Local operators explore options amid record oil theft

A sophisticated criminal network has stepped up its operations in Africa’s biggest oil-producing country, with losses from pipeline vandalism and theft overwhelming Nigeria’s oil business in recent weeks.

To change the narrative, a new report from Wood Mackenzie has uncovered new tricks on how local oil companies can navigate Nigeria’s leaking pipelines carrying crude oil from wells to flow stations in the Niger Delta, where more than 90 percent of the country’s crude is explored.

According to the UK-based energy and intelligence provider, Nigeria’s indigenous firms, which pump at least 10 percent of national output, can explore alternative routes along with the country’s terminal that will reduce their exposure to a growing scale of crude oil theft.

A chat showing cases of oil spill in 2021

Citing an example, Wood Mackenzie explains how Waltersmith’s 5,000-barrels-per-day (bpd) modular refinery at Ibigwe in Imo State is offering an alternative off-take agreement to local firms willing to avoid Bonny terminal, the largest pipeline network in the Niger Delta, with a capacity to process and export 1.25 million bpd.

“Two 10,000 bpd expansion phases are planned,” WoodMac added.

Another indigenous oil producer exploring alternative arrangements is Heirs Oil & Gas Limited.

“Heirs Oil & Gas Limited will start trucking and barging crude in 2022. It also plans to build its own export pipeline to avoid the Trans-Niger trunk line,” WoodMac explained.

WoodMac advised other independent local producers to explore Eroton’s inactive Alternative Crude Oil Evacuation System, which will export crude from Oil Mining Licence (OML) 18 and OML 24, to a floating storage and offloading vessel, ELI Akaso, from 2022.

A chart showing volume of oil spills in Nigeria in 2021

“Seplat completed the pipeline from Amukpe to Escravos but still not in use due to commercial issues. Many producers such as ND Western barged crude offshore from Warri in 2016. This remains an option,” WoodMac said.

On how to solve Nigeria’s rising crude theft, the report recommends the increased usage of pipeline inspections using drones, installation of steel cages and closed-circuit television at wellheads and manifolds and water separation at Nigeria’s export terminal.

The report further advised local firms to carry out periodic reviews of security strategies and contracts while also making the usage of Host Community Development Funds implemented by the Petroleum Industry Act, which places a responsibility on local communities to protect infrastructure.

Read also: Oil theft in Nigeria and the enemy within

The report details how onshore operators are spending huge sums of money to secure current production rather than grow it.

Recently, Aiteo Eastern Exploration and Production Company, operators of the Nembe Creek Trunk Line pipeline, threatened to exit the facility due to incessant vandalism, perennial sabotage and outright theft.

“All our current efforts to sustain and increase crude production are being aggressively undermined, even wiped out by the activities of economic saboteurs whose audacity continues to be growing by the day,” the company said.

Voicing his frustration over the problem, billionaire Tony Elumelu, who owns huge stakes in Tenoil, sent out a series of fiery tweets earlier last month, saying: “Businesses are suffering.”

“How can we be losing over 95 percent of oil production to thieves? Look at the Bonny Terminal that should be receiving over 200k barrels of crude oil daily, instead it receives less than 3,000 barrels, leading the operator Shell to declare force majeure which has taken a toll on their businesses,” Elumelu said.

Another prominent stakeholder and founding Managing Director of Seplat Energy, Austin Avuru, released a report last month in which he warned that oil production in Nigeria “is now in an emergency, critical state due to oil theft.”

Putting a value on the loss, the upstream regulator, the Nigerian Upstream Regulatory Commission said that stolen volumes cost Nigeria up to $3.27 billion.

This puts the figure to about N1.36 trillion when converted to naira with the official exchange rate of N416.25/$1 – a development that has forced the country’s crude oil production to go way below quotas given by the Organization of the Petroleum Exporting Countries and benchmark in the 2022 budget.