Probing Crude Allocations to Dead Refineries

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SPECIAL REPORT

In the twilight of this past week, Shell was said to have admitted to stealing some of Nigeria’s crude oil. A subsidiary of Royal Dutch Shell, Shell Petroleum Development Company, SPDC, balked and admitted to under-reporting the volume of crude oil it takes out of Nigeria’s oil-rich Niger Delta and shortchanging the federal government in the process. Two authoritative government sources familiar with the development told an online media platform that Shell admitted to the discrepancy following a protracted probe by industry regulator, the Department of Petroleum Resources (DPR), into the volumes of crude oil it reported to the agency that it lifted between 2016 and 2018.This is obviously a tip of the iceberg of stealing of the nation’s oil; going on in the upstream. The downstream theft may not yet be known to Nigerians and perhaps, the government or the management of the Nigerian National Petroleum Corporation (NNPC). In this report, THISDAY investigations reveal a major window in which crude oil is being stolen or diverted daily without anyone in the appropriate quarters paying attention. This massive but silent stealing of crude oil was discovered in the discrepancy spotted in one of the national oil company’s reports. Chris Paul writes

THISDAY investigations have revealed some disconnecting dots in the corporation’s reports, pushing up red flags that have prompted a dig into one of NNPC’s reports for the ordinary Nigerian to, as much as possible, have a clearer understanding of a missing 5.2 million barrels of crude oil in 2018.

Understandably, due to the highly sensitive nature of this investigative report, no one in the industry was ready to make any comment, including the Corporation’s Group Public Affairs Manager who is yet to respond to THISDAY inquiries as at the time of filing this report.

The red flags were discrepancies discovered in the report of the second half of the year, in review, where over five million barrels of crude oil supposedly declared to have been allocated to the Direct Sales Direct Purchase (DSDP) operations were reported to have been allocated to the ailing NNPC local refineries.

The DSDP agreement allows for sales of crude oil to refiners, who will in turn supply NNPC with an equivalent worth of petroleum products. According to the corporation’s release, the deal eliminates middlemen; allowing NNPC to take control of crude oil transactions with its partners.

In a circular it released in 2020, for the 2021-2022 batch of potential bidders, the corporation reiterated that the DSDP bid applies, only to international companies that own a refinery with a capacity to process Nigerian crude oil grades; a globally recognised large volume petroleum product trading company; and a company engaged in Nigerian oil and gas downstream activities with the trading of petroleum product expertise. In other words, the crude stock is meant for refining in refinery facilities outside the country.

Under the sub head, 10 – Year Monthly Crude Oil Pumped to Local Refineries (barrels), table 11 on Page 20 states that in 2018, the local refineries had the following amount of crude oil allocations:

January: 1,813,795, February: 1,594,027, March: 1,311, 840, April: 1,287, 472, May: 2,358,280, June: 2,371,646, July: 1,391,566, August: 132,341, September and October had zero allocations. The supply would resume in the months of November and December with 700,344 and 619,950 respectively; bringing the total supplied to the dysfunctional refineries to 13, 581,261 barrels of crude oil.

As outlined in table 15 of the 2018 report, with the subhead, Quarterly Domestic Refining (Crude oil balance), in the opening stock column, supplies to the refineries came from: Ugheli Blend, Bonny Light, Escravos Light, Urals, Seplat, NPDC Crude and Slop.

In the 3rd quarter, these bodies supplied as follows: Ugheli Blend – 37, 789.20, Bonny Light-657, 834.52., Escravos Light- 930,586.00. Seplat-33,152.00., while the NPDC Crude made no supplies even in the last quarter of that year.

In the fourth quarter, supplies were made in the following order: Ugheli Blend- 37,799.20, Bonny light- 1,146, 611.92, Escravos light- 902,015.60, Urals- 90,975. 60., Seplat-33,152.00., while Slop supplied the third highest in the quarter at 279,263.98.

The total opening stock for the year was 3,057, 573.12.

Although, the arithmetic applied to arrive at the total sum, here, is a bit unclear; that will be another point of inquisition for another day. Similarly, unclear still, is the calculation of crude received.

For instance, under the crude oil received column, Ugheli blend which had a total opening stock of 37,799.20, was reported to have received zero crude oil for the entire year.

Table 16, which is the monthly crude oil receipt column, reports that in September and October 2018 when zero Crude oil was received and processed, in the books, Slop supplied a total of 7,888 in September and 7,754 in October. However, this was not captured as processed in the same months of September and October; as zero Crude oil was recorded for the period. In other words, no stock was processed. So, what happened to the over 15,000 barrels of crude Oil supplied by Slop in September and October 2018?

Under the subhead Quarterly Domestic Refining (Crude Oil Balance)

Details of the sources of these deliveries include a total supply of crude oil from the following:

1. Bonny Light-6,858,364,60

2. Escravos Light – 6, 913,050,40

3. Seplat -23, 369.20

4. Slop – 68, 003, 66.

5. Total – 13, 662,787, 86

Meanwhile, page 21 , 2.4 of NNPC July 2019 report states that over 10.9million barrels, which comes to over 365,000 barrels per day lifted from June 2018- July 2019, were used ‘ in its entirety’ for the DSDP operations.

But in the 2018 report, June, which is supposed to be the month all allocations were sent to foreign refineries on the DSDP arrangements, was the month the local refineries had the largest allocation with 2,371,646.

Except for September and October-the months with zero supply- the refineries had a total of 5,215,847 barrels of crude oil at a period the products were supposed to have been supplied entirely to foreign refineries on the platform of the DSDP.

Unlike the same month of the previous year, in the subhead, 2.4 Utilisation of Crude Oil for Domestic Product Supply of the 2019 September report, NNPC lifted 10,665,632 barrels of crude oil from the daily allocation for domestic utilisation translating to an average volume of 355,521barrels of oil per day in terms of performance.

In order to meet domestic product supply requirement for the month of September 2019, the 10,665,632 barrels in its entirety were processed under the Direct-Sales-Direct Purchase (DSDP) scheme; while no deliveries were made to the domestic refineries for processing. Tables and charts in the report provide details of NNPC’s Utilisation of Crude Oil for Domestic Product Supply for the period of September 2018 to September 2019.

Questions:

1. Where did the over five million barrels go? Who signed them out? Who received them on behalf of the refineries?

2. What informs the quantity of crude oil supplied to the refineries? For instance, why would one month receive more or less than the previous or succeeding month?

3. Two months (September and October) had zero allocations, while the two months before and after them had allocations. Does this not indicate the inconsequential nature of the volume of products from the local refineries relative to the entire product declared for domestic consumption?

4. Does this, therefore, not throw up suspicion that crude supplied to and products refined in the refineries can be diverted and no one will know?

5. What happens to unutilised stock of Crude Oil after production? Nowhere, in the report is there a carryover of unused stock from a previous production round, recorded.

Adopted by the Nigerian government, the direct sale-direct purchase agreement (DSDP), which replaced the controversial oil processing agreement (OPA), was hailed for being a value-adding agreement, which has achieved one of the aims it set out to accomplish – the availability of petrol in the country, which saw the country enjoy five months of uninterrupted fuel supply, in 2018.

NNPC’s former group managing director, Maikanti Baru, had confirmed that the country had been relying almost totally on the agreement to satisfy the country’s demand for refined petroleum products because the Nigerian National Petroleum Corporation (NNPC) is the sole importer of refined products in the country and the cost incurred by the company in two months alone stood at $5.8 billion.

The DSDP agreement is a type of swap whereby a certain amount of crude is exchanged in return for the equivalent amount of refined petroleum products. It typically last for a year and the first DSDP agreement was signed between the corporation and 10 oil companies in May 2017 and would expire in June 2018. But that deal had gone beyond the year of its founding.

These deals had replaced the controversial oil-for-product swaps the corporation entered into under the last administration. NNPC’s use of swaps has also been prone to mismanagement in the past. A report by Natural Resource Governance Institute (NRGI) in 2015 revealed that the contracts under the last administration contained many unclear or unbalanced terms and were sometimes poorly managed. The report also raised questions about some of the companies selected and concluded that NNPC’s oil sales system during this period suffered from high corruption risks and failed to maximise returns for the country’s citizens.

So, the DSDP was introduced to save a situation, the nation found herself, in the previous government. However, the operations of the new deal seem to have thrown up its own discomforting discrepancies that may present a worse predicament for the downstream than the one it is supposed to replace.

The word ‘entirety’ meaning the whole sum or sum total, entire amount or undiminished quantity-in this context- of crude oil, as stated in a 2019 report, gave away clues of certain dots that refused to connect.

In other words, the entire sum of over 10.9 million barrels of crude oil allocated for domestic supply, between June 2018 and July 2019, in the 2019 books were shipped out to foreign refineries on the DSDP arrangement. However, contrary to the claim made in the 2019 report, over 5.2 million out of that sum were reportedly supplied to the local refineries; in the 2018 books of the same oil company.

According to an analysis of its report published in the June 16, 2020 edition of Nairametrics, the Nigerian National Petroleum Company (NNPC) released its audited financial statements for 2018, in which the national oil company noted that its refineries recorded losses of N154 billion.

“The nation’s three refineries located in Port Harcourt, Warri, & Kaduna, reported combined losses of N154 billion. Kaduna Refining and Petrochemical Company (KRPC) incurred a loss of N64.5 billion; Port Harcourt Refining Company (PHRC) recorded a loss of N45.6 billion, while Warri Refining and Petrochemical Company (WRPC) recorded a loss of N44.4 billion. The losses also aren’t new as all refineries performed better than the preceding year 2017,” the publication stated.

The only thing more confounding than the billions in losses, the publication noted, “Was the convenience with which Kaduna refinery conveniently recorded zero revenue for 2018.”

What, then, was the wisdom in allocating about half of one whole year’s supply to refineries that performed so poorly the previous year? Worrisome is the discrepancy in figures and context of these supplies; as it sends a bad signal as to the whereabouts of the 5.2 million barrels that were purportedly allotted to the dysfunctional refineries.

Were they refined in the local refineries? If so, it means a major deal would have been achieved as the refineries would have been celebrated for refining half of the products supplied in that particular year. But none of that happened.

On the other hand, if they had been added in their ‘entirety’ to the DSDP stock as stated in the 2019 report, then it would have been correct.

But then, why would six months of crude oil be said to be allocated to refineries that can barely refine a month’s supply in one report and the same volume of crude oil stock for the same period be recorded as shipped to foreign refineries on the DSDP platform?

This is the crux of the matter for the NNPC to shed light on.

At a closing average of $65 per barrel in 2018, these millions of barrels that seem unaccounted for, may have set the country back $339,030,055.

In a country, where missing millions or billions of dollars of oil money have become one too many, it will be no surprise if this discovery is treated with little or no concern by those who should be concerned.

Another major discovery, in this probe, is the fact that for all the talks about the daily fuel consumption rates surpassing the capacity of the refineries at full production level, the capacity of the local refineries may actually be sufficient to contain domestic consumption of petrol products.

Nowhere, in any of the reports concerning crude oil allocations to both local and the DSDP refinery operations, was it stated that the supplies got any barrel beyond the 445,000 barrels per day domestic delivery limit. In other words, NNPC has actually never gone above the domestic crude oil allocation threshold; yet the nation had never experienced shortage or scarcity of fuel supply at the volume of crude refined for domestic consumption.

To further drive this product self-sufficiency home, not all 445kbpd are used for the DSDP or whatever arrangements or deals the corporation applies to bring refined products home for domestic consumption.

Check out this excerpt, for example:

In NNPC Monthly Financial Operations Report for The Month of December 2018, on page 13, (2.4), Utilisation of Crude Oil for Domestic Product Supply, in November 2018, NNPC lifted 9,293,740 barrels of Crude Oil for Domestic utilisation translating to an average volume of 309,791.33 barrels of oil per day in terms of performance. In order to meet domestic supply requirement for the month of November 2018, about 8,593,396 barrels were processed under the Direct-Sales-Direct Purchase (DSDP) scheme and 700,344 barrels were delivered to the domestic refineries for processing.

According to chart 2.4.2 in the NNPC crude oil utilisation report, titled, Percentage Distribution for November 2018 Domestic Crude Utilisation, while the local refineries utilised 7.5per cent, DSDP scheme utilised 92.5per cent in the period under review.

In the PTD Crude Oil Utilisation for Domestic Product consumption chart, the local Refineries utilized 16.1per cent, while the DSDP scheme utilized 83.1per cent.

What this tells us is that at full operating capacity, the four refineries can still satisfy the petrochemical needs of Nigerians. In the end, this has put a lie to the conflicting figures being bandied by the various bodies managing the nation’s downstream regarding the domestic consumption level of PMS and allied products.

The second discovery has to do with the disparity in the production ratio between the local refineries and the foreign refineries operating the DSDP deal. Considering the negligibly inconsistent volume of contributions by local refineries to the officially ‘touted’ over 80per cent volume of imported products, it would appear that some of the handlers, of the domestic supply side, are hiding under the cloak of the far larger volume of imported products to do as they wish with the crude oil and the near inconsequential percentage of products coming from the refineries at home.

Little wonder, conspiracy theorists suggest that this impunity may have informed the rate of pipeline vandalism by the Niger Delta youths and their counterparts across the nation’s pipeline routes. According to the theorists, the youths may have considered the fact that if crude oil said to be supplied to refineries that have been pronounced unfit for production go an unaccounted for, and without consequence to the bottom line of the nation’s economy, then their operations should be of no consequence to the government.

One hopes these findings will draw the attention of the federal government and the management of the NNPC to these leakages and wastages in a system that is clearly vulnerable to mindless corruption.

But then, this is just a tip of the iceberg. The DSDP arrangement is another issue that promises to throw up issues that challenge the logic behind the deal and the true picture of what the operators of the nation’s downstream define as ‘fuel subsidy.’