New report details scale of crude oil theft in Nigeria

A new Wood Mackenzie report has revealed the troubling scale of the crude oil heists in the Niger Delta involving previously unseen volumes, high sophistry, and how operators are scrambling to deal with the losses.

The NNPC had reported that crude oil thefts in 2021 reached 200,000 barrels per day – a quarter of the total onshore production.

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

Thefts combined with export terminal and pipeline shut-downs are limiting Nigeria’s ability to ramp up production and take advantage of high prices.

However, Nigeria has been here before in 2016 as similar outages largely caused by sabotage crimped production. But plans on alternative pipelines have been far too slow to materialize so investors and the Nigerian government are paying a heavy price.

Oil shut-ins also impact associated gas production and sales to the domestic market and Nigeria LNG Ltd.

The Bonny and Brass pipelines in the eastern delta are worst affected, Forcados much less. There was reported systemic crude oil theft on the pipelines.

For example, Heirs Oil & Gas averaged losses of 66 percent from OML 17 in 2021, peaking at 97 percent in December.

Some of the identified hotspots include Imo River and Rumukpe.

The Nembe Creek Trunkline (operated by Aiteo) reported downtime of up to 40 percent. The Offshore ACOES pipeline alternative is under construction but is too late to help in the current crisis.

Eni’s Brass oil pipeline in the northern areas of the Niger Delta was worst affected as local security contractors scramble to contend with an unprecedented number of incidents.

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Eni declared force majeure at the Brass River oil terminal in March 2022 due to pipeline sabotage. The Obiafu-Obrikom and Ebocha facilities are the focal points for sabotage. Pipeline users upstream of these points, face losses of up to 50 percent, the report stated.

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

Some operators have resorted to barging which can only be cost-effective only at a small scale. Barging costs typically US$15 to US$20 per barrel are not cost-effective for large volumes.

“Barging becomes cost-effective when losses exceed 20 percent, provided that oil prices are high enough to cover the additional cost, “ the report noted.

It further states that logistics can limit barging volumes to a maximum of 20,000 barrels per day.

Producers need access to a navigable river and barging jetty, and an agreement with an offshore vessel to export the crude but this is often not available hence the call for longer-term solutions.

The rampant crude oil theft in the Niger Delta is limiting Nigeria’s ability to meet its OPE+ quota. Average production was at 1.3m bpd in 2021 and Nigeria’s quota has been raised in March to 1.72 million b/d “Nigeria is unlikely to help global supply crunch,” the report said.

The report noted that Nigeria’s production is likely to improve in 2022, but underperformance against the OPEC+ quota remains a major risk.