Gulf states living Nigeria’s dream of an oil windfall

President Muhammadu Buhari spent most of his first term blaming the Peoples Democratic Party for squandering an oil windfall when prices rose above $100 per barrel. Yet, under his watch, the current windfall precipitating the first budget surpluses for Gulf states in eight years has completely eluded Nigeria.

Vladimir Putin’s decision to invade Ukraine in February is the catalyst for the current oil boom that has seen energy prices shoot up to an eight-year high. Policies drawn up by European nations, encouraged by multilateral organisations, to address climate change impacts, including denying financing to oil and gas projects, tightened oil markets and birthed a boom.

But Nigeria is not at this party. Once Africa’s biggest oil producer, Nigeria struggles to meet production targets it set in the 1970s with production falling below 1 million barrels per day (bpd) as producers shut-in fields to rein in rampant crude theft.

Senior oil and gas executives told BusinessDay how crude theft escalated 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 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 and the Ministry of Petroleum have put out indicating that thieves steal anywhere between 200,000 and 400,000 bpd, 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.

The country’s oil production fell by 112,000 bpd to 972,000 bpd in August from 1.08 million bpd in July, based on direct communication to the Organization of Petroleum Exporting Countries (OPEC). The largest economy in Africa trails Angola (1.18 million bpd) and Libya (1.12 million bpd) on production volumes, according to OPEC’s data.

The total value of Nigeria’s crude oil stolen between January 2021 and February 2022 is about $3.27bn, the Nigerian Upstream Petroleum Regulatory Commission said in a presentation to Oil Producers Trade Section, as well as 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,” said Richard Laing, managing director of ExxonMobil Nigeria at a recent oil and gas conference.

Decline in the volume of crude drilled in Nigeria is having a chilling effect on crude revenues, worsened by subsidy on petrol imported into the country, sending the economy into a tailspin.

Headline inflation has risen through the roof, unemployment has surged to 33.3 percent, underemployment is up to 22.38 percent. These have helped to compound Nigeria’s poverty position with 95.1 million Nigerians or 42.6 percent of the population living in poverty.

However, Gulf states under the aegis of Gulf Cooperation Council, comprising Saudi Arabia, Oman, United Arab Emirates, Kuwait, Qatar and Bahrain, are predicted to see a GDP surge of 6.1 percent in 2022 on the back of increased oil prices, as well as fiscal surpluses for the first time since 2014, according to the Mitsubishi UFJ Financial Group.

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Analysts are predicting that this could be the last boom for oil, making Nigeria’s prospects even murkier. “This is certainly the beginning of the end of oil wealth at this sustained level,” Karen Young, senior research scholar at Columbia’s Center on Global Energy Policy, told an Egyptian paper.

Middle Eastern energy exporters could reap as much as $1.3 trillion in hydrocarbon revenues over four years as a consequence of the current boom, the International Monetary Fund has said.

Unlike the previous booms, the Gulf states are not splurging on yachts, weapons, private airplanes and handouts to citizens. They are heeding expert counsel to shield themselves from fluctuations in oil prices by using the windfall to diversify their economies away from their dependence on oil.

A May 2022 report by the World Bank stressed that the wealth obtained by Gulf countries post-pandemic and after the Ukraine war must be invested in the bloc’s “economic and environment transition.”

This is currently what the Gulf states are doing: investing billions in new energy technologies, building smart cities, investing in pension funds and other instruments to hedge against the inevitable bust that follows a boom.

Gulf states went through oil booms in the 1970s and 1980s, and then another in the early 2000s. But the shift towards cleaner energy spurred by climate concerns means that such cycles may no longer be tenable.

Nigeria is in an awkward position as it cannot talk about investing revenues it hasn’t earned. After 60 years of oil production, it still grapples with the most basic challenge – how to get the oil out of the ground into pipelines and terminals for onward shipment abroad. The country’s refineries are undergoing rehabilitation financed by loans while the Dangote Refinery expected to come on stream next is being held as a hope to contain an out-of-control importation of petroleum products.