The Federal Government’s reliance on the International Oil Companies (IOCs) or indigenous operators to determine the quantity of oil it produces and exports is negatively affecting the country’s crude earnings.
Oil metering is one of the critical elements in the hydrocarbon value chain considering that it provides the production data upon which federally collected revenues such as royalty and Petroleum Profit Tax (PPT) are calculated.
Accurate metering of hydrocarbon streams has direct bearing on the revenue of both the operators and the government. However, despite its importance, hydrocarbon metering has been a problem in Nigeria’s petroleum industry.
Nigeria Extractive Industries Transparency Initiative (NEITI) in its audit reports 2012-2015 said Nigeria lost over $9.89 billion worth of crude oil due to poor metering infrastructure. Within this period, over 107 million barrels of oil were not properly accounted for. The latest figures show that Nigeria loses over 250,000 barrels of crude oil per day to oil thieves, which translates to over $25 million daily in revenue.
The oil and gas industry watchdog says that unless government takes appropriate measures, limitations in the metering of crude oil production will continue to pose a serious threat to the nation’s revenue target.
Findings by BusinessDay show that the government has no multi-phased, calibrated meters at oil wellheads, flow stations and export terminals to determine the quantity of crude oil produced and exported by the International Oil Companies (IOCs).
What this means is that the machines that monitor loading into the vessels are owned, calibrated and operated by the IOCs without any form of supervision or participation by any government agency.
According to NEITI, Nigeria is the only oil-producing country without adequate metering to ascertain the accurate quantity of crude oil produced at any given time. This has raised serious concern over issues of transparency and accountability in the oil industry regarding the quantity of crude oil production in Nigeria.
Nigeria lacks comprehensive and independently verifiable metering infrastructure, thereby relying only on the information provided by the IOCs or indigenous operators for production figures, even though the Department of Petroleum Resources (DPR) has always insisted it has the situation under control.
“In our Lagos office we have a track record of all the oil vessels leaving Nigeria,” Wole Akinyosoye, DPR’s Lagos zonal operations controller, said at the zone’s 2019 Annual General Meeting in Lagos recently.
Ibe Kachikwu, immediate past minister of state for petroleum resources, had said the DPR and the Economic and Financial Crimes Commission (EFCC) were gathering data to track specific vessels lifting crude oil from Nigeria.
“It’s a collusion thing between DPR and IOCs; the crude oil losses through poor metering is always through the backdoor,” Niyi Awodeyi, CEO at Subterra Energy Resources Limited, said.
Awodeyi said the amount of crude oil Nigeria loses through poor metering is always discovered at the offload points in other countries that receive the crude because those countries use technology, unlike Nigeria where it’s still being done manually.
“The DPR will always insist they are metering. However, until we start using 100 percent technological metering which will definitely cost us more money to implement, we will never solve the problem of crude oil theft,” Awodeyi said.
Experts, who believe that Nigeria is being short-changed, have questioned the production figures from the operators, which the country has relied on since crude oil production began in the country.
“The fact that government could realise only 58 percent of its projected revenues from January to June 2019 is a confirmation of how inadequate oil production can cause huge losses in revenue,” Charles Akinbobola, an energy analyst at a Lagos-based energy firm Sofidam Capital, said.
In order to discover the level of rot in the system, a team of researchers from NEITI visited four export terminals and Port Harcourt Refinery Company as part of a fact-finding mission to cover the upstream and the downstream sector. The terminals visited were Quo Iboe (QIT), Brass, Escravos and Forcados which were selected with the consideration that their combined crude oil export is more than a third of total national export.
“We gathered that the meters were operated and maintained in compliance with the DPR guidelines. However, quantification of measurement uncertainty which is common practice globally is not practised by the operators. The implication of this is that the confidence in the measurement infrastructure cannot be ascertained,” researchers at NEITI said.
NEITI researchers recommended that multiphase flow meter be used for measurement of field production instead of relying on periodic well-testing for allocation of production to the fields.
“In this case, the multiphase meter should be installed between the production platform/flow-station and the export terminal for continuous measurement of production from the field. This also has the advantage of improving production management and control, leading to higher production and resulting in higher revenue to both the government and operators,” NEITI said.
The researchers from NEITI, the industry watchdog, acknowledged that although the Petroleum Act of 1969 says royalty is a field-by-field basis, it’s not clear if the allocation of production to the contributing oil and gas fields is properly performed suggesting an apparent lack of proper production accountability per field.
“Allocation of production by terminal operators to the third-party (the producing companies who export through their export terminals) need to be addressed. Allocation of crude oil and natural gas to the contributing fields form the basis for royalty calculation and should be determined on a continuous basis using a flow meter with low measurement uncertainty,” NEITI said.
“Multiphase flow meters are used in some offshore installations in Nigeria; DPR should incorporate guidelines for multiphase flow measurement. Perhaps, a study of their performance should be commissioned by DPR, and the findings could then be used in developing guidelines for their use,” NEITI recommended.
DIPO OLADEHINDE
