Taming the Monster of Oil Bunkering and Gas Pipeline Vandalism

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Stolen crude oil in drums

A recent revelation by the Nigerian National Petroleum Corporation (NNPC) that it recorded 77 per cent rise in cases of oil pipeline vandalism in June 2019 has validated Nigeria’s rating in the global oil and gas industry as a high-risk environment. Ejiofor Alike reports

The Nigerian National Petroleum Corporation (NNPC), had in a startling revelation in its latest Monthly Financial and Operations Report (MFOR), disclosed that 106 pipeline points were breached in its pipeline network, representing an increase from the 60 points vandalised in May 2019.

Spokesman of NNPC, Mr. Ndu Ughamadu, identified the Aba-Enugu axis in the system 2E pipeline corridor for its notoriety in vandalism, saying that the corridor accounted for 25 per cent of the total pulverised points.

Lagos Atlas Cove-Mosimi axis of the system 2B, the most active pipeline network, which accounts for 60 per cent of petroleum products supplies in the country, had accounted for 23 per cent of the compromised pipeline points, according to NNPC.

NNPC had further revealed that Ibadan-Ilorin leg of the System 2B pipeline accounted for 18 per cent of affected lines, followed by the Port Harcourt -Aba section of the system 2E, which was responsible for 13 per cent of the affected pipeline.

The remaining network across the country accounted for the remaining 21 per cent of cumulative line breaks, NNPC said.

Pipeline vandalism is not limited to the lines within the downstream and mid-stream sectors.

NNPC raised the alarm on the vandalism of petroleum products pipelines because the over 5,000 kilometres of this pipeline network across the country belongs to the corporation.

In the upstream sector, the IOCs-operated joint venture assets that belong to the NNPC and the international oil companies (IOCs) are being vandalised by oil thieves and others who engage in acts of sabotage.

Crude oil and gas pipelines have always been targeted by vandals, who breach the lines to scoop crude oil for local refining in illegal refineries or for sale to international syndicates operating on the high seas.

In several cases in the past, the pipelines were simply targeted for destructive attacks by militants and other criminal elements to press home their demands from the government or the oil companies.

Such destructive attacks on gas pipelines had plunged the country into darkness as it disrupted the supply of gas to the gas-fired power generating plants across the country.

At the peak of the destructive attacks on oil facilities in 2016, Nigeria’s oil production dropped by over one million barrels per day.

This followed the subsea attacks on Trans Forcados oil pipeline by the Niger Delta Avengers (NDA), which crippled the operations of several producing companies operating in the western Niger Delta with many of these companies recording zero production in the year.

This development halted loading activities at the Forcados Export Terminal.

Trans-Forcados Pipeline, which is operated by Shell Petroleum Development Company (SPDC), belongs to the Nigerian Petroleum Development Company (NPDC), a subsidiary of NNPC.

Some of the companies affected by these attacks on the Forcados pipeline include: Shell, Seplat Petroleum Development Company Plc, Shoreline Resources Limited, Neconde, First Hydrocarbon Nigeria (FHN) and NPDC.

Some marginal field producers such as Pillar Oil, Midwestern Oil and Gas, Platform Petroleum and Energia also convey their crude oil through the pipeline.

In the eastern Niger Delta, the Nembe Creek Trunkline (NCTL) and the Trans Niger Pipeline (TNP) have consistently suffered destructive attacks, which forced the producing companies to declare force majeure in crude shipments to European, Asian and American customers through the Bonny Export Terminal.

Aiteo E & P, the new owner of NCTL had declared force majeure on several occasions in recent times due to incessant acts of sabotage on the trunkline.

Indeed, since the first highly coordinated attacks on oil facilities and high-profile abduction of oil workers in February 2006 by the Movement for the Emancipation of the Niger Delta (MEND), Nigeria’s daily oil production has not recovered to the pre-militancy level of 2.5 million barrels per day recorded in 2005 due to oil theft and destructive attacks on the pipelines.

In that spectacular attack which shook Nigeria’s oil and gas industry, MEND set an oil barge ablaze, and seized nine expatriates – three Americans, two Egyptians, two Thais, a Filipino, and a British.

Willbros, a United States oil services company, which was the worst hit by the attack, relocated from Nigeria after MEND released its expatriated staff seized in the attack.

With the Amnesty Programme introduced by the federal government in 2009, abduction of oil workers and destructive attacks were reduced, but oil thieves have continued to have a field day.

After scooping oil, these vandals lack the technology to fix the pipelines, thus leading to oil spills , environmental pollution and huge economic losses by the government and the companies.

To secure the oil and gas workers and installations in the Niger Delta, the federal government had constituted the Joint Task Force (JTF) in the oil-producing region.

But it is increasingly apparent that the security forces in the region have become part of the security challenges by their complicity in crude oil theft.

To underscore the economic impact of vandalism on the country, the National Economic Council (NEC) at the weekend raised the alarm that Nigeria lost 22 million barrels of oil to vandalism in the first six months of 2016.

During a meeting at the NNPC Towers in Abuja, the Governor of Edo State, Mr. Godwin Obaseki, who is the Chairman of the Ad-hoc Committee of NEC on Crude Oil Theft, Prevention and Control, called on stakeholders to join forces and work towards eradicating the menace of crude oil theft that is currently on the upward swing in the country.

Obaseki, who painted a dire picture of the oil theft menace, stressed that if nothing was done to curtail the ugly trend, the figure could double by the end of the year.

He said the twin menace of oil theft and pipeline vandalism was beginning to pose a threat to the national economy.

The meeting had in attendance the Group Managing Director of NNPC, Mallam Mele Kyari, and representatives of the governors of Delta, Bayelsa, Ondo, Cross River, Akwa Ibom and Rivers States.

Also in attendance were representatives of the Police, Navy, Army, Civil Defence and the International Oil Companies (IOCs) and some indigenous operators.

Vandalism has made Nigeria a high-risk environment in the global oil and gas business.

From the Gulf of Mexico, UK’s Red Sea, to the Persian Gulf, no oil producing region faces such country-specific risks like the Gulf of Guinea, which is largely dominated by Nigeria’s Niger Delta.

With the number of risks oil and gas operators face in Nigeria, the country has also become a high-cost environment where operators provide their own security to secure their employees and infrastructure.

Apart from insecurity, the operating environment is not globally competitive due to lack of competitive fiscal policy, a robust legal framework and a

healthy contract integrity culture, which are the key drivers to profitability and attracting huge investments.

Operators’ Perspectives

To the oil producing companies operating in Nigeria, under the aegis of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industries (LCCI), there are fixes that must be put in place if the country aspires to reverse the trend and expand the current investment profile in the Nigerian hydrocarbon industry.

The Chairman and Managing Director of the ExxonMobil, Mr. Paul McGrath, who is also the Chairman of the OPTS told a conference organised by energy reporters in Lagos recently that Nigeria’s oil and gas industry faces many challenges.

He identified the challenges to include high costs, poor functional refineries, downstream deregulation,

transparency issues , crude theft, pipeline vandalism, pollution in the Niger Delta, Petroleum Industry Governance Bill, fuel pricing, and inadequate pipeline infrastructure .

According to him, operating risks peculiar to the country’s environment have continued to drive the costs of oil and gas projects above the global benchmark.

He noted that Nigeria ranks amongst the top 10 countries with highest cost of producing oil and gas- equivalents per barrel.

He stressed that high cost was a major disincentive to invest, especially at this time of considerable global competitiveness.

‘’Operating costs are increasing due to an attendant increase in required maintenance and well work-overs. Security cost are escalating as peculiarities of the business environment require additional resources be deployed to secure our people and asset,’’ he explained.

McGrath emphasised that for Nigeria to remain profitable it needs to collectively consider modalities and mechanism for cost reduction.

“Also our governments at respective arms and tiers , will need to institute stable and policy frame work that can compete globally,” he added.

Indeed, a study conducted by the OPTS had identified these cost drivers to include insecurity, over regulation and bureaucracy; and absence of infrastructure.

Indeed, insecurity, especially in the oil-producing Niger Delta region, posed the greatest threat to the survival of the oil and gas industry in Nigeria, and has inflated the costs of projects beyond global average.