From Small to Big Time Business

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Crude oil theft which started some 20 years ago as small time business in Nigeria is now a going concern with sophistry

By Maureen Chigbo  |  Nov. 26, 2012 @ 01:00 GMT

CRUDE oil theft is now the buzz word in the oil and gas sector unlike before, when Niger Delta militants threatened the major source of revenue to the federal government. At the height of militancy in 2009, Niger Delta militants made life unbearable for major oil producing companies in Nigeria including Shell Petroleum Development Company, SPDC, Agip, Mobil and Chevron as their workers were kidnapped and some died in the process. Then oil production dropped to 1.3 million barrels per day compared to 2005 when it was more than three million barrels per day. The federal government, through the amnesty programme, checked militancy in the region.

But now the government is scratching its head on how to tackle the perennial crude oil theft which started festering in the late 1990s but now growing. The fact is that in the last 22 years, the country has lost billions of naira to crude oil theft even though Andrew Yakubu, group managing director, Nigerian National Petroleum Corporation, NNPC, early November said Nigeria was producing about 2.7 million barrels of oil per day.

The sad news, however, is that the country is losing a lot of what it is producing to oil thieves. Nowhere is this sorry development more captured than in the recent report the Petroleum Revenue Special Taskforce, led by Nuhu Ribadu, former chairman of the Economic and Financial Crimes Committee, EFCC. The final report, which is in possession of RealNews, said that "the illegal activity of hydrocarbon theft in the petroleum industry is both an organised and on-going enterprise. The phrase "vandalisation" should be expunged from the reporting of this activity because it tends to trivalise the purpose and severity of the hydrocarbon theft".

[caption id="attachment_743" align="alignright" width="307"]Diezani Alison-Madueke Diezani Alison-Madueke[/caption]

Hydrocarbon theft is a major source of loss of revenue to the federal Republic of Nigeria,” the report said. Hydrocarbon theft was found by the Task Force as being a major and chronic source of revenue loss to Nigeria. From the Task Force’s review and briefings received, it was evident that small scale pilfering of crude and refined products, illegal refining, and large-scale theft involving barges and boats have been endemic since the late 1990s.

Significant “over-lifting” at crude export terminals is also alleged, as is theft from tank farms, refinery storage tanks, jetties and ports. “In these latter cases, submissions to the Task Force alleged, that officials and private actors disguise theft through manipulation of meters and shipping documents. Bunkering operations can be complex”.

The committee said past attempts to address theft have made only limited progress. “Criminal prosecutions to date have reached no higher than the level of transport or operations. The recent arrest of 22 Ghanaians and five Nigerians caught stealing 25,000 MT of crude in two boats is laudable, for instance, but law enforcement efforts need to reach much higher,” it said.

From the task force view, protecting Nigeria’s petroleum infrastructure from theft and sabotage presents a tremendous challenge. “No one actor can secure everything. PPMC alone maintains 5120km of above-ground pipelines. Difficult terrain, poor community relations, and high operating costs, all complicate matters further. Yet there is also evidence that members of the security forces condone and, in some cases, profit from theft. The void in effective security appears to increasingly hand over control of coastal and inland waterways to undesirable elements.” In view of the rising costs, the committee recommended an urgent review of available policy options together with serious commitment to act.

Theft of crude oil and refined petroleum products may be reaching emergency levels in Nigeria. The Task Force received reports suggesting that volumes stolen have risen dramatically in the past 12-18 months. The Royal Dutch Shell Company, Shell in its presentation to the task force, stated that an estimated 150,000 barrels of crude oil are stolen per day (about 6 percent of Nigeria's total annual production) causing a revenue loss of $13.5 million per day (at $100 per barrel) which amounts to $5billion per year of lost revenue.

On the other hand, high ranking officials and executives in the federal government tasked with the management of the nation’s strategic oil and gas assets have several times stated the existence of large-scale on-going theft of Nigeria’s crude oil. This represents government’s acknowledgment of the magnitude of the loss. The report quoted Leke Oyewole, a senior special adviser to President Goodluck Jonathan on Maritime Affairs, as disclosing to the media in March that Nigeria loses about 40 million metric tonnes of petroleum products amounting to about $20 billion (N3 trillion) to crude oil theft and illegal bunkering; while the NNPC has publicly stated that it spent $1.2billion in the last 10 years on pipeline repairs.

It also quoted Deizani Alison-Madueke, minister of petroleum resources, as saying at a media briefing in May 2012, that the country was losing about $7 billion annually to crude oil theft in Nigeria, at the rate of 180,000 barrels per day. “Indeed, President Goodluck Jonathan has acknowledged the scale and seriousness of crude oil theft in Nigeria as being incomparable to anywhere else in the world, describing the occurrence as being cancerous to the nation’s economy.

The ministry of finance has taken a middle ground, stating that theft claimed 17 percent of daily production nationwide in April. Overall, estimates of crude oil stolen or spilled reviewed by the Task Force ranged from 6 to 30 percent of production, with 35 percent claimed for one especially troubled area” the report said, adding, “Based on these estimates, the Task Force believes Nigeria could be losing over N1tn per year to crude oil theft”.

The Task Force said it did not endorse any of the numbers it received as solely authoritative. “The bases for many were unclear, and the decentralised, secretive nature of oil theft makes it difficult for any one party to know the full extent of losses. There is a lack of consensus on the actual loss, naturally public records are not satisfactory in this regard but it could actually be as high as 250,000 barrels per day closer to 10 percent of daily productions,” the committee said. However, submissions to the Task Force on oil theft suggest that the problem needs immediate attention.

The NNPC and oil company data show dramatic recent rises in theft and sabotage. For example, Shell claims it found at least 50 tap points on its 90km Nembe trunk line in January 2011 alone. Shell submissions to the Task Force showed average total losses in its operational areas climbing from 10,000bpd in late 2009 to over 50,000bpd in March 2012. Chevron reports 29 tap points for the year so far, and claims that volumes lost from its operations in Q1 in 2012 exceeded losses for all of 2011.

[caption id="attachment_745" align="alignright" width="378"]Crude oil thieves in the Niger Delta responsible for several pipeline Crude oil thieves in the Niger Delta responsible for several pipeline[/caption]

The NNPC put its total losses from 2009 to Q1 in 2012 at over 20mn barrels. It appears small-scale theft and illegal refining are also becoming more decentralised and wide spread, though losses from such practices remain relatively small compared with the more sophisticated large-scale theft rings. In one striking example of rising costs, NNPC data shows that the value of stolen crude along the 60km Forcados-Warri refinery supply pipeline was 600 percent higher in 2011 than in 2010. Total losses were N60 billion from this pipeline alone—or N1bn of oil stolen per km of pipeline. These incidences of crude theft also delay the realisation of revenues by deferring production. Shell has declared force majeure on onshore liftings five times since early 2011, all reportedly linked to illegal bunkering. On December 2011 stoppage, allegedly caused by two failed pipeline taps, took a month to fix and deferred over 4 million barrels. Damage to infrastructure also causes long-term production deferments. Government data shows dozens of fields sabotaged before the amnesty still sit idle. Shell’s onshore output—currently around 600,000bpd—is barely half of 2005 levels. In Delta State, Chevron still produces one third less oil than it did in 2008.

The Task Force did not receive comprehensive figures documenting volumes of refined products stolen or spilled, but NNPC reports that thieves stole 3.2 million metric tons of products from its pipeline network between 2001 and 2010. Stolen amounts appear to be growing. In NNPC’s submissions, the Task Force was informed that about 40 percent of products currently channelled through pipelines are lost to theft and sabotage.

Wilful damage of downstream infrastructure has also spiked as of late. The PPMC recorded 4,468 product pipeline breaks in 2011; 98 percent of them from sabotage. This is a sharp increase over 1,746, the average number of sabotage cases logged between 2001 and 2010.

Theft of products at import points also appears endemic. For example, submissions to the Task Force claimed that as much as 5,000 MT of a typical cargo of petrol can be stolen at ports and jetties, offloaded into light vehicles. In a worrying trend, organised theft of products has also spread far beyond the Niger Delta. Petroleum Products Marketing Company, PPMC, recorded sizable losses on its Mosinmi-Ibadan-Lokoja line in 2011. The Jos-Gombe-Maiduguri line also saw theft, and pipeline sabotage around Atlas Cove in Lagos is chronic. Organised theft of refined products also denies Nigeria significant revenues, though the Task Force did not receive comprehensive figures. PPMC values the products stolen from its pipeline network between 2001 and 2010 at N178 billion. It is alleged that when products are stolen at ports and jetties, inspectors sign discharge sheets for the full landing amount, which allows importers to collect fuel subsidy on stolen products.

The task force noted that the NNPC withholds oil revenues from the Federation Account to cover costs associated with theft and pipeline sabotage. Data from the NNPC shows huge increases in recent periods, it said.

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