Oil & Gas
Apart from the issues of dwindling revenues, security challenges, weak infrastructure, rising inflation, high cost of production, which the country had been battling for some time now, the worsening cases of oil theft may trigger another crisis if it is not urgently tackled.
By Goddy Ikeh
MANY sectors of the Nigerian economy have, in the last seven years, been deeply broken and this development has contributed to the harsh economic environment and the worsening insecurity in the country. Unfortunately, the Nigerian oil sector, which is the mainstay of the country and accounts for about 95 per cent of the country’s export earnings and about 40 percent of the government’s revenue, has not been spared and the consequences are enormous. Already, oil theft, which is one of the looming challenges in the sector is threatening crude oil production as some operators are being compelled to shut oil wells.
Commenting on this ugly development, the Minister of State for Petroleum Resources, Timipri Sylva, lamented that Nigeria’s situation has become, “precarious” because of the multitude of challenges besetting the oil sector.
Sylva told The Energy Year, a market intelligence organisation, that while Nigeria is tackling the challenges, the damage being done by vandals is eroding investors’ confidence in the oil and gas industry. “Our biggest problem is the insecurity of our pipelines. There is a lot of pollution due to oil theft and pipeline vandalism, which has placed us in a precarious situation.
“It is our duty to ensure that we can tackle this issue, which is mainly a question of law and order rather than production. Once solved, all the production that has been lost will get to our tanks, while restoring investors’ confidence in Nigeria,” he said.
According to the minister, while the goal was to restore Nigeria as the leading crude oil producer in Africa, if the country can tackle security and technical issues, it should be able to ramp up production to 2.6 million bpd, and in the long run, boost it to three million bpd.
He reiterated that Nigeria has not been able to meet its production quota because it was finding it difficult to restart oil wells it shut down in the heat of the Covid-19 pandemic.
The minister recalled that during the pandemic, “OPEC asked us to bring down production because oil prices were at a historical low. Unfortunately, Nigerian reservoirs react in a particular way, and when you want to shut down 100,000 bpd, you end up shutting down 300,000 bpd to achieve the desired 100,000 bpd. As a consequence, the drop has been drastic.”
He added that as a country, Nigeria was not taking full advantage of the high oil prices because production is not meeting expectations.
“We are now in a very disturbing situation where we cannot meet our OPEC quota, but we are working assiduously on this by looking at all the relevant issues. For example, we are tackling the problem of crude oil theft, which has seriously affected our production,” local media reports quoted the minister as saying.
In the same vein, the Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission, NUPRC, Gbenga Komolafe, told the Iwereland Petroleum Communities Summit on the implementation of the Host Communities’ Development Trust in oil producing Itsekiri communities under the Petroleum Industry Act (PIA) 2021 hosted by the Olu of Warri, Ogiame Atuwatse III, that only about 1.35 million barrels or 71 per cent of the 1.9 million barrels that Nigeria produces were getting to the crude oil export terminals due to massive theft and pipeline vandalism.
He explained that the challenge is hindering Nigeria from meeting her crude oil output capacity and that out of about 141 million barrels of crude oil the country produced during the period, about 9 million barrels were lost to crude oil theft.
According to Komolafe, given the prevailing price of an average of about $116 per barrel at the international crude oil market, and the official exchange rate of N415/$, the loss sums up to about N434 billion. “While the commission is prioritizing efforts towards increasing oil and gas production and ensuring maximum economic recovery in Nigeria through the optimisation of oil and gas value chain, there have been challenges limiting the country from making the much-desired progress.
He added that Nigeria has under-produced for months now and it had been unable to meet the Organisation of Petroleum Exporting Countries (OPEC) quota and that the country has not been able to reap the full benefits of the rising oil prices.
He lamented that the loss to oil theft could have been available for development of social projects like hospitals, schools, roads, provision of electricity and potable water, to improve the quality of life of the people. Beyond the loss in revenue, he said the sabotage of oil and gas facilities had resulted in additional remediation cost to the government as well as environmental degradation from oil spills.
In addition, he listed soil and water pollution, threat to human life, source of livelihood, wildlife and marine life and crops as some of the impacts of the increasing theft of Nigeria’s oil.
These losses, according to him, underscores the need for the government to optimise oil and gas resources development and production through the passage to law of the Petroleum Industry Bill, PIB, after more than 20 years.
Speaking on the benefits of the PIB Act, Komolafe stated the enactment of the PIA opened new opportunities in the country’s oil and gas industry with extensive provisions to foster sustainable prosperity of host communities and enhance peaceful and harmonious co-existence of oil companies with their host communities.
He, however, cautioned that the illegal operations result in billions of dollars lost in terms of revenue to the oil companies and the federal government and the devastating impact of the oil spills on the environment.
In addition, Komolafe has raised alarm that operators in the Nigerian oil sector are now shutting oil wells and pipelines due to rising cases of oil theft and vandalism of oil and gas pipelines and that this will affect the country’s production capacity.
Speaking recently at the Lagos Chamber of Commerce and Industry (LCCI) public-private dialogue on crude oil theft and artisanal modular refineries, Komolafe said that the country’s level of crude oil theft was estimated at a daily average of 108,000 barrels in 2022.
According to him, the effect of the level of theft has resulted in the declaration of force majeure at Bonny Oil & Gas Terminal, BOGT, and shut-in of wells from fields evacuating through the Nembe Creek Trunk Line, NCTL, and the Trans Niger Pipeline, TNP, noting that similar trend has continued in 2022.
He added that the monumental scale of losses arising from crude oil theft had created a hostile environment and disincentive to investors in the Nigerian upstream oil sector and magnitude of divestments in the industry. He explained further that many operators had undertaken deliberate shut of wells, facilities and pipelines, which had further exacerbated the low production scenario.
“It is instructive to note that the above challenges have also impacted gas production, both for domestic utilisation and export. It is worthy to state that an unprecedented level of theft estimated at a daily average of 103,000 barrels was recorded in the year 2021 and 108,000 barrels in 2022.
“Consequently, only 58 per cent of the technical rate was achieved in 2021 and similar performance has continued in 2022 hence the need for more concerted efforts across all quarters to stem the tide,” the report by Guarding newspaper quoted Komolafe as saying.
He pointed out that unfortunately, only 132 million barrels of oil was received at the terminals, indicating that over 9 million barrels of oil were lost to crude oil theft, amounting to a loss of $1 billion in the first quarter of 2022.
In his remarks, the president of the LCCI, Michael Olawale-Cole, observed that in recent years, Nigeria had been battling with dwindling revenues, security challenges, weak infrastructure, rising inflation, high cost of production, and a burdening and unsustainable fuel subsidy.
He noted that crude oil theft has taken a worrisome dimension, spiking production costs to $32 a barrel, losses from pipeline vandalism and theft are overwhelming International Oil Companies (IOCs). Several indigenous oil firms contend with rising operational expenses driven mostly by personnel, maintenance and security costs.
“There are also concerns about the culpability of the nation’s security agencies, noting that barges of oil cannot be stolen and moved on the coastal waters without the collaboration of some powerful stakeholders,” he said.
According to him, the menace of oil theft has become a national disaster and a critical threat to the nation’s revenue base and that various reports confirm that the Bonny Terminal Network, Forcados Terminal Network, and Brass Terminal Network are major routes for this organized crimes.
The LCCI president said the Chamber has consistently advocated the removal of fuel subsidies and full deregulation of the petroleum downstream sector to attract required investments into the sector. He also warned that no investors would want to invest in an industry where they cannot even recover their cost of production. “While we expect some respite from the commencement of commercial private sector refining and modular refineries, we call on the regulators to ensure a conducive business environment that supports these investments coming on stream soon,” he added.
However, the Nigerian Navy has been battling the oil thieves. In April this year, the Nigerian Navy commenced what it described as its biggest operation aimed at putting an end to oil theft and illegal refining in the Niger Delta, with the deployment of 40 ships, five helicopters and 200 boats for “Operation Dakatar Da Barawo” across the region. The Chief of Naval Staff, Vice Admiral Awwal Gambo, who was represented by the Chief of Policy and Planning, Naval Headquarters, Abuja, Rear Admiral Saidu Garba, while flagging off “Operation Dakatar Da Barawo” on board the Nigeria Navy Ship, Okpabana, in Onne, Rivers State, said that the move was to intensify previous efforts, as the nation was bleeding as a result of huge losses to the menace of oil theft.
He disclosed that Nigeria lost about $3.2 billion in the last 13 months to crude oil theft and illegal bunkering.
And in May this year, the Nigerian Navy announced that troops of Operation Dakatar Da Barawo recovered over 3,500 litres of stolen crude, among others. Its spokesman, Commodore Adedotun Ayo-Vaughan, stated: “Particularly, Nigerian Navy Ship (NNS) Soroh, at Yenagoa on April 23, 2022, during a patrol of Mbiama, Kiama and Sagbama axis, discovered two empty tanker-trucks close to Sagbama waterside which is neither a loading site nor a tank farm. The two trucks were therefore neutralised.
“Similarly, the base intercepted a market boat at Odioma-Diema axis along Akassa- Brass route. The boat was laden with over 3,500 litres of suspected crude oil products concealed in drums and gallons, which were subsequently evacuated to a river bank and neutralised accordingly.” He disclosed that “NNS DELTA in Warri on April 25, 2022 deactivated an Ilegal refining site around Sara creek in Warri South West Local Government Area (LGA).”
Apart from oil theft, the other challenges confronting the country’s oil sector include exodus of the international oil companies, which had operating in the country for decades and the ongoing global campaign for a shift from fossil fuel to more environmental friendly energy sources. Some Nigerian officials have expressed concerns on the effects of these challenges to the troubled Nigerian oil sector.
For instance, Sylva in his reaction said: “The IOCs are leaving Nigeria because the environment was becoming too volatile for their operations.” According to him, while Nigeria is tackling the challenges, the damage being done by vandals is eroding investors’ confidence in the oil and gas industry. “Our biggest problem is the insecurity of our pipelines. There is a lot of pollution due to oil theft and pipeline vandalism, which has placed us in a precarious situation. It is one of the biggest reasons why IOCs leave Nigeria. They (IOCs) feel that our industry is becoming too volatile and a significant polluter. The criminals who rupture our pipelines to set up illegal refineries, which are not regulated are seriously damaging our environment.”
For the Group Managing Director of the Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, the International oil companies are leaving Nigeria and shifting their portfolios to where they can add value to the journey towards carbon net-zero commitment.
Speaking at the 2022 Nigerian International Energy Summit (NIES2022) in Abuja, Kyari said: “Companies are divesting. They are leaving our country. That is the best way to put it. They are not leaving because opportunities are not here, but because companies are shifting their portfolios where they can add value and not just that, but where they can also add to the journey towards carbon net-zero commitment.”
On the way forward, Komolafe disclosed that there are ongoing efforts to enable the industry to deliver government’s production target of three million barrels daily in three years, noting that the commission had developed some key initiatives aimed at reducing the menace to the barest minimum.
“A roadmap for tackling the insecurity challenges in the industry, identifying and implementing areas of collaboration between government and operators in ensuring that operators realize their full production potentials,” he said.
He said there is a massive collaboration with the top civil echelon of the Nigerian security forces for a robust security that ensures provisions of adequate security.
He advocated a refinery regulation in terms of establishment of more modular refineries, adding that the activities of artisans in crude oil are done outside the ambit of the law and absolutely below acceptable minimum standards of technology in the 21st century.
According to him, such activities must be curbed for the preservation of economic, health and safety of affected communities, as high levels of risks would be recorded should they be continually indulged. “Activities of artisans should better be engaged through the establishment of modular refineries,” he said.
KN
Tags: Gbenga Komolafe Goddy Ikeh LCCI Mele Kyari Michael Olawale-Cole OPEC Timipri Sylva Vice Admiral Awwal Gambo
