• Wednesday, December 06, 2023
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Billion-dollar crude theft business feeds off official complicity

Much ado about oil theft – the art of distraction while the criminals continue to pillage

Awwal Gambo, Nigeria’s chief of Naval Staff, in a media interview, disputed the huge volumes of crude oil stolen from the Niger Delta as unrealistic due to heavy military presence but industry operators say the complicity of government officials means a vessel with the ‘right’ papers can carry out a heist even with the military looking on.

Senior oil and gas executives with decades of experience in the oil and gas industry revealed to BusinessDay the escalation of crude theft from small barges rifling through riverine areas to large vessels leaving offshore into Nigerian waters to cart away illicit crude with official cover.

The theft of Nigeria’s crude has been ongoing for decades but the current scale of operation and the small clout of local oil firms impacted threatens to cripple the sector and remove any pretence that security agencies are capable of, or even willing to contain the situation. This has led to the exodus of international oil companies (IOCs) from the creeks, while many local operators have shut down production.

The current crude heist in the Niger Delta is an operation involving both lowly and highly placed people employing all means from small barges hauling 5,000 barrels to 3-million-barrel capacity oil vessels. While this validates estimates the Nigerian National Petroleum Company Ltd (NNPC) and the Ministry of Petroleum have put out, indicating that thieves steal anywhere between 200,000 and 400,000 barrels per day, it has not exempted their officials from accusations of complicity.

Small-scale oil thieves in small barges tap flow lines in the Niger Delta and put the stolen crude in barges. They go through riverine areas and smaller rivers to evade military presence and access vessels mooring offshore, depositing the crude in these vessels for sale in foreign countries, mostly in Asia.

This method became very popular and lucrative over the past decade and new entrants into the crime have brought in larger and stronger barges, discovered new routes and enhanced cooperation with local communities and security agencies enabling large volumes to be spirited away.

IOCs have long been aware of this criminal enterprise and over the last 20 years made several presentations to the Nigerian government through their trade group, the Oil Producers Trade Section (OPTS), about how this activity is hurting their business and government revenue but successive governments have treated these warnings like a suggestion.

After years of inaction, the economy is now on the brink. Oil production has dipped below 1 million barrels per day, with Angola taking the top producer spot on the continent. The NNPC is unable to make enough remittances to share among states, and Nigeria is borrowing like it’s going out of fashion.

The IOCs have abandoned onshore fields, with the consequent loss of investments and revenue to Nigeria. Local companies taking over the assets are fighting a bruising battle to rein in the thieves.

Nestoil, in 2019, developed an ‘Alternative Crude Evacuation System’ where oil produced bypasses the pipelines to be evacuated by barges – basically a refinement of the process used by thieves to steal their crude.

After thieves destroyed the TPF pipeline, Nestoil was on the ropes and desperation birthed this ‘innovation’. “It is either we go down as a business considering the situation or we carry our crude on barges,” Ifeanyi Ezuka, chief technical officer at Neconde Energy Limited, said in a 2019 interview.

Other companies have adopted this approach. Aiteo abandoned a pipeline it acquired for $1.2 billion to transport its crude by barges. Moving crude by barges adds up to about $15 a barrel compared to moving crude by pipeline which is $2.5 a barrel.

Tony Elumelu’s Heirs Oil pumps about 40,000 barrels daily of crude into a pipeline but only manages to export 7,000 barrels daily at the terminal. It is now turning to barge its crude.

The total value of Nigeria’s crude oil stolen between January 2021 and February 2022 is about $3.27 billion, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said in a presentation to OPTS and the Independent Petroleum Producers Group at a stakeholders event on crude oil theft in March.

“The sophistication of the engineering involved points towards a high degree of sophistication and technology, as well as the distribution. I think we’ve just got to be honest and accept that this is not theft but organised criminal activity,” Richard Laing, managing director of ExxonMobil Nigeria, said at a recent oil and gas conference.

Naval chief Gambo, in his analysis, said 100,000 barrels of crude oil is equivalent to 15,800,000 litres of crude, which requires a five-ton barge making 3,160 trips per day to convey this product out of the creeks.

He said: “How do you pass the estuaries with this? So, let’s assume now you even have many barges because of the time required to carry out this product. That means you entirely close the navigable waters heading out to sea, through the estuaries, to embark on them or to transit them into a mother vessel that will eventually take them out of the country.

“Of course, this is most unlikely considering the heightened presence of security agencies in the maritime environment.”

But operators who spoke with BusinessDay say this analysis fails to take into account that vessels with doctored authorisation from the NNPC, the upstream sector regulator and other government agencies enter the Niger Delta and successfully make away with huge volumes of crude.

Read also: First time for Nigeria, crude oil export earns zero revenue in one month

The government response has been to mobilise the military and find a tough-sounding name for the operation but this often looks like contracting the fox to guard the chicken coop.

“The occurrence of oil theft in the Niger Delta started around the late 1970s to early 1980s, when the country was predominantly under military rule. It was carried out under the command of top military personnel for the purpose of enriching themselves and forcefully maintaining political stability,” says Augustine Ikelegbe, of the University of Benin, in a study published in the Nordic Journal of African Studies.

Civil society groups, Transparency International and the Civil Society Legislative Advocacy Centre, have documented reports of military personnel receiving payments from illegal oil workers at the “tapping points”, often in exchange for protection.

In Cross River State, NNPC pipeline being routinely targeted for oil theft operations had extraction points that were less than one kilometre from the Naval Base NNS Victory and the Nigerian Army Training School, the civil society groups were told.

“The proximity of tapping points to military establishments suggests, at best, awareness of the schemes and at worst, active participation,” they said in a report.

The Nigerian security agencies have denied allegations of complicity but the country’s inability to meet its supply quota under an OPEC pact since November 2021 and government revenues slowing to a trickle often dispute such claims.