From oil to gas, crude theft decimates Nigeria’s energy earnings

Nigeria’s 2022 earnings is set to take a beating over its inability to secure pipelines and protect its energy infrastructure, leading to widespread crude theft that is now the biggest disincentive for investments.

The 2022 budget of N17.126 trillion was anchored on an oil price benchmark of $62 per barrel but crude prices have averaged $106 in 2022. This should translate into a small windfall for Nigeria but petrol subsidy is taking a big bite out of the oil revenue.

Now on account of industrial-scale crude theft in the Niger Delta, where compromised security officials and colluding oil-producing communities are forcing an exodus of oil majors and their investments, local producers are scrambling as the country’s output dip to its worst levels in history.

Since the bulk of Nigeria’s gas production is associated with oil, (gas is extracted while digging for oil) gas production is now impacted with the Nigerian LNG Limited reporting huge losses and inability to meet supply contracts, a development that will erode revenues to the cash-strapped government.

Adeleye Falade, NLNG’s general manager, production, during a panel session at the 45th Nigeria International Conference and Exhibition 2022, said: “In the eastern corridor, we also don’t have enough pipeline distribution pipeline. But the ones that we have, what has happened to them? Today, Trans-Niger Pipeline, which is the main artery in the eastern region, had been down since March. We don’t know when it’s going to come back.

“As a result of that, I don’t have gas in the LNG to run my plants. Currently trending 99.4 percent year-to-date availability, my utilisation is moving around 68 percent.

“The data between that 68 percent and the 99.4 percent is equivalent of almost $7 billion revenue today, which would have found its way into our economy, which would have helped our government in a cash-constrained world. And I’m not talking about the impact on upstream.
Read also: IOC’s divestment, not crude theft responsible for struggling oil output- Avuru

“So what is the guarantee around the security of even the pipeline that we have? And everybody has a role to play in that: government, security agencies, have a role to play.”

For a business that earned the Nigerian government a dividend of N208.5 billion in 2021 and over $18.3 billion in dividends in the last two decades, the Nigerian government should be more worried about the threat of crude theft to its existence.

“Losses from pipeline vandalism, which used to be written off as tolerable ‘leakage’ for decades, has now become a troubling huge drain,” Niyi Awodeyi, CEO of Subterra Energy Resources Limited, told BusinessDay.

“The escalating pipeline vandalism is affecting every pipeline including the ones transporting associated gas, which is bad business for NLNG and other companies in the gas business,” he added.

In 2021, Nigeria lost on average about 200,000 barrels per day of oil output, and a report published by analysts at Wood Mackenzie in April detailed how two of the country’s most prolific oil infrastructure became prime targets for criminals.

The report revealed that Shell’s Bonny and the Brass oil pipeline system owned by the upstream joint venture between Eni, NPDC and Oando, were facing systemic crude oil theft as attacks shifted from the west to the east.

Read also: Crude theft persists despite multi-million-dollar surveillance contracts

“The scale and sophistication of crude thefts suggest an organised operation on an industrial scale,” said analysts at Wood Mackenzie.

Also at the energy conference in Lagos, Tony Elumelu’s Heirs Oil & Gas revealed that oil production at its Oil Mining Licence 17 dropped to three per cent in December 2021.

Analysts expect lower taxes and dividends to the Federal Government on account of production challenges.

This could further derail Nigeria’s much-vaunted ‘Decade of Gas’ Nigeria has ramped up proven reserves of natural gas from 203 trillion cubic feet (tcf) to 206.53tcf largely on the back of indigenous producers who are derisking operations in troubled Niger Delta areas.

During the last marginal oil field bid rounds, gas rather than oil was the major focus as half of the fields awarded to producers were in offshore areas where gas is stranded because the big oil companies did not see the potential for monetising them locally.

These gains could be eroded with rampant crude theft and helplessness of the Nigerian state to deal with the vandals.