BusinessDay

How crude theft fosters value destruction in oil, gas sector

Crude theft has left a mark on the oil and gas sector in Nigeria, discouraging investments and denying the country higher energy revenues. Below are other ways it is impacting the economy.

Revenue losses

According to a study funded by Shell Nigeria, Nigeria loses between N30 and N60 trillion per year due to oil theft, illegal refining, and pipeline vandalism.

Ben Naanen, the head of the research team from the University of Port Harcourt (UNIPORT), said 200,000 barrels of crude oil, or 14 percent of Nigeria’s 1.4 million barrels per day, are stolen every day. He did, however, say that other sources have recently put it at 30%, or around 470,000 bpd.

At a price of more than $100 per barrel, with one dollar exchanged at about N411 in the official market, the loss ranges between N8.2 billion and N17 billion per day, resulting in a loss of between N30 trillion and N60 trillion per year.

Worsening underinvestment

The number of idle big-ticket oil and gas projects in Nigeria appears set to rise as massive crude theft defies government efforts to curb it, scaring more operators.

Nigeria has 36 billion barrels of crude oil reserves and 206 trillion cubic feet of proven gas reserves, but investment in the vital oil sector has declined dramatically in recent years.

Oil receipts fund the country’s budget, but many oil and gas projects are idle, threatening a decade-old goal of increasing reserves to 40 billion barrels.

“There is crude theft (it is there) but the main reason for our 1.3 million barrels production today (shortfall of 600,000 barrels per day) is the decline in investment,” Austin Avuru, executive chairman and founder of AA Holdings Limited, said at this year’s Nigeria Annual International Conference in Lagos.

Five oil majors – British Petroleum, Chevron, ExxonMobil, Shell, and TotalEnergies – in their CAPEX plan for 2022, ignored Nigeria and moved forward with spending capital expenditure in Libya, Ivory Coast, Kazakhstan, Guyana, Brazil, Singapore, among others.

Read also: Foreign capital inflow into Nigeria’s oil sector drops by 82%

Decimated energy earnings

Nigeria’s 2022 earnings are suffering as a result of the country’s inability to secure pipelines and protect its energy infrastructure, which has resulted in widespread crude theft, which is now the biggest deterrent to investment.

Local producers are scrambling as the country’s output drops to its lowest levels in history due to 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.

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

So far in the year, the state-owned company has not made any remittances to the Federal 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.

“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.”

180,000 barrel-a-day pipeline runs dry

According to a source familiar with the situation, an oil pipeline capable of transporting 180,000 barrels of crude per day across Nigeria has been shut down since mid-June due to theft.

According to Bloomberg, the Trans-Niger Pipeline has not yet been formally closed, according to a person who declined to be identified because the information is not public.

According to Bloomberg calculations, the capacity of the link is about 15 percent of Nigeria’s most recent average daily output.
The TNP was illegally tapped in approximately 150 locations, according to the Petroleum and Natural Gas Senior Staff Association of Nigeria, when the local government checked some of the areas where the theft occurred in March.