The Nigerian economy is currently gasping for breath and in search of rescue owing to the surge in oil losses resulting from activities of oil thieves and their collaborators. More than anytime in the nation’s over 60 years oil production history, the current menace has reached an alarming and unprecedented level and therefore demands urgent attention, writes Peter Uzoho.
It keeps getting worse by the day for Nigeria’s oil and gas industry, particularly the operators in the upstream, including exploration and production companies, oil majors and independent producers alike.
The cases of oil theft, pipeline vandalism and sundry attacks on oil assets in the Niger Delta by oil thieves who also embark on illegal bunkering, are taking a heavy toll on not only the operators but on the nation’s economy and community development among others.
Many stakeholders had raised the alarm on the massive losses being incurred on a daily basis and the danger of such on future investments in the industry.
The gale of divestments by the international oil companies (IOCs), which has been intense in recent times, is not unconnected to the oil theft menace. The oil majors have always complained that their cost of operation has ballooned and no longer bearable as a result of many security issues they have to deal with.
Figures of oil losses resulting from the menace, which are being reported by the authorities and the companies have reached an alarming rate that should ordinarily elicit concern, worry and deployment of systematic measures to tackle it.
Some concerned industry operators and policy experts had at many fora and at different times called for the designation of oil theft in the country as a national security emergency so as to collaboratively and holistically solve it.
Many had suggested the subjecting of the issue to a forensic and independent judicial inquiry so that everything and everyone involved in the matter will be unmasked, the actual volumes determined and a detailed action plan produced for a lasting solution.
For instance, a former board member of the Nigerian Extractive Industries Transparency Initiative (NEITI) and current Managing Partner at ENR Advisory, Mr. Gbite Adeniji, wondered why the federal government had not been able to subject the massive oil losses and attendant negative impact on the nation’s economy to an independent judicial inquiry to ascertain the cause and address the menace.
“Why has such a monumentally significant event not been subjected to an independent judicial inquiry to allow the country and the administration to fully understand the remote and the immediate cause of the loss of production of our economic oxygen.
“More also, given its wider applications for national and political security, it’s a big issue, this is a big deal. You cannot lose half of your oil production and just move on,” Adeniji said at a recent function.
IOCS, OTHERS EXPRESS FRUSTRATIONS
Being the most hit by the oil theft challenge owing to the huge investments they had made, the IOCs including Shell, Chevron, TotalEnergies, and ExxonMobil recently made a joint expression of their frustration over the escalating oil losses in the Niger Delta.
Speaking at a panel session at the just concluded Nigerian Oil and Gas Conference and Exhibition (NOG) 2022 in Abuja, the Managing Director of Shell Nigeria Limited, Mr. Osagie Okunbor, said the high oil losses caused by crude theft had resulted to Nigeria’s daily oil production declining from 1.8 million barrels per day in the last five years to just a little over 1 million bpd.
“In three to five years, we were bought from 1.8 million barrels a day to a little over 1 million barrels a day and frankly, most of that comes out of deepwater,” he said.
Okunbo also warned that the new marginal field licensees that will be operating Shell’s Oil Mining Lease (OML) 53 and 57 will experienced difficulties evacuating their products.
“So, our OML 53 and 57 marginal field licensees depending on how quickly they can bring production on stream, those who are on land, swamps and shallow water, evacuation is going to be an issue. So it’s an existential issue for us,” the Shell chief executive stated.
He pointed out that two of the most important oil pipelines in the country were currently shut down with hundreds of thousands of barrels a day shut-in.
Okunbor said: “We need to address it. If we don’t address it, we can do all the new oil developments, that will continue to occur. But what is really going to move the needle for us in terms of bridging this gap of hundreds of thousands of barrels a day is solving the evacuation problem.”
Similarly, Managing Director of Chevron Nigeria Limited and Chairman of the Oil Producers Trade Section (OPTS), Mr. Rick Kennedy, said while the industry stakeholders collaborate to fine-tune the Petroleum Industry Act (PIA) in a manner that offers encouragement to all players, it was also imperative for the oil theft challenge to be addressed by all parties.
“There is need for an unprecedented level of collaboration and partnership across industry, with the regulators, with the ministry and with the Nigerian National Petroleum Company (NNPC).
“And I think that will do us well going forward as we all take on the challenges ahead of us, including the high crude theft that we are going through. Let’s just carry on that collaborative mindset and ensure we address these challenges,” Kennedy said.
Executive Director at ExxonMobil Nigeria, Mr. Oladotun Isiaka, who represented the Managing Director, Mr. Richard Laing, said stakeholders should work together to tackle the oil theft challenge as it was impacting negatively on investments in the upstream sector.
Isiaka said: “I’m looking at this through the lenses of our own operations. And I see two things; when you talk about production, there are two variables in there. There’s capacity and there’s downtime. So security and the downtime aspect, and I agree it is existential.
“But when you talk about capacity, the key word I want folks to take away is the perspective of investment. So I just didn’t want the discussion to end there. There’s investment to drive the capacity. And then there’s the downtime aspect, which comes along with the crude losses”.
In his intervention, Managing Director of TotalEnergies EP Nigeria Limited, Mr. Mike Sangster, said crude oil theft had become an organised crime which was costing Nigeria about $10 million daily in accrued revenue.
He noted that the PIA had made provision for the Host Community Trust Fund which was a step in the right direction to empower the local communities and ensure a clear and consistent framework across the industry.
Sangster, however, warned that the host community provisions would not put an immediate end to the activities of crude oil thieves and pipeline vandals, which, he noted, had transcended into an organised crime and disrupting the operations of oil and gas companies.
He urged the government and industry stakeholders to find a lasting solution to the issue of vandalism in order to make Nigeria an investment destination for oil and gas companies.
IMPACT ON GDP
While the government’s revenues suffer the impact of the oil losses to theft, the country’s Gross Domestic Product (GDP) also feels the impact.
According to the Group Chief Executive Officer of Oando Plc, Mr. Wale Tinubu, the oil production decline has led to 7 to 10 per cent reduction in Nigeria’s GDP.
Noting that the decline in the nation’s production was alarming, Tinubu pointed out that there had been 43 per cent reduction in the production from March 2022 to May 2022.
He said Nigeria lost almost 20 per cent of its crude oil export to oil thieves and pipeline vandals, adding that 73 million barrels on average a year was lost to the same reason.
Tinubu said: “Now, these statistics are real, these challenges are real. Nigeria has experienced a 20 per cent reduction of our crude oil export, and from the environmental degradation point of view, then we have oil spills.
“From a GDP point of view, 7 to 10 per cent reduction in our GDP is indirectly caused by the reduction in oil production. Even when we were given 1.4 million barrels production quota by the Organisation of Petroleum Exporting Countries (OPEC), we were doing 1.1 million.
“I think, we will get to 1.8 million barrels very soon because OPEC’s agreement expires in September, it has been easing production by 400,000 barrels per day. We are not meeting our quota now and we cannot meet it by September. And in this timeframe, crude oil price has been $115 on average a barrel.”
He said it is now incumbent on the industry leaders to find solutions to the problem, saying the general thought process has always been that it is the government’s responsibility.
LNG PLANT ALSO IMPACTED
While oil producers grieve the pains of oil losses to theft, the Nigeria Liquefied Natural Gas (NLNG) Limited, also lamented the effect of oil thieves’ activities on its operation.
Lending his voice, Managing Director of the Nigeria Liquefied Natural Gas (NLNG) Limited, Dr. Philip Mshelbila, cautioned against pipeline vandalism, oil theft, illegal refining and illegal bunkering in the country.
He said the company has been experiencing decline in production owing to escalating third party infringement on oil and gas production assets across the Niger Delta region, revealing that its production has declined by 35 per cent in the last few months.
Mshelbila lamented that crude theft and vandalism were gradually strangulating Nigeria’s oil and gas sector.
He said: “We have been producing in the last month at about between 60 to 68 per cent production. In other words, roughly 35 per cent of our capacity is empty. There are many factors, but the biggest one of them is crude oil theft.
“ This is criminality, outright criminality, and it needs to be dealt with as such. This problem is gradually strangling our industry, and if we don’t fix it, it is the parasite that is going to kill its host,” he stressed.
FG EXPRESSES WORRY
Just last week, the Director General, Budget Office of the Federation, Ben Akabueze, stated that Joint Ventures (JVs) were the most hit and were bleeding the most as a result of rising crude oil theft and rampant destruction of oil production facilities across the country.
Akabueze, like many of the commentators on the massive oil losses, blamed Nigeria’s inability to meet OPEC’s quota due to “industrial scale crude oil theft and the rampant vandalism of crude oil facilities”.
Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Mr. Gbenga Komolafe, at a session in Lagos, last month, lamented the impact of skyrocketing oil losses on the nation’s economy, saying the rate of losses had reached an unprecedented and worrisome level.
He specifically disclosed that, in the first quarter of 2022, the country lost over 9 million barrels of oil valued at $1 billion when calculated using an average $116 per barrel oil price, or N434 billion at a N415/$ exchange rate, to crude oil theft.
According to him, 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.
However, the President of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Michael Olawale-Cole, stated that crude oil theft had taken a worrisome dimension in the Niger Delta and had spiked IOC’s production costs to $32 per barrel.
“Crude oil theft has taken a worrisome dimension, spiking production costs to $32 a barrel, losses from pipeline vandalism and theft are overwhelming IOCs. Several indigenous oil firms contend with rising operational expenses driven mostly by personnel, maintenance, and security costs,” he stated.
STATE OF EMERGENCY?
Worried by the escalating oil losses arising from crude theft and other factors, Chairman of AA Holdings and Vice Chairman of Platform Petroleum, Mr. Austin Avuru in March called for a state of emergency in the Nigerian oil and gas sector.
He revealed that up to 80 per cent of oil produced in the country, particularly in the East, was stolen, a situation he noted, called for an emergency action to address it.
He maintained that as far as 1990, Nigeria’s average daily oil production was about 1.85 million barrels per day when the country’s oil reserves at the time stood at about 16 billion barrels.
“Much worse, the entire export pipeline network has been surrendered to vandals and illegal ‘bunkerers’. Thus, the phrase ‘crude theft’ which crept into the industry about 2010 has taken on a new meaning,” Avuru stated.
Also, Chairman of TNOG Oil & Gas and Heirs Holdings, Mr. Tony Elumelu, had also condemned the worsening oil losses, stressing that about 95 per cent of oil production does not get to the terminal.
