Massive oil theft to cost Nigeria N2.155trn in 2021

The rate at which crude oil is being stolen from pipelines in the creeks of the Niger Delta, Nigeria might as well forget earning a kobo from oil this year.

Africa’s biggest oil producer expects to earn N2.01 trillion from oil sales this year but it is on course to losing N2.155 trillion to oil thieves by December.

To understand the scale of oil theft in the Niger Delta, consider that over half of the crude oil sent through the 180,000 barrels of crude daily capacity Trans Niger Pipeline is stolen.

Worse still, oil theft in the Niger Delta is assuming an industrial-scale level with even community leaders and security personnel participating in a craft long dominated by illegal refiners and smugglers who sell on the black market for Asian markets.

The Trans Niger Pipeline (TNP) is one of two pipelines that export Bonny Light crude oil. The line is also the right of way for a Bonny-refinery pipeline belonging to the Petroleum Products Marketing Company (PPMC), a subsidiary of state oil company NNPC.

Frequent sabotage on the pipeline is costing Nigeria billions in lost revenue, constraining the country’s capacity to meet its 1.5 million barrels per day (bpd) quota under the Organisation of Petroleum Exporting Countries, and further worsening environmental degradation in the Niger Delta.

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It is contributing to a situation where higher oil prices have done little to shore up shrinking foreign reserves. The country’s reserves decline often due to lower oil receipts, dip foreign investments, and unbridled borrowing.

Nigeria is also spending a fortune on securing and maintaining its pipeline infrastructure in the country. In May’s Federal Accounts Allocation Committee (FAAC) report, it cost the country N4.1billion to safeguard the assets with over N1.5bilion alone going to fix ruptured points that month alone.

The Federal Government says it spends N60 billion yearly securing the pipelines and losses crude oil volumes as high as 200,000 barrels per day (bpd). At the $72 per barrel forecasted average oil price for 2021, this translates to an annual loss of $5.256billion this year.

When converted at the current exchange rate, Nigeria could be losing an estimated N2.155 trillion by December.

This figure is about 16 percent of the entire 2021 budget and higher than the 1.7trillion budgeted for health and education by the Federal Government in 2021.

Rather than pump more cash into repairs and maintenance, some analysts contend that changing the ownership structure and business model of Nigeria’s pipelines could check the problem.

“Privatisation will bring about increased efficiency in its management and minimise the high incidence of pipeline vandalism currently plaguing Nigeria’s petroleum sector,” Luqman Agboola, head of Energy and Infrastructure at Sofidam Capital told BusinessDay.

However, the ongoing theft does not seem to differentiate between private or public ownership of the pipelines.

The Trans Niger Pipeline (TNP), which belongs to the SPDC JV and carries crude oil from various companies, passes through Ogoniland. SPDC, as an operator, recently removed 56 illegal connections by smugglers and he said there are still 42 illegal connections remaining that they know of.

Since 2017, SPDC has removed more than 689 illegal theft points. Illegal theft points are identified by daily inspections from the air and on the ground according to Shell’s briefing notes for 2021.

In the dizzying maze of delta creeks, oil thieves tap pipelines and siphon off crude through rubber hoses that are up to 2 kilometers long into barrels on small vessels. They sail alongside larger vessels and pump the stolen crude into oil tankers bound for exports mostly in Asia.

The government’s response has been to send soldiers after the oil thieves. The Nigerian Navy and the Joint Task Force in the Niger Delta (JTF) along with other security operatives have been tasked with checking this practice but this has been largely ineffective as they have been found complicit.

“Both (the Nigerian Navy and the JTF) are known to have, at times, fallen well short in those responsibilities, to put it mildly,” said a downstream oil theft report by Ian Ralby, for the Atlantic Council, an American think tank on specialising in international affairs.

“Multiple cases and testimonials have revealed how naval personnel have coordinated and collaborated with oil traffickers, and how JTF troops have run their own extortion rackets in which they must be “settled,” or bribed, by criminal operators looking to continue their activities in relative secrecy and security,” Ralby stated.

A few years ago the Department of Petroleum Resources hired French data firm Kpler, but the scale of the current crude theft going on does not indicate the programme is having much success.

A top industry operator who spoke to BusinessDay said that when the oil chiefs go to Abuja to talk to the government it would seem they give the impression it is a matter for the oil companies alone. With oil at over $76, you can see why it is not showing in Nigeria.

The SPDC joint venture along with other oil companies have implemented various anti-theft protection mechanisms, such as anti-tamper locks and steel cages for wellheads. Some local oil companies are paying off vandals to protect their infrastructure.

According to Shell, around 364 cages have been installed so far and around 224 more are planned for 2021/2022 that will all come with CCTV technology. These costs are not included in the earlier losses calculated.

In 2020, 15 breaches of the cages were recorded out of 1,706 attempts. As a result, wellhead-related losses significantly dropped from about 30 kb/d in 2016 to less than 1 kb/d in 2020 across all SPDC operations.

Nigeria has the capacity to produce over 2 million bpd of crude and condensate, but production has averaged around 1.64 million bpd so far in 2021, according to S&P Global Platts estimates.

Under the latest OPEC+ deal, Nigeria has been allowed to increase crude production to 1.535 million bpd and 1.554 million bpd in May and June, respectively. For July, its quota will rise to 1.579 million bpd but it is unable to meet these production levels.