Knotty pipelines cost oil companies $325m in 1 month
The Nigerian National Petroleum Corporation (NNPC) and its other major partners lost over $325 million in the month of June to a combination of power failure, industrial strike actions and production shut-in due to repairs at various crude oil terminals scattered across Nigeria.
In Africa’s biggest oil-producing country, NNPC runs a network of over 5,000km of pipelines across the country that transport both crude produced by foreign partners and Nigeria’s state-owned oil company.
But sources in the oil and gas industry admit that most of the pipelines are old while some others have aged, giving rise to frequent failures resulting in operational disruptions, high maintenance cost and revenue losses.
In the latest NNPC presentation to the Federation Account Allocation Committee (FAAC) meeting, the state-owned oil corporation said it lost over 4.5 million barrels of crude oil worth about $325 million, based on June’s average Brent price of $62.
Further analysis of the report shows Nigeria’s Trans-Forcados Pipeline (TFP), the second-largest network in the Niger Delta, recorded the highest loss of 2.8 million barrels of crude oil in June.
NNPC explained that the reason for loss was because of repairs at Trans Remos pipelines and shutdown of Batan station, thanks to unpaid community workers and contractors’ salaries.
“Kokori station shut down due to non-payment of community workers’ salaries. About 10kbd of production shut-in,” NNPC explained in its FAAC report.
The Anyala Madu, Bonny, Ugo Ocha, Otakikpo, and Abo terminals also recorded crude oil losses, as they could not produce 180,000 barrels, 554,000 barrels, 198,000 barrels, 69,000 barrels and 4,000 barrels, respectively.
NNPC explained that Aiteo shut down some flow stations at Bonny terminal due to community interference while Odidi station came down due to power outage from the solar turbines.
“Jones Creek station fully went down due to unpaid salaries of the surveillance contractors,” NNPC’s said.
Other export terminals such as Sea Eagle, Usan, Agbami, Okono, Antan, Pennington and Ima also recorded crude losses such as 150,000 barrels, 82,000 barrels, 40,000 barrels, 120,000 barrels, 11,200 barrels, 250,000 barrels, and 30,000 barrels, respectively.
It added that receipts were curtailed at Forcados due to leaks observed along the Trans Forcados Pipeline and subsequent repairs of the TFP.
“The cumulative loss for the period was 720,000bbls (barrels),” the oil firm stated.
At the Abo Terminal, NNPC said there was a 4,000 barrels of production shut in due to maintenance work while Sea Eagle was shut down due to Turn Around Maintenance (TAM).
On what happened at the Usan Terminal, the corporation said, “Production was shut-in due to seawater pump trip” while at Antan terminal, “some wells beaned down and shut-in about 1.6kbd due to high Gas to Oil Ratio.”
“Nigeria’s oil production is currently struggling at levels never seen before, but the regulators are ignoring the problem and disguising under OPEC’s quota,” Charles Akinbobola, energy analyst at Lagos-based Sofidam Capital, says.
He states, “The leakage has gone on for too long and should be halted.”
With public revenues at dangerously low levels and lower production output, most stakeholders say the Federal Government must overcome its inertia, safeguard critical infrastructure, and pull out of the downstream oil sector to concentrate on its security and regulatory roles.
A non-government organisation that has been at the forefront of accountability and transparency, Nigeria Extractive Industries Transparency Initiative (NEITI), complained Nigeria could have earned more revenue if not for crude oil losses due to metering error, theft and sabotage in the country’s energy sector.
To solve the country’s production problem, NEITI recommended that the NNPC should ensure proper surveillance (land-based, and aerial satellite photography and geophones-trenched pipelines), including updating its pipeline networks to minimise vandalism and crude oil theft.
The report also advised the Federal Government to ensure the success of oil and gas industrial parks in the Niger Delta, which it noted would ensure the development of oil and gas infrastructure in the oil-producing states and create employment for the populace in the Niger Delta.
Other stakeholders have recommended that the Federal Government should relinquish control of the operation and management of its 7,000 kilometres pipelines by divesting a majority of its 100 percent equity to competent, resourceful and experienced refining private partner(s) in accordance with the Public (Privatisation and Commercialisation) Enterprises Act of 1991.
They noted that privatising the pipelines could best be described as the goose in the Nigerian economy. If it is well nurtured and fruitful, the spin-offs can lead to a transformation of the economy.
Over the years, Nigeria’s inability to swing oil fortunes to economic realities means over 90 million of its citizens live in penury, more than India, which has a population seven times greater.