Mexico comes a poor second, it loses about 5,000 to 10,000 barrels of oil a day to theft.
The crookery is devastating Nigeria’s economy. This week, the Naira sank to historic lows against the US dollar and the treasury is struggling to meet its foreign exchange obligations.
Until August, Nigeria was Africa’s largest producer of crude oil when Angola overtook it: Angola’s daily average production was 1.17 million barrels a day (b/d) while Nigeria’s was 1.13m b/d, according to Bloomberg News.
At the current rate of attrition due to oil theft and vandalism, Nigeria’s output could fall behind that of Libya, which was producing 1.08n b/d in August.
Nigeria’s oil regulator reports that the country lost 141 million barrels of crude oil, an equivalent of $1bn worth of revenue in the first quarter of 2022. This ballooned to about $10.246bn by the year’s first half.
Shrinking revenues, ballooning debts
Nigeria’s government had targeted revenue of about N9.37trn for the year. This was predicated on a crude oil production figure of 1.399m b/d in January 2022, but by August, the shortfall was well over 300,000 b/d.
This is worsening the country’s fiscal position as the cost of repaying debt exceeds revenue. Figures from Organisation of Petroleum Exporting Countries (OPEC) show that Nigeria reserves dropped by 543 million barrels in 2021.
Despite the passage of the Petroleum Industry Act amidst lingering controversies, companies are reluctant to make new investments. International oil companies continue to sell onshore and shallow water assets to local partners.
Oil theft is booming – despite government efforts
The line between oil theft, weapon smuggling, drug trafficking, kidnapping and terrorism is blurred. The same gangs that steal the oil are smuggling other contraband items in and out of Nigeria.
Some have suborned officials within the security agencies to help them evade interdiction. Most of the oil thieves work with a network of criminal middlemen to find buyers for the stolen cargoes.
The Nigerian government insists it is committed to fighting oil theft, but its efforts are bearing little fruit.
The oil theft business grew from a few amateurs who utilised simple methods in the 1980s, to a very sophisticated industry that uses advanced technologies.
Recently, a new approach was developed by the government, in collaboration with host communities, to protect oil assets.
A pipeline surveillance contract worth N4bn was awarded to a former warlord, Government Ekpemupolo, to enlist the support of host communities to protect the pipelines.
The Nigerian Navy also made a score last month when it seized a supertanker with three million barrels of crude oil off the coast of Equatorial Guinea. The operation testifies to the scale and organisation of the oil theft business in Nigeria as well as its links to the international oil market.
Furthermore, the Nigerian National Petroleum Corporation (NNPC) launched a mobile app for members of host communities to monitor and report crude oil theft in the country.
The Nigerian Maritime Administration and Safety Agency (NIMASA) also plans to deploy two special mission aircraft under the Deep Blue Project to combat oil theft and pipeline vandalism. In August, the Nigerian navy seized a motor tanker (MT) Heroic Idun, owned by Hunter Tankers of Norway trying to load crude oil in Nigeria illegally.
The NNPC and the security agencies have also been using drones and working with a French data firm Kpler, which refers to itself as the CCTV of the Niger Delta, providing satellite imagery of movement of oil cargoes, legal and illegal, across the region.
Few oil thieves are caught
The oil theft business grew from a few amateurs who utilised simple methods in the 1980s, to a very sophisticated industry that uses advanced technologies.
Most of the stolen oil is pumped into barges or boats that sail towards the coast, where the oil is transferred to the super tankers that transport oil internationally.
The Senate Committee on Petroleum (Downstream) yesterday summoned the Group Chief Executive Officer of the Nigeria National Petroleum Company Limited, Mele Kyari, over oil theft.https://t.co/YxGoMED8hm
September 29, 2022Some of the stolen crude is turned into gasoline, diesel and kerosene in makeshift refineries that have proliferated in the creeks of the Niger Delta.
Those operations worsen instability and environmental degradation.
Big oil sometimes colludes in the theft
Many International Oil Companies (IOCs) seem unperturbed about the theft because it does not affect their bottom line. Precision metres are located only at the export terminals, but not at the flow station. This means that whatever happens to the oil between the flow stations and export terminals is unaccounted for.
Under Nigerian law, the companies only pay tax on the volume of oil exported, not on what is produced.
Officials of the Nigerian Extractive Industries Transparency Initiative (NEITI) once bemoaned the practice of computing royalty figures based on lifting figures rather than production figures.
Some IOCs have been accused of collaborating with oil theft operations via a highly wired network of onshore and offshore operators, sellers, and financiers. In turn, the companies complain about poor security conditions.
In March, Shell and Eni, the parent company of Nigerian Agip Oil Company (NAOC), declared a force majeure following an attack on the pipeline, which affected crude oil export from Bonny and Brass cargoes.
Security agencies and politicians are implicated
Officers in the Nigerian armed forces have enabled and benefitted from the oil theft, according to researchers in the Delta. A report by Transparency International revealed that officers in the Joint Task Force (JTF) – from the army, air force, navy and police – who were sent to the Delta region to protect the oil cargoes – were accused of complicity in the theft.
Nyesom Wike, Governor of Rivers State, also claims that politicians and security agencies are involved in the illegal trade. The Chief of Naval Staff has also confirmed the collusion of personnel from the navy with criminal elements.
Multiple media reports point to collusion between highly placed government officials and illicit traders to ship undocumented cargoes of stolen oil to Europe, where it is then passed through a grey zone into the ‘legitimate’ international oil market.
World financial centres launder the stolen crude
Stolen crude is sold in the international market, after which the proceeds are laundered through world financial centres like Britain and the US.
In 2011, the UN High-Level Panel on Illicit Financial Flows – chaired by former South African President Thabo Mbeki – found out that Africa was losing over $50bn a year to illicit financial flows due to tax evasion, corrupt procurement and deliberate trade mispricing.
Despite this, little action has been taken to stem the flows, which are reckoned at about $100bn a year, even as natural resource industries remain among the hardest hit.
This scale of illegal financial flows is undermining revenue and export earnings in Nigeria…
The latest estimates from the Paris-based OECD indicate that each year, €40bn ($38.9bn) in illicit financial flows from the African continent come from extractive industries.
Crude oil theft accounts for 10% of illicit financial flows. This scale of illegal financial flows is undermining revenue and export earnings in Nigeria where the authorities are already grappling with a debt crisis, chronic poverty and fragile public institutions.
International cooperation needed
Major oil producing and trading countries could offer Nigeria valuable expertise to counter the theft.
Outfits like the Extractive Industries Transparency Initiative (EITI) can play an important role. EITI showcases Nigeria as an implementation success story globally while criminality continues to plague the country’s oil and gas industry.
One commentator insists that English courts could help trace the illicit funds and track the thieves.
UN agencies […] should designate Nigerian stolen crude as ‘blood oil’.
India has used technology by installing sensors and surveillance systems to foil oil theft attempts. In 2015, a firm based in India offered to assist Nigeria in fighting oil theft and pipeline vandalism.
Saudi Aramco’s video surveillance model could also be adopted.
Agencies, such as the UN Conference on Trade and Development and United Nations and UN Office on Drug and Crime, should designate Nigerian stolen crude as ‘blood oil’.
Oil theft is a channel of illicit financial flow that endangers the achievement of the UN’s sustainable development goals (SDGs) in Nigeria and elsewhere.
India could use its forthcoming tenure as president of G20 to rally the world’s biggest economies and traders to reject Nigerian crude oil that comes from unauthorised sources.
The opening of the Dangote Refinery and rehabilitation of state-owned refineries may allow Nigeria to end reliance on imported fuel, but missed deadlines and oil theft mean that the process is unlikely to be simple, writes @Olurounbi. https://t.co/OZGW93qiiJ
— African Business Magazine (@AfricanBizMag) September 28, 2022New technology used on an international scale – such as fingerprinting oil, blocking banks from lending to oil thieves, and freezing assets – would help.
Without international help and coordination, the devastation of oil theft in Nigeria will continue wrecking the country’s prospects of financing developing and turbo-charging instability.
However, the toughest actions must start at home – to ensure that our security agencies and armed forces have the equipment and the honest leadership they need to take on the oil thieves in the Delta and on the high seas.
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