down the gains the PIA is supposed to bring about in the area of investment. They noted that potential investors now ask how they can recoup their investment when crude oil is stolen.

 

According to them, the development is also one of the major reasons for divestment by international oil companies from the onshore assets. This action has also denied the country from being a major investment destination, thereby making it impossible to get the necessary inflow of foreign exchange that is badly needed to bolster the economy,” they said.

 

Recall that voicing his frustration over the problem recently, Tony Elumelu, who owns huge stakes in Tenoil, in a series of tweets claimed that businesses are suffering.

 

“How can we be losing over 95 per cent of oil production to thieves? Look at the Bonny Terminal, which should be receiving over 200,000 barrels of crude oil daily; instead, it receives less than 3,000 barrels, leading the operator, Shell to declare force majeure, which has taken a toll on their businesses.”

 

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